The legal status of incorporated companies disappears with their extinction. This statement, at first glance, seems to draw critics and contradictory judgments in different instances of our judicial system.
There is no unified stance in terms of affirming that the company loses its legal status once the dissolution and liquidation deed of the company has been registered with the Commercial Register, and consequently, the registration entries regarding the company have been cancelled, and also what then happens to the liabilities emerging after the extinction of the company.
Royal Legislative Decree 1/2010 of 2 July, which approves the consolidated text of the Capital Companies Act (“LSC”), or Royal Decree 1784/1996 of 19 July, which in approving the Commercial Registry Regulations(“RRM”), do not respond to this question that is often raised in the market. While the first legal text describes the obligation to appoint liquidators as well as their functions and responsibilities (articles from 395 to 397), the second text mentions the obligation of the receiver to deposit certain documents along with the deed of extinction of the company regarding the cancellation of registry entries and the appearance of overdue assets (articles 247 and 248).
The problem posed arises from the logical reasoning that the safety of legal transactions is not trivial when a company with debts with third parties cannot be subjected to a claim once it has been dissolved and liquidated, therefore leaving creditors unprotected.
After delivering an opposing opinion, the plenary of the Civil Chamber of the Supreme Court, in Supreme Court judgment (STS) 324/2017 of 24 May, recognizes the legal status of dissolved and liquidated companies “for the sole purpose of completing their liquidation process“, unifying the doctrine of the Chamber.
The Civil Chamber of the Supreme Court states in the aforementioned ruling that “although the registration of the public deed of extinction and the cancellation of all the registered entries of the extinguished company implies, in principle, the loss of its legal status, in that it cannot operate in the market as such, it retains its status with regards to pending claims based on emerging liabilities, which should have formed part of the liquidation process. For these purposes, related to the company liquidation, the company continues to have legal status, and therefore the capacity to be a defending party.”
In this way, the Supreme Court aligns its statement with the resolution dated 14 December 2016 of the Directorate General of Registers and Public Notaries (Dirección General de los Registros y del Notariado – “DGRN”) and earlier resolutions, in which it argues that “after the cancellation (of all the registered entries) the legal status of the extinguished company still exists as a residual focus for allegation, so that the legal relations which this company maintain shall not disappear completely” and it strongly endorses the judgments of the same Chamber, 979/2011 of 27 December and 220/2013 of 20 March, which conclude that the possibility exists for legal proceedings against the extinguished company for commercial and registry purposes.
This unification of doctrine of the Civil Chamber of the Supreme Court ended the debate about the legal status of the extinguished Company, but it also raises a new question in Supreme Court judgment STS 324/2017 of 24 May. Why file a claim against the company, and not directly against its partners who would be joint and severally responsible for emerging liabilities?
According to the article 399.1 of LSC” The former partners shall be jointly and severally liable for unpaid company debts up to the limit of what they would have received as proceeds from the liquidation” though the Supreme Court qualified the above maintaining that“often in order to enforce the liability there is no need to file a claim against the company… depending on the type of credit, judicial recognition may be required, in which case it may be appropriate to file a claim against the company […] and therefore creditors are not deprived the possibility of addressing the company directly, under the representation of its liquidator, in order to claim the credit judicially“.
Marc Martínez
Vilá Abogados
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9th of June 2017
