In a recent judgement dated 29th June 2016, the High Court confirmed its position regarding the interpretation of the deadline for taking legal action to obtain a court decision required to give effect to the resolution of the general meeting concerning the exclusion of a partner from a limited liability company.
The resolution for the exclusion of a partner of a limited liability company must be taken by the partners’ meeting with a reinforced quorum of 2/3 of the of the votes representing the participations (shares). The excluded partner may not participate in this decision and, furthermore, their votes are not taken into account for the calculation of the quorum. Consequently, it is not possible to exclude a partner with more than 33% of the votes.
In the case of the exclusion of a partner with a participation equal or greater than 25% of the share capital in addition to the resolution of the partners’ meeting, a final court judgement shall be required, whenever the excluded partner does not agree with the exclusion (article 352.2 of the Spanish Capital Companies Act “LSC”). The responsibility for obtaining the court ruling falls upon the company, and any of the partners who may have voted in favour of the resolution for exclusion shall be entitled to bring the exclusion proceedings on behalf of the company, when the company has not done so within the term of one month as from the date of adopting the resolution (article 352.3 of the LSC).
The interpretation of said term of one month has been dealt with by the High Court in the following case:
The resolution for the exclusion of a partner with 50% of the company participations (shares) was agreed in the general meeting dated 10th December 2010. However, given that the company did not bring the exclusion proceedings within the established term of one month, the other partner, with the remaining 50% participation (share) in the company, filed the claim on 29th May 2013. The claim requested that the resolution for the exclusion of the partner (shareholder) be declared valid and consistent with the Law, to which the defendant replied by insisting that the claim should be dismissed. The claim was in fact dismissed pursuant to the judgement passed in the first instance, however, on appeal the resolution for exclusion was qualified as valid and consistent with the Law. Therefore, the defendant filed a cassation appeal before the High Court.
The High Court stated the following:
“As established in article 352.3 of the LSC, it is the company which has the term of one month, as from the date of passing the resolution, to bring the exclusion proceedings set forth in section 2 of the same provision; and if said term elapses and it does not do so, the entitlement is passed on in subsidiary terms to any partner (shareholder) who may have voted in favour of the resolution, who must bring the action within the same term of one month, as from the moment in which they knew or should have known that the company had not done so. If, on the other hand, neither the company nor the entitled partner (shareholder) brings the action in those successive terms, the agreement adopted in the meeting shall lapse.”
That is to say that, the deadline of one month is a period which is granted to the company to obtain the court ruling, commencing from the moment that the resolution was agreed by the meeting. During this period, only the company is entitled to request the ruling, and once the previous deadline has passed, any of the partners may bring said action on behalf of the company since the entitlement is passed on to anyone of them. Meanwhile, the term in which the partner (shareholder) may bring the action for obtaining the court ruling is one month as from the moment in which it knew or should have known that the company had not brought the action.
Thus, it is understood that the above is derived from the doctrine referred to in the High Court Judgement TS 31/2003 of 9th April, which established that “it is not reasonable to maintain that the company has a very reduced deadline for taking action itself, that is to say, by its own representatives, but on the other hand, when it acts through its partners (shareholders) it has a more extensive deadline (…). Logically, the deadline should be the same.”
In this case, the first instance recognised that the plaintiff knew that the company had not brought the exclusion action, at least since 28th January 2011, therefore, the High Court decided to uphold the cassation appeal filed by the defendant, thus dismissing the judgement passed by the Provincial Court of Girona.
Mika Otomo
Vilá Abogados
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16th December 2016
