Prior to the reform introduced by the Law 11/2018 of 28th December, article 348 bis of the Spanish Companies Act (Ley de Sociedades de Capital – “LSC”) established that “From the fifth financial year after registration of the company in the Commercial Registry, a shareholder voting in favour of distribution of profits will be entitled to separate from the company if the general meeting does not resolve to distribute at least one third of the profits arising from the pursuit of the corporate purpose obtained during the prior financial year which are legally distributable”.
The Supreme Court, First Civil Chamber, demonstrated its interpretation of said article in its judgment 663/2020 of 10thDecember 2020. In this case, in the minutes of the shareholders’ meeting it was not possible to verify that the shareholders who sought to exercise their right to separation had voted expressly in favour of the distribution of dividends which they had called for. However, the shareholders voted against the application of the result to voluntary reserves and expressed their wish for it to be applied to dividends.
The Supreme Court deemed that, in spite of the literal nature of article 348 bis, it did not require that there should have been an explicit vote in favour of the said distribution on the part of the shareholder seeking to exercise his right of separation.
The purpose of the provision is to facilitate the minority shareholder with a way of reacting to the repeated failure to distribute dividends by means of systematic resolutions by the general meeting to apply distributable profits to reserves. That is to say, it is a minority instrument with regard to what judgment 873/2011 of 7th December distinctly called “the despotic rule of the majority”. And in order to exercise such right, the Law establishes certain requirements, among which is that the dissenting shareholder votes against the majority’s wishes. Therefore, in spite of the wording of the provision of article 348 bis of the LSC, it is not so much a matter of voting in favour of the distribution of dividends, but rather voting against the result being applied to other uses different to the distribution of dividends.
In this case the Provincial Court deems it to have been proven that the claimant shareholders voted against the application of the result to voluntary reserves and expressed their wish for it to be applied to dividends. It can therefore be discerned that there was an express declaration of will on the part of the shareholders at the general meeting for the result to applied to the distribution of dividends, which is what, for want of a better wording, the original version of article 348 bis of the LSC referred to, and which is corroborated by the current wording of the provision, when it reads “the general meeting does not resolve to distribute dividends”.
Law 11/2018 of 28th December modified article 348 bis and the current wording is as follows:
“a shareholder who has recorded a protest in the minutes against the insufficiency of the recognised dividends shall be entitled to separate if the general meeting does not resolve to distribute as dividend at least twenty-five percent of the legally distributable profits obtained during the previous financial year provided that profits have actually been made during the previous three financial years”.
With this amendment the vote in favour of the distribution of dividends was substituted by the recording in the minutes of “their protest against the insufficiency of the recognised dividends”.
Mika Tsuyuki
Vilá Abogados
For more information, please contact:
29th January 2021
