Limitation of dividends distribution and shareholder’s right of separation

Coronavirus News, Featured News, Legal News

ROYAL DECREE-LAW 18/2020, OF MAY 12, ON SOCIAL MEASURES IN DEFENSE OF EMPLOYMENT (BOE OF MAY 13, 2020)

Despite its name, this last Royal Decree Law takes advantage of its article 5.2 to regulate important aspects in purely commercial matters that will affect entities with more than 50 employees:

  • The distribution of dividends is limited and, likewise,
  • In the absence of dividends distribution, the exercise of the shareholders’ right of separation, as provided under article348 bis of the Companies Law, is also limited.

Given the current crisis, some companies will most likely decide not to make any cash distribution, while  others may have been considering the idea of distributing dividends. Some of them may have even already foreseen such distribution it in their proposal of allocation of the result for financial year 2019 before the State Alarm was declared.

Several issues should be noted:

  • Dividends corresponding to a financial year during which temporary employment suspension or reduction (ERTE) is in force on the grounds of force majeure reasons which prevent its activity from resuming may not be distributed.
  • These limitations will affect companies or other legal entities that avail themselves of the ERTEs regulated in article 1 of this Royal Decree-Law 18/2020:
  • Namely, those files of contract suspensions and working hours reductions that have their direct cause in loss of activity as a consequence of COVID-19 (ex-article 22 of Royal Decree-Law 8/2020, of March 17).
  • Becoming more flexible and allowing from now on that this restart of activity can be «total» or «partial».
  • It is understood, therefore, that entities that have an ERTE may distribute dividends corresponding to financial year 2019 but may not distribute those corresponding to the 2020 and subsequent financial years in which any ERTE is applied due to force majeure.
  • The dividends corresponding to the 2020 financial year may be distributed within the exception provided in this article 5.2, which is that the amount corresponding to the exemption on the social security contributions is previously paid.
  • Article 5.2 itself also establishes that the year in which a company does not distribute dividends due to this limitation will be taken into account for the purposes of exercising the right of separation of the members of article 348.1 bis of the Consolidated text of the Capital Companies Law.
  • The limitation to the distribution of dividends will not apply to those entities that have less than 50 workers, or assimilated to them, in a situation of registration with Social Security, as of February 29, 2020.
  • Being questionable what will be understood as people “assimilated” to workers.

RETROACTIVE APPLICATION?

Likewise, the retroactive application of this Royal Decree-Law 18/2020 to companies that have already submitted and / or approved an ERTE before its entry into force is questionable, since retroactivity is foreseen in our legal system as an exceptional rule and for the application of more beneficial standards. However, it is possible that the relaxation of ERTEs could be considered as more beneficial for employers, but it could be debatable that it is so for employees.

 

  • We will be happy to assist you at any of our office for any of the above mentioned specific matters or any other: CONTACT US
  • To keep up to date with news related to tax, labor and legal issues in relation to COVID-19, follow us on social media (FacebookTwitter, Linkedin, Youtube).

Redomiciliation of Foreign Companies to Spain

When we speak of redomiciliation or transfer of registered office of a company, it is not just a change of the effective address or a change of the tax address of the commercial company. It…
Menu