Luis Prados Ramos



Credit compensation is one of the different variables of the equivalent value that serves as a hedge for a capital increase, along with monetary and non-monetary contributions and the transformation of reserves and/or undistributed profits, and in the case of companies anonymous conversion of debentures into shares.

It is a very frequent figure, but I believe that it is not treated with the seriousness it deserves, which can cause undesired commercial and tax effects, in the form of challenges or costs.

Among the causes that can cause these problems, is the forgetfulness by lawyers of the accounting aspects of any corporate operation, and in parallel the lack of familiarity of accountants with strictly legal terms.

As I have already pointed out in other entries, today, being used to dealing with accounting standards is essential to work on company law and this must be correctly reflected in the documentation of corporate agreements.

In the case of the capital increase due to credit compensation, the administrators' report, which must justify the proposal and be attached to the deed of execution of the agreement, must be especially technical, but unfortunately it is a matter that is often forgotten.

What is the capital increase by credit compensation?

From a purely accounting point of view The capital increase due to credit compensation is a transformation of a liability item into capital.

For various reasons, the company may need liquidity, and one of the ways it has to obtain it is financing from the partners.

Notwithstanding the recourse to financing by the partners, it usually takes place when the company has what is called a working capital of a negative nature. In this way, the partners compensate the gaps between collections and payments that the company must make. 

If the partners leave money to the company, in the assets of the balance sheet there must be, in any case, an increase in their treasury by the amount injected by the partners, which will be recorded in the accounts of the sub-group 57

But the counterparty in liabilities can be varied.

If a loan is really recognized between the company and the partners, except for better judgment, the account 163.- other long-term debts with related parties, is the appropriate one to record such loans, since they are loans with related parties, and have a maturity of more than one year.

If the contribution of the partners is to address a temporary gap between income and expenses, the account 118.- contributions from partners or owners, allows to reflect in the liabilities of the balance the amounts delivered by the partners or owners to compensate losses.

But the reality is that the account that is used most frequently is the 551.- checking account with partners and administrators, which are charged with the deliveries made by the company and are paid with the receipts in favor of the company.

The best option will depend on the accounting criteria applied, but giving precedence to the reality of the operation, and taking into account the tax regulations on related parties, included in article 18 LIS, which imposes, first of all, that operations carried out between individuals or related entities are valued at their market value (is the so-called primary adjustment); and that when the agreed value is different from the market value, the difference between both values will have, for the related persons or entities, the tax treatment that corresponds to the nature of the income revealed as a consequence of the existence of said difference. (it is the so-called secondary adjustment).

From a legal point of view , it is a compensation, that is to say, a way of extinguishing the obligation that the company has before the creditors, reinstating them, instead of money, shares or participations of the company.

Requirements of the capital increase for compensation of credits.

In addition to the general requirements for any capital increase required by article 296 LSC, in the sense that it will have to be agreed by the general meeting, with the requirements established for the modification of the bylaws.

Article 301 LSC requires other additional requirements:

1.- The credits must be fully liquid and payable. In public limited companies, at least twenty-five percent of the credits to be compensated must be liquid, expired and enforceable, and the maturity of the rest may not exceed five years.

2. At the time the general meeting is called, a report from the administrative body will be made available to the partners at the registered office, with detailed content, and in the case of public limited companies, verified by an auditor.

Problems of the capital increase due to credit compensation. 

There are fundamentally two problems posed by capital increases by compensation of credits: a) the necessary consent of the creditors and b) the risks of dilution of the participation in the capital of the other partners.

a.- The consent of the creditors.

The contribution of a credit to a company, as a counter value in a capital increase, requires, in any case, the consent of the credit holder and, in addition, the consent of the company, manifested through an agreement of the Shareholders' Meeting , with the corresponding qualified majority.

The capital increase by credit compensation is still a contract between the creditor and the company. What causes some confusion is that the consent of the company is manifested through an agreement of the Board of Partners.

The scheme through which a capital increase by compensation of credits is developed would be the following scheme:

a) the administrators of the company and the creditor set the compensation conditions; b) the administrators prepare a report justifying the capital increase; c) Meeting of partners is convened; d) and once approved by the Board, under the agreed terms, the creditor becomes a partner.

This iter, what happens is that on many occasions it is carried out in a single act, as happens in most small companies, where the agreement is adopted by the Universal Meeting and unanimously and the creditor is a partner of the company.

In these small companies, especially when they become conflictive and request the assistance of a notary at the Shareholders' Meeting, it is common to want to increase the share capital without the consent of the partner, and the notary must warn that this is not possible, unless ratify the agreement adopted.

The DGRN in resolution of  Resolution of November 30, 2012,  tells us that the capital increase by compensation of credits is "a legal transaction between the creditor that contributes to the company and the latter, which requires the concurrence of the requirements, which for all legal transactions, required by article 1261 of the Civil Code, therefore the express or tacit consent, of the contributor is essential for its existence”.

But the need for that express or tacit consent of the creditor does not imply that the creditor must appear in the deed of execution of the increase and consent to its content, it is sufficient, in my opinion, that that the administrator certifies that such consent has existed.

Therefore, going back to what we mentioned at the beginning of the entry, I want to highlight the especially technical nature that social agreements must have, and that unfortunately is not the case. In the same way as Commercial Law, it is something much broader than the relationships that companies have with the Commercial Registry.

For example, the consent of the creditor, when he is a partner, may result from his attendance at the Meeting, which will be evident when the certification of the corporate agreements contains the list of attendees, with the identifying data of each one of the partners ( which does not produce any problem in most societies) and their approval of the increase is recorded.

In the event that the creditor is not a member, if this were the case, a record of his presence at the Meeting and approval of its content could be made, or, in the event of not having been (since it is true that he does not have the right to estar) could certify the administrator, as his consent has been produced, through the well-known formula I ALSO CERTIFY...

But what is not possible is to extend rules designed for the Property Registry to the Mercantile Registry, and based on this, require the appearance in writing of the contributing creditor. It would be inconsistent with other resolutions that have admitted the registration in the Mercantile Registry for the liquidation of companies, granted exclusively by the liquidator, but which have later and rightly been rejected in the Property Registry, when it has been attempted to award a property to one of the partners, because as the DGRN Resolution of December 4, 2004  “(…) when it comes to registering such adjudications in the Property Registry and taking into account that the presumption of existence and belonging of the registered right to the registered owner would derive from the registration (cf. article 38 of the Mortgage Law), It is necessary, in accordance with the rules of real estate law, that in the qualification to which your practice is subject, it is appreciated if there is acceptance by the successful bidder with sufficient capacity, so that such end must result from the qualified deed (cf. article 18 of the Mortgage Law), by appearing on their own behalf or duly represented, without it being sufficient for this purpose the fact that the liquidator certifies the aforementioned corporate agreements, since their certification is nothing more than a private document, without the value and important effects that in our Law are attributed to the document authorized by a public official – cf. articles 1216 and 1218 of the Civil Code; and 1 and 17 bis.2.b) of the Law on Notaries”.

b.- The dilution of the participation of the partners.

Currently, there is only one preferential subscription right, in the cases of capital increases charged to monetary contributions. When we are in a capital increase due to compensation of credits, the partners or the rest of the partners may not have credits to compensate, but as a consequence of the increase they may be harmed, insofar as their participation in the social capital and social patrimony may be diminished.

The capital increase by compensation of credits will be correct, or at least it will have very few possibilities of being annulled in the event that it is challenged, when in addition to being in accordance with the Law, the bylaws or the regulations of the company's meeting, it does not damages the corporate interest for the benefit of one or more partners or third parties.

In this sense, it should be noted that the wording of the second paragraph of article 204.1 LSC that tells us that “Injury to the corporate interest also occurs when the agreement, even without causing damage to the corporate assets, is imposed abusively by the majority. It is understood that the agreement is imposed abusively when, without responding to a reasonable need of the company, it is adopted by the majority in their own interest and to the unjustified detriment of the other partners.

For this reason, and as we said before, also going back to the beginning of the entry, I want to re-emphasize the especially technical nature that corporate agreements must have, and the need for the administrators' report to be an authentic report.

Partial compensation of credits.

As a last question to comment, I would point out that credit compensation does not have to be total. That is to say that it could remain valid in only one amount. And that in the same way, the credit can be paid, partly in shares or social participations, and partly in cash or with other assets of the company.

I say the latter because the amount of the credits will never be round enough, so that it can be distributed among a number of shares of the nominal value of the existing ones.

Let's imagine that the credit is for the amount of 15,265.18 Euros and the value of the company shares is 30 Euros. It would only be possible to issue 508 shares for an amount of 15,240. Well, in these cases, the difference up to 15,265.18 euros, that is, 25.18 euros, can be paid from the company's treasury, which must also be reflected in the documentation of the corporate agreements. .


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