The Directorate General of Legal Security and Public Trust – DGLSPT (Dirección General de Seguridad Jurídica y Fe Pública-DGSJFP) issued a resolution on 28th February 2023 regarding an appeal filed against the refusal of the Registrar of the Commercial Registry of Seville to register a public deed of resolutions for a capital increase and modification of bylaws.
On 5th October 2022 the corporate resolutions of the company Tyrelastic Ruedas Industriales, S.L. (hereinafter, the “Company”) regarding a capital increase charged to reserves, and the consequent modification of the relevant article of the bylaws were executed in a public deed.
For the purposes of this article, it is worth mentioning that, on the audited balance sheet which served as the basis for the capital increase, the net worth appeared broken down into the following amounts
(i) Euro 39,000 of share capital;
(ii) Euro 87,605.04 of other reserves;
(iii) Euro 13,811.64 of results of previous financial years; and
(iv) Euro 68,477.74 of losses. These amounts resulted in a total of Euro 71,938.94.
The Registrar refused registration of the aforementioned agreements due to the insufficiency of the reserves for carrying out the capital increase. Accordingly, the Registrar stated that, in order for the Company to be able to draw on the reserves, it must first use them to offset losses, and subsequently examine whether the surplus equity would be sufficient to enable the capital increase to be carried out.
The Company was not in agreement with the Registrar’s refusal to register the corporate resolutions and lodged an appeal with the DGLSPT, consisting of the following arguments:
(i) that the balance sheet used for executing the Company resolution in a public deed was duly audited by a professional appointed by the Commercial Registry of Seville itself, who did not find any drawbacks and issued a favourable report.
(ii) that the results reflected on the balance sheet used did not correspond to a complete financial year, but rather to a period of just 4 months, and that there is no provision in the Spanish Companies Act (Ley de Sociedades de Capital – LSC) that expressly prohibits a capital increase charged to reserves if the balance sheet contains losses, and even more so when the losses do not refer to a complete final year, but only to a specific part thereof.
(iii) the corporate resolution respected the company principles relative to the share capital of the Company, having protective purposes such as the protection of third parties, as well as the partners. The corporate resolution did not imply any detriment to the equity of the Company.
The DGLSPT proceeded to settle the appeal, affirming that the matter raised consisted of deciding on the registration of a corporate resolution regarding a capital increase carried out through reserves, on the basis of a balance sheet in which, with a provisional negative result in respect of the current financial year in progress, the surplus of net worth does not provide the legally required cover in accordance with article 273.2 of the LSC.
Thus, the DGLSPT affirms that for the valid adoption of this resolution, it is necessary to prove that following the capital increase the value of the accounting net worth will exceed the figure of share capital by an amount at least equal to the amount of the increase, it being an essential requirement that said reserves are freely available. To this effect, the term freely available should be interpreted as freedom to apply the reserves for any purposes whatsoever, including their distribution to partners through the capital increase (in this respect giving a broad interpretation to article 273 of the LSC). Furthermore, the DGLSPT establishes the prior offsetting of losses as a requirement for their availability.
In line with the foregoing, if, following the compensation of the losses, the reserves do not meet the legal requirements stipulated for carrying out the capital increase through reserves, it shall be understood that the reserves are not available.
In view of the above, the DGLSPT dismissed the appeal filed by the Company, settling said matter via the principle of reality of the share capital, pursuant to which membership interests which are not covered by assets and certain precautions should not be created, which must be translated into the need for adequate justification of the effective existence of these funds in company net worth, and their availability to be transformed into share capital.
Diego Martínez-Costa
Vilá Abogados
For more information, please contact:
21st April 2023
