Paragraph four of article 411-9 of the Civil Code of Catalonia provides that when there is more than one heir eligible for an inheritance, the situation of an unsettled inheritance is extinguished when the inheritance is accepted by one of the heirs. Furthermore, it adds that while the totality of those eligible do not accept or there is no frustration, the heir who has accepted shall carry out the ordinary administration of the inheritance, and if there is more than one heir, the administration will be governed by the rules of the community of heirs. The situation of community ceases with the division of the inheritance. As recalled in judgment of the Supreme Court 314/2015 of 12th June 2015 “as long as the inheritance remains undivided, none of the constituents of the community may be considered individually as a partner”.
The situation of the community of heirs arises when one of the eligible heirs accepts the inheritance, without the regulations requiring formal constitution. We may consider cases where some of the eligible heirs may not have accepted the inheritance, whereas others have. In spite of this, those who have not accepted still form a part of this community and decisions taken by the community of heirs must involve them, in the terms to be explained hereafter.
Powers of the community of heirs.
When more than one heir accepts the inheritance, the acts of management or ordinary administration of the inheritance shall be governed by the rules of the community of heirs. The aforementioned article of the Catalan Civil Code 411-9 (CCC) tells us that acts of administration of the inheritance shall be governed by the rules of the community of heirs; this refers us to article 552-7 of the CCC where two types of acts are presented:
(a) acts of ordinary administration, which shall be adopted by majority of the co-owners and shall be binding for all of them, dissenters included;
and
(b) acts of extraordinary administration, which shall be passed by a ¾ majority and where the dissident co-owners (co-heirs) may challenge the decisions before the courts.
When the inheritance is made up of shares or membership interests in companies, the situation of the community of heirs implies that the ownership thereof belongs to all those who form a part of the community of heirs, in accordance with the quotas held by each one of them in the succession. It is fundamental to understand when the community of heirs is recognised as a shareholder, how its decisions are formed and expressed and finally, to distinguish between actions of ordinary administration and those of extraordinary administration.
a) Pursuant to article 126 of the Capital Companies Act, with regard to the recognition of the community of heirs as shareholder or partner and the representation of the community of heirs in the company, in the event of co-ownership of shares or membership interest, the co-owners must designate a single person to exercise the rights of partner. This requirement calls for the appointment of a representative by those who form the community of heirs. That said, we have explained that the possibility exists that some of the eligible heirs have not accepted the inheritance whereas others have; also it has been mentioned that article 411-9 provides for the emergence of the community of heirs with the acceptance by at least one of the eligible heirs. This being the case, should the representative of the community of heirs be elected in a vote in which all those who are eligible to form part of the community of heirs participate? Our opinion is negative and the participation will only be required of the heirs who, forming a part of the community, have accepted the inheritance, given that if one of the eligible heirs has not accepted the inheritance (whether expressly or tacitly), a voluntary act of assumption of all or part of the hereditary assets and rights has not taken place and therefore, they should not and cannot actively participate in the administration thereof. What happens if those eligible have tacitly accepted the inheritance? In the event of a conflict among those who have accepted the inheritance, which would impede their meeting in order to appoint a representative of the community of heirs, those holding the majority of the undivided quotas of the inheritance could do so on their own. If such majority is not held, judicial or out-of-court mechanisms must be activated which allow the election of a representative or at the very least, which creates the possibility that all of the accepting heirs of the community of heirs may express their will with regard to the candidate of their choice.
Even assuming that the community of heirs appoints a representative; when can it start to exercise its rights in the company? The fact is that article 116 of the Spanish Companies Act provides that only those registered in the register book of shareholders or partners of the company shall be recognised as such. In this way, the condition of partner is acquired with registration (judgment of the supreme court 383/2016 of 6th June). However, it may be that the management of the company voluntarily declines the registration of the community of heirs in the register book of shareholders or partners, in spite of being aware of its existence and that of its duly elected representative. Consequently, for practical purposes, the condition of partner remains in the hands of the directors given that the formality of registration impedes the exercise of the corporate rights to the community of heirs, which must file for said registration through the courts, and may also exercise claims for damages against the directors for the damages caused. Even so, the mere judicial recognition of the community of heirs as shareholder does not exclude the formal obligation of registration in the register book, as a prior step to exercising their rights (judgment of the provincial court of Madrid 88/2012 of 13th March 2012). The community of heirs may also propose an application for the nullity of those meetings to which the community of heirs had the right to attend, but their presence was not accepted due to not being registered in the registry book of shareholders or partners.
b) With regard to the types of act which may be performed in the capacity of partner of the community of heirs, the answer is to determine its legal nature, which, without entering into the debate of the three doctrinal approaches, seems to be a mixed Roman and Germanic community. In any case, as article 552-7 of the CCC establishes which is the system for adopting agreements by the community of heirs within a company, whether they be ordinary acts or extraordinary acts of administration, the problem consists of distinguishing one from another in undefined situations. Accordingly, the judgment of the Provincial Court of Barcelona 1016/2020 of 3rd June delves into this issue, on the basis of the Supreme Court of Justice of Catalonia judgment of 1st December 2011, in which it was determined that “the ordinary or extraordinary nature of the decisions of the community must be assessed with reference to the internal relations of the company, distinguishing between the actions that do not alter the integrity of the assets of the community, and those which involve an act of disposal or a substantial modification of these elements”. In this context, the Judgment of the Provincial Court points out that the decisions on the vote in the shareholders meeting are not always an ordinary act of administration. In the same way, it deems extraordinary those decisions which “may compromise the common assets beyond the duration of the community”. Thus, the decisions which affect the management organ, such as the termination or appointment of new directors, should be considered as a mere act of management and should not alter the functioning of the company. On the other hand, the agreements which imply changes to the company bylaws are extraordinary acts, given that they can modify the system and the majorities required for adopting corporate agreements, and they can also involve structural changes which affect the company beyond a sporadic situation of community. The judgment stresses that these changes in the structure and the functioning of the company may hinder the normal functioning thereof, and therefore it is necessary to understand that extraordinary acts of administration are involved; these acts, when adopted by the community, may be the object of challenge due to being regarded as abusive or illicit.
Eduardo Vilá
Vilá Abogados
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16th July 2021
