2020 Losses Will Temporarily Not Count as Cause for Dissolution of Companies in Spain

Published on 2 June 2021

The Spanish Law on Capital Stock Companies (Ley de Sociedades de Capital) establishes that a company has an objective cause for dissolution when losses decrease net equity to an amount equal to less than half of its capital. Within two months of when the governing body learns or should have learned of said situation, it must call the shareholders to a meeting to adopt the necessary corrective measures, proceed with dissolution of the company or request a declaration of insolvency. Failure to comply with this obligation implies that the director is jointly and severally liable for the corporate obligations subsequent to the occurrence of the legal cause for dissolution.

As a consequence of the pandemic, the Spanish government has approved different measures to mitigate its economic consequences, among which is Article 13 of Law 3/2020 of 18 September (the “Law”) which establishes that “only for the purposes of determining the occurrence of the cause for dissolution foreseen in (…) the Law on Capital Stock Companies, the losses of financial year 2020 will not be taken into consideration.” With respect to this specific measure, we already have an antecedent when, motivated by the real estate crisis of 2008, the government relaxed this rule by virtue of Royal Decree-Law 10/2008.

In the grounds for the Law it is explained that the purpose is that directors have sufficient time to adopt measures intended to correct said situation, such as restructuring debt, obtaining liquidity and compensating losses, whether by recovery of its normal activity or by access to credit or public subsidies. For this reason, if, as a consequence of losses generated in 2020, a company found itself with a cause for dissolution, the obligation for the directors to call the shareholders to a meeting would be suspended.

With respect to losses occurring in 2021, the applicable regime is the standard one. Thus, if the cause for dissolution due to losses arises, the directors must call the shareholders to a meeting within two months of the close of said financial year.

The question lies in determining whether the losses generated in 2020 are “eliminated” and are not taken into account ever or, on the contrary, they “remain” exceptionally without consequence and it is at the end of financial 2021 when it should be seen if there is (including losses from 2020) cause for dissolution or if the directors have resolved this situation. It seems as though this latter stance is the most reasonable.

Considering that the expected recovery for this year will not be sufficient to cushion the losses generated, new regulations or amendments to those in force are awaited in this respect.