Separation of shareholders
Article 348 bis of the Capital Companies Law finally entered into force on January 1, 2017. The article, which was enacted in 2011 but saw its entry into force delayed for nearly four and a half years, will allow shareholders of an unlisted company that has been formed more than five years, to separate from the company if its shareholders do not resolve to distribute a dividend of at least one third of the profits generated by the company in pursuing its corporate purpose.
The aim of this right of separation is to protect minority shareholders from potential abuses by majority shareholders in the form of a failure to distribute dividends, given that majority shareholders sometimes receive remuneration from the company in other forms. The right has sparked great interest, since shareholders who vote in favor of distributing dividends may exercise it within one month of the date of the shareholders’ meeting that did not approve the distribution. The right of separation means that the shareholder will be able to liquidate their holding in the company at the fair value agreed to by the company and the shareholder. In the absence of an agreement, the fair value will be determined by an independent expert appointed by the commercial registrar, which will trigger uncertainty for both the shareholder and the company when it comes to the price that should be paid to the outgoing shareholder.
This uncertainty, coupled with the company’s potential lack of funds to meet the payment for the holding of the outgoing shareholder, may at times cause the shareholders’ meeting to decide to approve the distribution of one third of the company’s profits and to therefore sacrifice investments it may have planned to make, at the expense of actual profitability for the shareholder.
Against this backdrop, it is important for directors not to forget that dividend distributions may be restricted in the agreements—mainly finance agreements—that the company has entered into, as they may trigger a breach of such agreements. In light of the above and the doubts of interpretation raised by the article, it will be essential to see how the courts interpret it.
Garrigues Corporate Law Department