The Dissolution of a Company in Spain due to Losses

The dissolution of a company due to losses in Spain is an especially relevant issue in times of economic crisis in which many companies close their practices with heavy losses.

The following points include the relevant aspects surrounding this cause of dissolution of a company:

Losses as a Cause of Dissolution of a Company and Agreement of the General Meeting in Spain

The Corporate Enterprises Act (La Ley de Sociedades de Capital or LSC) establishes that losses that reduce equity to an amount of less than half of the share capital may present the appropriate circumstances for cause for dissolution of any capital-based company, unless it increases or reduces to a sufficient extent and the circumstances are not appropriate to request bankruptcy.

Although losses may justify a legal cause for dissolution, dissolution does not take place automatically but instead requires the prior agreement of a general meeting.  The Corporate Enterprises Act imposes this requirement  and facilitates the agreement in the same way for both corporations and limited companies, which an ordinary majority adopts.

Majorities: In limited liability companies (SRL), a majority of the valid votes may adopt corporate resolutions provided they represent at least one-third of the votes corresponding to the shares into which the share capital is divided.  Blank ballot papers do not count toward the majority of valid votes.

In corporations (SA), an ordinary majority of the votes of the shareholders present or represented may adopt corporate resolutions.

Formation of the general meeting of corporations: In corporations, the general meeting of shareholders is valid upon the first call when the shareholders present or represented hold at least 25% of the share capital with voting rights.  However, statutes may fix a higher quorum.  Upon the second call, the meeting is valid whatever the capital attending, unless the statutes set a certain quorum, which must be lower than that which law establishes or requires for the first summons.

The Administrator’s Duty to Call the Meeting in Spain

However, for this general meeting to take place, it is necessary that the board of directors calls it.  For these purposes, the Corporate Enterprises Act expressly provides that the directors shall call a general meeting within two months to adopt the dissolution agreement, or, if the company were insolvent, to seek bankruptcy.

Although not stated in the Corporate Enterprises Act, the administrator must call the general meeting within two months from the time of approval of the annual accounts by the general meeting, without making any other agreement for removal of the cause when based on a true and fair image of the company and its outcomes that result from these accounts.

The Corporate Enterprises Act does not specify whether it is necessary that the agenda state not only the dissolution agreement of the company but also the alternative of seeking bankruptcy.  However, it is important to understand that the agenda should set out the choice between agreeing on dissolution and seeking bankruptcy.  If the second possibility were not included, the company could only agree on the dissolution, preventing the application for declaration of bankruptcy by agreement at the meeting, although not ruling out the other possibilities permitted in the Bankruptcy Act.

This article is not considered as legal advice

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