Fernando Vives of Garrigues in Madrid looks at the legislative changes helping Spain’s economic recovery
Art brings imagination to science
The debate as to whether Law is a science or an art is old as it is impossible to settle. While legal scholars have traditionally tended to come down on the scientific side of the equation, research and innovation taking up the lion’s share of their work, those of us daily dealing with its never-ending intricacies tend to see it as an art, in the absence of any hard and fast rules that enable us to practice law each day with any measure of absolute certainty.
One way or another, the fact remains that in recent semesters the emergence of new legal concepts and formulas in Spanish law has gathered pace (verging on a frenzy), bringing about wholesale changes to the way we go about our daily business.
Sculpturing new financial market
In just a few short months, the capital markets have been radically reshaped. Traditionally, the Spanish business community has for the most part turned to the banks in order to fund growth. However, in view of events in recent years (certain financial institutions were taken over by the FROB, the Banking Sector Restructuring Fund, leading to tighter investment controls and stricter risk policies, new banking regulations and more stringent capital requirements, to name but a few), companies have been flocking to the capital markets in ever greater numbers.
A new multilateral trading system has been set in place as an alternative financing channel to traditional bank funding, for companies on a sufficiently sure financial footing. Known as the MARF (Alternative Fixed-Income Market), this new market is aimed at qualified Spanish and foreign investors looking to diversify their portfolios with fixed-income securities in medium-sized, generally unlisted companies with bright prospects. This is an alternative, unofficial market, much like the Alternative Stock Exchange (the MAB) but for fixed-income securities.
Juggling with corporate governance
Nor has it been plain sailing, by any stretch of the imagination, on the corporate governance front.
For better or worse – there is little doubt, which in my mind – this state of affairs has left us lawyers with little choice but to become experts in change.
Which is no doubt precisely why, as an expert in change, I got the call from the government to form part of the committee of experts set up in 2013 to draft a report proposing amendments to Spanish corporate governance legislation.
Since our findings were unveiled back in October 2013, there has been no shortage of comments, opinions and critiques of the committee’s proposals, which, with the odd clarification here and there, now form part of the preliminary bill to reform the Corporate Companies Law.
The report, now the preliminary bill, contains a complete review of the applicable regime of the main governance issues in our corporate law, essentially revising those aspects with a bearing on investor protection, the directors’ statute, and the organization of boards of directors and their committees.
The proposed amendments seek to enhance the protection afforded to shareholders, mainly by introducing instruments to strengthen the role of the shareholders’ meeting in the system of corporate governance at companies and improve the regime governing shareholders’ right to information. With this in mind, the proposals are an attempt to preserve the delicate balance between the necessary respect for minority shareholders’ rights and the abuse of such rights, which, as far as the right to information is concerned, is a far more widespread practice than one might wish.
The amendments affecting the directors’ statute are the upshot of a wide-ranging debate on how best to structure relations between managers and shareholders. The reform is underpinned by two key elements: the duty of diligence and the duty of loyalty.
Another of the key aspects addressed by the report drawn up by the committee of experts, included in the bill, concerns the reform of directors’ compensation, and the role of shareholders’ meetings in setting such compensation: the focus of some of the most heated disputes between management and shareholders, and perhaps one of the issues that posed the greatest technical challenges.
Lastly, the preliminary bill ushers in certain changes to the structure, powers and operation of boards of directors. Generally speaking, the report sought to avoid placing excessive constraints on the organisation of companies’ managing bodies; above all where it proved all but impossible to establish a one-size-fits-all rule that suited the interests of companies across the board. Thus, organisational aspects such as dedication by directors, or the size or make-up of the board, will remain in the realm of soft law, or good governance recommendations, subject to the comply or explain principle.
The aim of the preliminary bill to reform the Corporate Companies Law, which has already initiated its parliamentary procedure and is expected to be passed after the summer break, is not limited to corporate governance issues. Thus, it is worth pointing out other key developments introduced by the bill.
Aware of globalisation, and of the necessity of removing obstacles that favor market fragmentation, the preliminary bill marks out the commercial matters which are of the exclusive jurisdiction of the central Government. Hence, the bill ensures that the issues falling under that scope will have the same regulation throughout the whole Spanish territory. However, the bill does not include a thorough compilation of commercial issues, excluding, among others, regulation related to distribution contracts, guarantee agreements (banking), or transactions in the stock market.
Another important change introduced by the preliminary bill is the minimum capital amount required for public limited companies, which has been increased up to €120,000.
Additionally, the preliminary bill includes the core principles of electronic trading together with the regulation of corporate service agreements rendered under IT networks.
Phoenix and regeneration
As the Greek myth, the Spanish Phoenix begins to arise from five years of powerful flames. Legislative changes, the emergence of new legal concepts and formulas, or the consolidation of alternative financing channels that approach us to our neighbour countries, favor the regeneration of the Spanish legal system. However, without the gift of time travel, we cannot predict if these changes will result in a long-living colorful and vibrant Phoenix. Until the unpredictable future arrives, efforts should be made to ensure that these past years of economic crisis have not been in vain.
About the author
Practices in the areas of corporate/M&A, private equity, securities market law, banking and finance and insurance. Specialises in major transactions including regulatory matters concerning listed companies. Most recently advised in the €405 million sale of Seguros Groupama (2012), the €6.5 billion merger of Iberia and British Airways (2011) or the €5 billion acquisition by BBVA of 24.9% in Garanti (2010).
Professional Memberships: Madrid Bar Association. Commercial Law Professor (ICADE).
Career: Doctor in law (Cum Laude) and law and economics graduate from ICADE. Joined Garrigues in 1986 becoming partner in 1998. Head of the Corporate/Commercial Law (2001-09). Managing Partner since September 2009.