The resolution of the Directorate General of Legal Security and Public Trust – GDLSPT (Dirección General de Seguridad Jurídica y Fe Pública-DGSJFP) of 6th July 2022 regarding the refusal of the Registrar of the Commercial Registry of Valencia to register a public deed of capital increase of a limited company was published in the Official Gazette on 1st August 2022.
In this case, the meeting, of a universal nature was held on 16th December 2021, and the resolutions were adopted unanimously. The text of the corresponding resolution read as follows:
To unanimously approve a capital increase, through the available company reserves, in accordance with the balance sheet closed at 30th June 2021, audited by an auditor designated by the Commercial Registry of Valencia. Finally, the public deed included the balance sheet that served as the basis for the capital increase, closed at 30th June 2021, and a copy of the audit report, dated 17th December 2021, was also attached.
The registrar suspended the registration for the following two reasons:
i) There is no indication that the balance sheet on which the transaction is based has been approved by the General Meeting; and
ii) The date of auditor’s report is subsequent to the date on which the Meeting was held.
An appeal was filed against this decision, with the following arguments:
i) The agreement was unanimously made in an universal meeting and therefore, it is assumed that upon approving the capital increase, the balance sheet is also approved.
ii) The requirement for the balance sheet to be approved by an auditor for capital increases through company reserves has a two-fold function: on the one hand, and vis-à-vis third parties, the company guarantees that the amount of capital to be increased is based on the company’s actual net worth, and that the principle of real capital is complied with; and on the other hand, it fulfils a function of informing partners and protecting their interests. The first function, in this case, has been complied with, in as much as the auditor’s report is incorporated into the public deed, thus the formalisation and execution of the resolution to increase capital takes place. Likewise, with regard to the second (an internal function), the registrar insists that the resolution must be adopted in the universal meeting by all of the partners.
The Directorate General upholds the appeal and revokes the registrar’s refusal based on the following grounds.
First the Directorate General recognises that amongst the resolutions of the meeting “there is no specific mention referring to the approval of the balance sheet which supports the operation, […]” and it is also on file that the date of the report is one day after the date of the meeting.
However, the Directorate General constantly reiterates the following with regard to this type of agreement “ the capital increase through company reserves is a modality of business self-financing, characterised by a simple accounting operation in so far as it implies a transfer of funds from one account to another in the liabilities section of the balance sheet, which as such, does not imply any quantitative alteration at all, given that own resources are the sum of capital and reserves and they will continue to be the same; and the same is true of equity”. “What it does mean is a qualitative modification of said equity, the funds thus transferred, are transferred from being available as reserves to being unavailable as capital. Therefore, the effective existence of these funds in the corporate assets and their availability to be transformed into capital must be duly justified, justification which, according to the legislator, must consist of a balance sheet duly verified (by the company’s Auditors or by an Auditor appointed, at the request of the Directors, by the commercial Registrar) and approved within a certain maximum period of time”.
According to the above perspective, the prior approval of the balance adds a further guarantee to the decision of the meeting, which would have been taken with reference to a specific balance sheet facilitated to the partners. Therefore, if said decision is taken in the universal meeting and it is unanimous, the guarantee that this prior approval implies wanes due to the will of the partners themselves.
With regard to the defect relating to the date of the auditor’s report, the Directorate General comments that it should be taken into account that the balance sheet submitted to the consideration of the meeting is the same as that which the auditors take into account for the formulation of their report. Likewise the Directorate General considers a resolution of 25th August 1998, in which, in a capital increase through company reserves, the subsequent elaboration of a balance sheet by the appropriate auditor was allowed as a means for amending a balance sheet produced by an auditor not appointed by the Commercial Registry. It was considered that the function of guaranteeing the fruition of the capital increase, as well as that of informing the partners that the balance sheet fulfils its purpose, were adequately complied with, invoking, in support of its decision “the desirability of maintaining the validity of the proceedings and avoiding considerable costs and delays, to the extent that this is legally possible and does not result in prejudice to any of the interested parties”.
Vilá Abogados
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14th October 2022
