Key Aspects of the New Regulation Following the Entry into Force of RDL 5/2023

1. Approval, Scope of Application, and Entry into Force

On July 29, 2023, the new regulations applicable to structural changes in commercial companies came into force as regulated in Book One of Real Decreto Ley (a type of regulation) 5/2023, which adopts and extends certain measures in response to the economic and social consequences of the Ukraine War, supports the reconstruction of La Palma island and other situations of vulnerability, transposes EU Directives on structural changes in commercial companies, and reconciles family and professional life of parents and caregivers, and enforces compliance with EU law ("RDL 5/2023").

Book One of RDL 5/2023 ("LME") transposes Directive (EU) 2019/2121 of the European Parliament and of the Council of November 27, 2019, amending Directive (EU) 2017/1132 concerning cross-border transformations, mergers, and divisions, and repeals in its entirety the previous Law 3/2009 of April 3 on structural changes of commercial companies (which will continue to apply only to structural changes of commercial companies whose projects were approved by the companies involved before the entry into force of the LME).

2. Key Aspects

Without aiming to be exhaustive, we enumerate below several aspects that, in our opinion, are relevant following the entry into force of the LME:

• There is a change in the structure of the LME, which now regulates, in Title I, the common matters of different structural changes, and in Title II, the specific issues of each (transformation, merger, division, and global transfer of assets and liabilities).
• Specific titles are dedicated to intra-European (Title III) and extra-European (Title IV) structural changes, which substantially share their essential regulation.
• Regarding shareholder protection:
  • The right of the shareholder to sell their shares or participations in the event they voted against the approval of the corresponding project is consolidated, extending to non-voting shares or participations and not preventing the structural modification operation (Article 12 LME).
  • The possibility of challenging the exchange ratio is provided whenever the shareholder has not voted in favor of the merger agreement or does not have voting rights (Article 49 LME), which, while not halting the merger, may result in compensation through cash payment or shares or participations in the company.
• Regarding creditor protection mechanisms:
  • Directorss are required to (i) inform about the implications for creditors of the proposed operation, and (ii) state in the project of structural modification any guarantee offered to creditors.
  • The old right of creditors' opposition has been replaced by a right to obtain adequate guarantees.
  • Credits arising and not yet due before the publication of the structural modification project will be protected. Creditors who do not agree with the guarantees offered or with their absence must notify their disagreement to the company and may, within a period of 1 month for internal operations and 3 months for cross-border ones from said publication, request an adequate guarantee system, first through the Mercantile Registry and, if the parties do not reach an agreement, through the Commercial Court (Article 13 LME).
  • For creditors' guarantees to be granted or completed, they must demonstrate that the satisfaction of their rights is at risk due to the structural modification and that they have not obtained adequate guarantees from the company, which will be presumed if the independent expert determines such adequacy and the company issues a declaration on its financial situation (Article 14 LME).
  • Various creditor protection mechanisms are maintained such as, in the case of divisions, the common regime of joint liability of the beneficiary companies of the division for the debts that remained with the split or segregated company, limiting the liability of the split company to the net assets remaining therein to avoid numerous bankruptcy proceedings of such split companies (Article 70 LME).
• Likewise, measures for worker protection are included:
  • Regarding the report to be prepared by the directors explaining and justifying the legal and economic aspects of the structural modification, as well as its consequences for workers, the company must include a specific section for workers. Also, it may decide whether to prepare a report containing these two sections - for shareholders and for workers - or to prepare separate reports (Article 5 LME).
  • Workers, like shareholders and creditors, may submit their comments on the draft of structural modification before the general meeting, which must consider them before approving the project (Articles 7.1.2º and 8.2 LME).
• The preparatory publicity system for agreements on structural modifications is strengthened by (i) the requirement to publish an announcement on the company's website, and (ii) publication in the Official Gazette of the Mercantile Registry (Article 7 LME).
• The preparation of a project is required in the case of transformation (Article 20 LME), in addition to cases of merger, division, and global transfer of assets and liabilities.
• For the structural modification to take place, the company must obtain certificates from the competent bodies accrediting compliance with tax obligations and social security contributions (Articles 20.3.3º, 40.9º, 64.3º, and 74.1.5º LME).
• The report of the independent expert will include a statement:
  • Firstly, on (a) the adequacy of the cash compensation offered to shareholders who, as a result of the structural modification, have the right to sell their shares; or (b) the adequacy of the exchange rate of shares, participations, or quotas set in mergers and divisions (Article 6.1 LME).
  • Secondly, only when the resulting or beneficiary company of the structural modification is a joint-stock or partnership limited by shares company, on the sufficiency of the contributed capital (Article 6.2 LME).
  • Thirdly, at the request of the management body, on the adequacy of the guarantees offered to creditors (Article 6.3 LME).
• In leveraged mergers, the need for the expert to issue a statement on the existence of financial assistance is removed (Article 42 LME).
• A legality check by the Registrar of Companies is established for cross-border operations, both intra-European and extra-European, as the Registrar must issue a prior certificate confirming that all required conditions have been met and that all necessary procedures and formalities have been correctly completed (Articles 90 and 123 LME). If the Registrar of Companies, during the legality check, has well-founded suspicions that the operation is carried out for abusive or fraudulent purposes, with the aim or effect of evading EU law or Spanish law, or serving criminal purposes, according to the reason for suspicion, he may timely request additional information from the relevant public body or entity by reason of the matter, and ultimately may refuse to issue the certificate (Articles 91, 92, and 123 LME).

At Summons Lawyers, we advise companies on the implementation of any structural modification operations (transformation, merger, division, and global transfer of assets and liabilities), whether internal or cross-border. Likewise, we provide our services to shareholders, creditors, and workers affected by a structural modification who wish to exercise their rights following the entry into force of the new regulation.