The purpose of this article is the analysis of the scope and limits of shareholders’ agreements as a consequence of the issue debated in Supreme Court judgment 120/2020 of 20th February.
First of all, before embarking on the examination of the case at hand, it is necessary to explain the concept of a shareholders’ agreement. If we turn to the case law of the High Court, we may extract as a definition of a shareholders’ agreement those agreements pursuant to which the shareholders intend to regulate, with binding force, aspects of the legal corporate relation without using the channels specifically provided in the law and the company bylaws for such purpose.
The validity of these agreements is currently admissible, unlike the legislation contained in the Spanish Joint-stock companies Act of 17th July 1951, which declared void secret pacts among shareholders. Likewise, we may point out that according to article 29 of the Spanish Companies Act “agreements not included in the bylaws shall not be enforceable in respect of the company.”, and as such they are not void, but unenforceable, when they are not given proper publicity.
With regard to the validity and limits of such agreements, relevant case law adds that they are valid provided they do not exceed the limits imposed upon the free will of the parties. Thus, the judgment of the Supreme Court 616/2012 of 23rd October, clarifies that these agreements are not subject to the provisions of the bylaws and company agreements, but to the limits contemplated for contracting, in article 1255 of the Spanish Civil Code, which reads: “The contracting parties may establish any covenants, clauses and conditions deemed convenient, provided that they are not contrary to the laws, to morals or to public order”.
The problem arises when the protocols are not in line with the company bylaws or they are not conveyed therein, or they are not publicised, which is what occurs in the case dealt with in the former judgment regarding a a limited liability company, in which the bylaws do not reflect the limitations to the transferability of membership interests contained in the partners (shareholders) agreements.
Accordingly, in previous judgments, the Supreme Court has declared that the infringement of a shareholders’ agreement is not sufficient for disputing agreements made to the contrary, if they do not at the same time breach the law, the bylaws or there is no damage to interests of the company to the benefit of one or more of the shareholders or third parties.
In the case tried in the judgment, the intention is not to challenge the company agreements, but a series of legal transactions (swaps, purchase and sale operations and donations of membership interests carried out by some partners). The claimant considered that these transactions went against the text of the partners’ (shareholders’) agreements, that were signed various decades ago, the purpose of which was to ensure an orderly succession of the companies of the group upon the death of the founding partners via this restriction mechanism on free transferability, with the obligation to maintain at all times the percentages of participation of the different partners in the group of companies.
It is true that there are legal principles that allow for the bylaws to establish a restriction upon the transferability of membership interests, as in the case of article 207 of the Spanish Companies Act regarding limited liability companies. However, the terms under which the partners’ (shareholders’) agreements were drawn up implied that this restriction had no limits and the intention was to permanently assign the established distribution of participation.
In view of this, the Supreme Court makes it clear that the indefinite or perpetual limitation cannot be applied, given that it not only infringes upon determined legal principles (article 107 and thereafter of the Spanish Companies Act), but it also breaches the basic legal principles of the concept of a company; as well as the freedom for contracting, and for personal and patrimonial disposition, etc.
Jaime Madero
Vilá Abogados
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30th April 2020
