Spain: Main Innovations Introduced by Act 31/2014, which modifies the Spanish Capital Companies Act.

Spain

Main Innovations Introduced by Act 31/2014, which modifies the Spanish Capital Companies Act.

The Act 31/2014, which amends the Corporate Enterprises Act for the improvement of corporate governance, was published in the Official Gazette on 4 December 2014, and entered into force 24 December 2014. It is a deep modification of the Corporate Enterprises Act, and it is based on the growing interest in corporate governance. Relevant amends matters affect to: the General Meeting, the rights of the shareholders, the Governing body, the Directors, etc.

We would like to highlight the following ones:

  1. Amendments Relating to the General Meeting

Extension of General Meeting’s Competence

  • The amendment seeks to ensure that shareholders can decide separately on the appointment, re-election or removal of managers and statutory changes, and allows them to cast votes in a differentiated way.
  • The General Meeting may provide instructions on certain management issues unless otherwise provided in the company bylaws. In turn, it is attributed to the General Meeting the decisions on essential operations. It is presumed that essential operations are those that amount more than 25% of total value of the balance sheet assets.

Separate Vote

  • The article 197 bis is introduced, establishing that the votes should be cast separately in those proposed resolutions relating to issues that are “substantially independents.”

Conflicts of Interest with Shareholders

  • The amendment regulates in detail those conflicts of interest which can arise between the shareholders at the moment of exercise their vote in certain issues, such as granting them a right, exclude them from the company or provide them of any financial assistance, between many other issues. The shareholder who is in conflict with the company’s interests cannot vote the decision.
  1. Amendments relating to the Board of Directors

Competence of Board of Directors

  • The Board of Directors shall meet at least once a quarter, in order to maintain a constant presence in the life of the company. The directors must attend personally to the board meetings.
  • A new article is introduced, adding not delegable powers to the Board of Directors, in order to reserve the appropriate decisions to the Company’s core of management and supervision.

Company Administration

  • It expands and regulates with greater detail the duties of care and loyalty of Directors and the procedures to be followed in case of conflict of interest.
  • It expands the scope of responsibility beyond the compensation for damages, including the return of unjust enrichment. In turn, it facilitates the interposition of the corporate liability action decreasing the necessary participation and allowing direct interposition (without waiting for the board) for breaches of the duty of loyalty.

Director’s remuneration

  • The most remarkable novelty in this section is that the remuneration of directors must be reasonable, according to the financial situation of the company, the responsibilities allocated to them and, and to the market standards of similar companies. Furthermore, the remuneration system should be focused into promote the profitability and sustainability of the company in the long run
  • Directors with executive faculties shall enter into a written agreement with the company when they are remunerated for such functions. The agreement shall include the amount for any concept he could be paid, as well as any other benefits and/or compensation for the termination of the relationship.