What we did on our August vacation - new corporate legislation
Fernando Vives
Garrigues
Madrid
Fernando Vives (Bio)
It all happened last July, as if the lawmakers were wreaking some sort of revenge by weighing us lawyers down with new laws to study over the August vacation. Indeed, it was in the fields of corporate and financial law that they had been most prolific.
Capital companies law
The first new legislation to appear was the Legislative Royal Decree approving the Recast Text of Capital Companies Law. It was published on July 2, just two days before the bell rang on the Spanish government's time limit set forth in the Law on structural changes at commercial companies, for recasting into a single piece of legislation the various laws and codes on corporate enterprises (the Corporations Law, the Limited Liability Companies Law and certain chapters of the Commercial Code and the Securities Market Law). It came into effect on September 1 2010, except for Article 515 (lifting the limits on the voting power of any single shareholder at listed companies) which will not apply until July 1 2011.
The Capital Companies Law aims to bring together all the general provisions on corporate enterprises (Spanish corporations, limited liability companies and partnerships limited by shares), with no exceptions other than those in the Law on structural changes at commercial companies, approved in 2009. In tune with the mandate it had been given, the government's methodology was to regularise, clarify and harmonise the laws that had to be recast.
The first few months of the new bedrock legislation for Spanish corporate law have been quite successful. Under the camouflage of the recasting process, the lawmakers took the opportunity to add coherent solutions to some of the unfounded differences present in the treatments of the two legal forms. For instance, at limited liability companies, the preemptive right of acquisition in capital increases made with contributions in kind was suppressed (while this was the rule in corporations since mid 2009), and at corporations, the rules on dissolution and liquidation were updated to bring them into line with those applying at limited liability companies.
Those who think that the new Capital Companies Law is nothing more than a renumbering of the articles already existing in the previous legislation will be mistaken: bringing the provisions on corporations and limited liability companies together under the same roof has redrawn Spanish corporate law and, in practice, will bring the rules on both legal forms closer together. Indeed, at the time of writing these lines, a reform of the law in this direction is currently being discussed in the Parliament.
Savings banks
Hot on the heels of the new law, just a week later, on July 8, the Government launched a radical overhaul of the legislative framework for Spain's savings banks, in the form of Royal Decree-Law 11/2010 on governing bodies and other aspects of the legal framework for savings banks, which puts a new model in place for their organisation and management.
The new legislative framework aims to remedy one of the Spanish savings banks' basic handicaps; their limited ability to obtain funding on the markets. The unique characteristics of our Spanish savings banks, which are not capital-based entities, prevent them from attracting funds from investors wishing to acquire a comprehensively ownership stake in them and take part on their governing bodies.
Basically the new Royal Decree-Law offers two possible solutions to this dilemma: savings banks can issue equity units (cuotas participativas), which will now have nearly all the same rights as shares; or they can conduct their banking activities through a separate credit institution, controlled by one or more savings banks, which, under a form of an ordinary corporation, will have open access to the capital markets on the same terms and conditions as banks.
The new legislation also implements the obligation to raise the professional profile of the savings banks' governing bodies (and mitigate the political influence on these bodies), by requiring that the majority of their board members have the specific knowledge and experience required to carry out their activities (taken to mean that they have held, for not less than five years, senior executive, management, control or advisory positions at financial institutions, or positions with a similar level of responsibility at other public or private organisations of at least a comparable size).
Lastly, further touches were made to the regulatory landscape for savings banks by Royal Decree-Law 2/2011, of February 18 2011, on the strengthening of the financial system. By bringing the minimum core capital ratio up to 10% (as compared to the standard 8%) for all institutions that have not placed at least 20% of their capital with third parties and that also have wholesale funding ratios in excess of 20%, this legislation encourages (and in practice, in some cases even forces) savings banks to turn to the capital markets sooner rather than later. And so it is no surprise that several savings banks have now taken the first steps towards transferring their banking activities to corporate enterprises, ahead of stock market flotation.
It is certainly a paradoxical twist that savings banks will now be the protagonists of the first floats on the stock market under the new Capital Companies Law.