Responsibility of Administrators in the Dissolution of Companies for Losses in Spain

The Corporate Enterprises Act establishes losses that reduce equity to an amount of less than half of the share capital as a cause of the dissolution of any capital-based company unless it increases or reduces to a sufficient extent provided it is not appropriate to request bankruptcy.

What occurs if the meeting fails to meet quorum requirements or if the agreement reached contradicts both questions?

In this case, the Corporate Enterprises Act provides that if the meeting was not called, did not take place, or did not adopt any of the planned agreements, any party may request the dissolution of the company before the judge of the registered office. The application for judicial dissolution should aim against the company.

Therefore, the administrators’ responsibility for this does not cease, and in this case, the administrators must seek judicial dissolution of the company when the company agreement was contrary to dissolution or had not been adopted.

The request must occur within two months from the date set for holding the meeting when it did not take place or from the date of the meeting when the dissolution agreement was opposed or not adopted.

Joint Responsibilities of Administrators in Spain

If the board of directors does not call the meeting, request judicial dissolution, or seek bankruptcy, the joint liability of the administrators arises.

The Corporate Enterprises Act notes that the administrators will respond jointly to the business obligations after the occurrence of the legal grounds for dissolution. The administrators are liable:

  • When they breach the obligation to call the general meeting within two months to adopt, where appropriate, the agreement of dissolution
  • When they do not request judicial dissolution, and
  • When they do not request, if necessary, the bankruptcy of the company within two months from the date set for holding the meeting where it did not take place, or from the date of the meeting when the agreement was contrary to dissolution.

In these cases, the disputes occur from a date after the legal grounds for dissolution of the company occur, except where the administrators can prove that they pre-date it.

Property Deterioration Losses in Spain

Although the annual accounts show that the company is in the situation described in the Corporate Enterprises Act (i.e. losses that leave its net assets (equity) below half of the share capital), the Royal Decree-Law 10/2008 of December 2008 established that this cause of dissolution does not recognise losses for deterioration recognized in the annual accounts derived from equipment, investment property, and stock or loans and receivables, which prevents companies with property from entering into dissolution for loss of value on these assets because of the crisis.

This exception provisionally applies to the years 2008 to 2013. However, it also extends to include the financial year ending in 2014.

How to Address Losses as a Cause of Dissolution in Spain?

One option is that the partners contribute to offset losses (i.e. a voluntary contribution to sinking costs to strengthen equity). This option is simple and affordable simply because it is in the agreement of the general meeting, which should reflect this in the company minutes. Therefore, it does not involve deed or registry costs.

Another option is to increase the capital of the company whereby the partners contribute but receive shares in the company. However, in this case, it would be necessary to register the deeds at the Registry. Even in some cases, it would be interesting to effectuate a capital reduction and increase.

For more information on administrators’ responsibilities in company dissolution in Spain,

Please note that this article is not intended to provide legal advice.

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