Some time ago my friend José María, an auditor, decided not to proceed with two company spin-offs, one of which was his property, because he had received news that a certain financial institution, with which one of the companies he intended to spin-off had arranged a mortgage loan, had an alert system for merger and spin-off procedures in which companies in its debt might be involved, with the aim of opposing it.
The opinion of both was that the spin-off was actually of no concern to that financial institution, since its debt was sufficiently guaranteed by a mortgage, but the truth is that in the face of the more than probable opposition, the operation to spin off their company was not carried out.
It was 2011, and since then until now, two important events have occurred.:
One, the approval of Law 1/2012 of June 22, on the simplification of information and documentation obligations for mergers and spin-offs of capital companies, which modifies article 44 of the Law on Structural Modifications, with the aim of moderating the force of the exercise of the creditor's right of opposition in these merger and spin-off processes.
And another, the doctrine of the General Directorate of Registries and Notaries, which interprets what the right of opposition means today in merger and demerger procedures, as a consequence of that law 1/2012, and which has been necessary due to the inconsistencies of the law, which perhaps has its reason in the process of drafting laws and their successive reforms, which sometimes generates contradictory texts, and the lack of adaptation of the Commercial Registry Regulations (the current text is from 1996) to the substantive regulation contained in the Law of Structural Modifications of 2009.
I can assure you that the lack of coordination between the Commercial Registry Regulations and the Law on Structural Modifications is causing great fear among lawyers and tax consultancies.
The General Directorate of Registries and Notaries has referred to this issue of the position of creditors in merger and demerger procedures in its recent resolution of 4 November 2015, which follows the doctrine of the previous Resolutions of 15 October and 5 and 6 November 2015. The factual situation of this 2015 resolution is a deed of registration of corporate agreements to the public, by virtue of which a company unanimously agreed to a partial demerger with the transfer of part of its corporate assets (the part of the assets and liabilities dedicated exclusively to leasing real estate) to a newly created limited liability company. In the deed, the directors of the demerged company state that "Caixabank, SA" (the alert system entity) has opposed the spin-off on the grounds that it has a mortgage loan against that company and that, nevertheless, said loan is sufficiently guaranteed.
The Registrar considered that such a deed was not registrable, for arguments that essentially derived from demanding, cumulatively, the requirements provided for in the law both for the reduction of capital and for spin-offs, since in the specific case the spin-off entailed a reduction of capital.
The Notary who filed the appeal said that what the registrar was demanding was meaningless and was a formalistic requirement that was useless.
The General Directorate of Registries and Notaries issues a statement on the matter, stating that when the legislator chooses to regulate, through a specific law, the processes of corporate structural modifications, mainly transformation, merger and demerger, establishing specialities both in terms of the internal requirements to be met in order to carry out said modifications, as well as in terms of the external requirements, it is because the legislator considers that these structural modifications have their own characterisation that goes beyond a mere sum of statutory modifications, and that they deserve specific regulation and at the same time a global regulation of the structural modification process, therefore with an independent entity as to provide them with a special regulation included in the Law on Structural Modifications, which, as provided for in this particular rule, must prevail over the general regulation of each of the partial aspects that occur in said structural modification and which is included in the Law on Capital Companies.
However, the most interesting thing is what it says about the position of creditors in merger and demerger procedures, a matter regulated in article 44 of the Law on Structural Modifications, signed Creditors' right of opposition, which states:
1.-The merger may not be carried out before one month has elapsed, counting from the date of publication of the last announcement of the agreement approving the merger or, in the case of written communication to all partners and creditors, from the sending of the communication to the last of them.
2.- Within this period, the creditors of each of the merging companies whose credit arose before the date of the insertion of the merger plan on the company's website or of the deposit of said plan in the Commercial Registry and had not expired at that time, may oppose the merger until such credits are guaranteed. If the merger plan has not been inserted on the company's website or deposited in the competent Commercial Registry, the date of the credit's origin must have been prior to the date of publication of the merger agreement or of the individual communication of said agreement to the creditor.
Bondholders may exercise the right of opposition under the same terms as the other creditors, unless the merger has been approved by the bondholders' meeting.
Creditors whose claims are already enough guaranteed will not have the right to object.
3.- In cases where creditors have the right to oppose the merger, the merger may not be carried out until the company presents a guarantee to the creditor's satisfaction or, otherwise, until it notifies said creditor of the provision of joint and several guarantee in favour of the company by a credit institution duly authorised to provide it, for the amount of the credit held by the creditor, and until the action to demand its compliance has prescribed.
4.- If the merger had been carried out despite the exercise, in time and form, of the right of opposition by a legitimate creditor, without observing the provisions of the previous section, the creditor who had objected may request the Commercial Registry in which the merger has been registered that, by means of a note in the margin of the registration made, the exercise of the right of opposition be recorded.
The registrar will make a marginal note if the applicant proves that he has exercised, in due time and form, the right of opposition by means of a reliable communication to the company of which he is a creditor. The marginal note will be cancelled ex officio six months from its date, unless a preventive note has previously been made to record the filing of a claim before the Commercial Court against the acquiring company or against the new company in which the provision of a guarantee for the payment of the credit is requested in accordance with the provisions of this Law..
Sections 2 and 4 of this article are a consequence of Law 1/2012, of June 22, on the simplification of information and documentation obligations for mergers and demergers of capital companies.
The previous paragraph 2 said of article 44 LME He said: “Within this period, creditors of each of the merging companies whose claims arose before the date of publication of the merger plan, have not matured at that time and until such claims are guaranteed may oppose the merger. Creditors whose claims are already sufficiently guaranteed shall not enjoy this right to oppose the merger.
For its part, section 4 was introduced ex novo.
The amendment to 44.2 LME is fundamentally related to a question of time calculation, but the problem that the position of creditors in merger and demerger procedures posed from the start was that, on the one hand, they were granted a right of opposition, unless their credits were sufficiently guaranteed and, on the other hand, that without the consent of the creditor, it could not be demonstrated that the credit was sufficiently guaranteed, which meant that this right of opposition became a right of veto, unless the debtor resorted to judicial proceedings.
This system came from the 1951 Law on Public Limited Companies (articles 145 and 146), which established the right of opposition of creditors as a determining element of the effectiveness of the merger to the point that, if the outstanding credits were not satisfied or if the security was not provided to the satisfaction of the opposing creditor, the transaction could not display the effects provided for in the law. And this was reflected in very similar terms in article 243 of the revised text of the 1989 Law on Public Limited Companies, which referred to the regime established for cases of reduction of share capital in article 166, from where it was passed on to article 44.3 of Law 3/2009, of April 3, on structural modifications of commercial companies.
The regulation was completed with the provision of the Commercial Registry Regulations which in its article 227.2.2.ª established as a requirement for the public deed subject to registration: "2. The declaration of the respective grantors on the absence of opposition on the part of creditors and bondholders or, where applicable, the identity of those who have objected, the amount of their credit and the guarantees that the company has provided."
From the debtor's initiative to the creditor's.
This system is introduced with the introduction of section 4 of article 44 of the Law on Structural Modifications, as it allows companies to carry out the merger or spin-off without providing sufficient guarantees, despite the creditor's opposition. to the satisfaction of the creditor or without presenting joint and several guarantees from a credit institution.
This provision obliges the creditor to take an active stance in the defence of his credit, but not to merely paralyse the procedure, as he is recognised as having the right to go to the Commercial Court to claim the provision of a guarantee for the payment of his credit and even to record in advance in the corresponding folio of the Commercial Registry the fact of the exercise of his right of opposition, but without in any case impeding the effectiveness of the merger transaction.
That is to say, in the absence of an agreement on the sufficiency of the guarantee or the provision of security by a credit institution, the conflict generated between the creditors and the companies involved in the merger or demerger has its adequate response in its own sphere, the judicial sphere, without prejudice to the full effectiveness of the merger achieved through its registration in the Commercial Registry (article 46.1 of Law 3/2009), without the wording of article 227 of the Commercial Registry Regulations being an impediment to the previous statements because, as the General Directorate has stated (Resolution of May 9, 2014), the interpretation of said article, being adjective, must be accommodated to the current wording of Law 3/2009, so that now that the unsatisfied right of opposition is not an impediment to registration, this must be carried out without prejudice to the registrar making the marginal note referred to in the fourth paragraph of article 44 if so requested by the creditor.
The responsibility of administrators
All of the above does not mean that the merger or spin-off may be carried out without the credits being sufficiently guaranteed, since in such cases the directors must refrain from executing it and register it.
However, if they execute it, in order to register it, they must state in the deed that there has been no opposition from the creditors or that, despite the opposition, they consider that the credits are sufficiently guaranteed, with the liability that this entails, if it were a false statement.
The problem that may arise is what happens to the creditors, that do not have real or personal guarantee, That is, whether a credit can be considered sufficiently guaranteed by the fact that the solvency of the company resulting from the merger will be equal to or greater than the solvency that the merged debtor had before the merger, on which the creditor relied when granting the financing. The law seems to start from the hypothesis that any structural modification process will be detrimental to the debtor's financial solvency, in which case the opposition of the creditors should paralyze the merger or spin-off.
Lleida, December 9, 2015.
