The Reform of the Companies Act in Spain

The Council of Ministers has approved the submission to the Parliament of the Draft Law on the Capital Companies Act, which aims to improve the corporate governance system of the companies.

This article contains a summary of the proposed requirements of the Draft Law.

Management of the company in Spain

For all companies

  • Duties and the Liability Regime of the Administrators: The duties of diligence and loyalty and procedures to follow in case of conflict of interest are classified more precisely.

The scope of liability extends to include the return of unjust enrichment.  Bringing social responsibility action may occur by reducing the required participation (from five to three out of 100 listed companies) and allowing direct filing (without waiting for the board) for breach of the duty of loyalty.

  • Competence of the Administrative Board: The Draft Law includes a new article, which confers the exclusive competence to the board to provide the right to make the essential decisions about management and supervision matters of the company.

For listed Companies

  • Composition:  Selection procedures for the appointment of directors will facilitate the appointments of female directors.
  • Chairperson and Executive Director:  When the same person holds both of these positions, the appointment of the chairperson of the board shall require the favourable vote of two-thirds of the board members.  In addition, a coordinating director should also be appointed among them (lead independent director), and this person will be empowered to request the calling of the board, expand the agenda, coordinate non-executive directors, and direct the evaluation of the chairperson.
  • Evaluation of the board and its committees:  The board shall conduct an annual evaluation of its performance as well as the performance of its committees.
  • The Appointment and Remuneration Committee: The governing boards must constitute the Appointment and Remuneration Committee. The Appointment and Remuneration Committee will set as its objective the representation of the underrepresented sex on the administrative board and develop the guidelines on how to achieve this objective.
  • Competence:  Fiscal risk falls within the risk control and management policy as an exclusive function of the board, which includes the approving of investments and transactions that have special fiscal risk and the setting of the fiscal strategy of the company.
  • The Administrator’s Term of Office: A proposal exists to establish that the maximum length of each appointment does not exceed four years compared to the current term of six years.

Remuneration of directors in Spain

For all companies

  • Programmatic References:  The remuneration of the directors shall be reasonable according to the economic situation of the company and the roles and responsibilities delegated to them. The reward system should promote the profitability and sustainability of the company over the long term.
  • Chief Executive Officers (CEOs):  The remuneration system is classified by the exercise of the executive powers of the CEOs.  In this case, a contract with the officer that details the wage components should be signed and approved by a qualified majority of the Council with the abstention of the stakeholders.

For listed Companies:

  • Remuneration Policy:  The board must approve this policy by a binding vote upon a report of the Appointment and Remuneration Committee at least every three years.  This policy shall include at least:
    • The total remuneration to CEOs
    • The remuneration system of executive directors including a description of the components, the overall amount of fixed annual remuneration and any variations during the reference period, the pricing parameters of the remaining components, and all terms and conditions of their contracts such as premiums, allowances, etc.
  • The board shall decide on the individual distribution, which must always fall within the remuneration policy
  • Any changes will require board approval, and no payment may occur without prior board approval
  • Annual Report on Remuneration:  Remuneration will continue to be the subject of an advisory vote of the board; however, in the case of a negative vote, a new proposal for remuneration policy should be made.

Other modifications in Spain

There exists an obligation to publish the average payment period for the suppliers in the annual financial report.  Companies, which are not listed and do not file abbreviated annual accounts, will also publish this information on their website if they have one.

Similarly, listed limited liability companies shall publish on their websites the average payment period for their suppliers.

For additional information regarding the Companies Act in Spain,

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

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