The Right of exit of the Shareholder with the Entry into Force of Article 348. bis

Article 348.bis, which recognizes the right of exit of the minority shareholder due to failure to distribute dividends, has entered into force in Spain on the 1st January 2017. This article, which was included in the Corporate Enterprises Act (the CEA) approved on the 2nd of October 2011, was suspended by Law 1/2012 of the 22nd of June, on the simplification of reporting and documentation obligations of mergers and divisions of corporate enterprises, through a new transitional provision of the CEA. The Law suspended the entry into force of the article of the CEA until this year.

Already during the short period that the article has been in force, numerous debated controversies have arisen both in our doctrine as well as in the jurisprudence, on different aspects. In terms of the convenience of the existence of the article, the requirements for its application, the possibility of regulating this right of exit through shareholders’ agreements and, where applicable, the procedure for assessing the participations/shares of the shareholder exercising the right of exit.

Requirements to exercise the right of exit of the minority shareholder

As it is written in the article 348.bis, the requirements that must be met for a minority shareholder to exercise the right of exit due to failure to distribute dividends are the following:

• That the general meeting of shareholders does not agree to distribute at least one third of the legally distributable profits arising from the company’s main business activities during the previous financial year: In this sense, extraordinary or unusual profits would not be taken into consideration provided that their amount is significant and non-recurring, in other words, those that do not correspond to the ordinary activity of the company
• That the shareholder who requests the right of exit has voted in favor of the distribution of dividends
• That the company has been registered in the Companies Register for five years
• That the profits are legally distributable: i.e., the legal and statutory reserves that are applicable must be provided beforehand
• The deadline for exercising exit rights shall be one month from the date of the shareholders’ ordinary general meeting.

Although at first the above mentioned article intends to protect the minority shareholders from the abuse of the majority, it must not be forgotten that the entry into force of the article 348.bis undermines the freedom of the majority when making decisions by putting the lucrative aim of the company before the benefit of the social interest, without taking into account patrimonial and financial situation of the company.

Additionally, although the wording of the article does not expressly indicates that this right will be an imperative unless otherwise agreed by the bylaws, there is a jurisprudential aspect that this right can be regulated (and even excluded) by the bylaws or shareholders’ agreements. As a regulatory rule of internal relations between the company and the partners, its regulation through private agreements is completely allowed.

Finally, it should be noted that if the minority shareholder decides to exercise its right of exit from the company, the shareholder must follow the procedure established in articles 353 et seq. of the CEA, which establish that, in the first instant, the value of the participations/shares must be valued between the shareholder and the company. In the case of an absence of agreement on the fair value of the company’s participations/shares, or on the person or people who must value them and the procedure to be followed for their valuation, the participations/shares will be valued by an auditor, other than the company’s auditor, designated by the Companies Register of the registered office at the request of the company or of any of the shareholders who hold the participations/shares subject to valuation.

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