Distribution Contracts in Spain

30 août 2023

  • Espagne
  • Distribution

The commercial agent has the right to obtain certain information about the sales of the principal. The Spanish Law on Agency Contracts provides (15.2 LCA) that the agent has the right to demand to see the accounts of the principal in order to verify all matters relating to the commissions due to him. And also, to be provided with the information available to the principal and necessary to verify the amount of such commissions.

This article is in line with the 1986 Commercial Agents Directive, according to which (12.3) the agent is entitled to demand to be provided with all information at the disposal of the principal, particularly an extract from the books of account, which is necessary to verify the amount of commission due to the agent. This may not be altered to the detriment of the commercial agent by agreement.

The question is, does this right remain even after the termination of the agency contract? In other words: once the agency contract is terminated, can the agent request the information and documentation mentioned in these articles and is the Principal obliged to provide it?

In our opinion, the rule does not say anything that limits this right, rather the opposite is to be expected. Therefore, to the extent that there is still any possible commission that may arise from such verification, the answer must be yes. Let us see.

The right to demand the production of accounts exists so that the agent can verify the amount of commissions. And the agent is entitled to commissions for acts and operations concluded during the term of the contract (art. 12 LCA), but also for acts or operations concluded after the termination of the contract (art. 13 LCA), and for operations not carried out due to circumstances attributable to the principal (art. 17 LCA). In addition, the agent is entitled to have the commission accrued at the time when the act or transaction should have been executed (art. 14 LCA).

All these transactions can take place after the conclusion of the contract. Consider the usual situation where orders are placed during the contract but are accepted or executed afterwards. To reduce the agent’s right to be informed only during the term of the contract would be to limit his entitlement to the corresponding commission unduly. And it should be borne in mind that the amount of the commissions during the last five years may also influence the calculation of the client (goodwill) indemnity (art. 28 LCA), so that the agent’s interest in knowing them is twofold: what he would receive as commission, and what could increase the basis for future indemnity.

This has been confirmed, for example, by the Provincial Court (Audiencia Provincial) of Madrid (AAP 227/2017, of 29 June [ECLI:ES:APM:2017:2873A]) which textually states:

[…] art. 15.2 of the Agency Contract Act provides for the right of the agent to demand the exhibition of the Principal’s accounts in the particulars necessary to verify everything relating to the commissions corresponding to him, as well as to be provided with the information available to the Principal and necessary to verify the amount. This does not prevent, […], the agency contract having already been terminated, as this does not imply that commissions would cease to accrue for policies, contracted with the mediation of the agent, which remain in force.

The question then arises as to whether this right to information is unlimited in time. And here the answer would be in the negative. The limitation of the right to receive information would be linked to the statute of limitations of the right to claim the corresponding commission. If the right to receive the commission were undoubtedly time-barred, it could be argued that it would not be possible to receive information about it. But for such an exception, the statute of limitations must be clear, therefore, taking into account possible interruptions due to claims, even extrajudicial ones. In case of doubt, it will be necessary to recognise the right to demand the information, without prejudice to later invoking and recognising the impossibility of claiming the commission if the right is time-barred. And for this we must consider the limitation period for claiming commissions (in general, three years) and that of the right to claim compensation for clientele (one year).

In short: it does not seem that the right to receive information and to examine the principal’s documentation is limited by the term of the agency contract; although, on the other hand, it would be appropriate to analyse the possible limitation period for claiming commissions. In the absence of a clear answer to this question, the right to information should, in our opinion, prevail, without prejudice to the fact that the result may not entitle the claim because it is time-barred.

Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

In summary and by way of conclusion

The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.

In this first episode of Legalmondo’s Distribution Talks series, I spoke with Ignacio Alonso, a Madrid-based lawyer with extensive experience in international commercial distribution.

Main discussion points:

  • in Spain, there is no specific law for distribution agreements, which are governed by the general rules of the Commercial Code;
  • therefore, it is essential to draft a clear and comprehensive contract, which will be the primary source of the parties’ rights and obligations;
  • it is also good to be aware of Spanish case law on commercial distribution, which in some cases applies the law on commercial agency by analogy.
  • the most common issues involving foreign producers distributing in Spain arise at the time of termination of the relationship, mainly because case law grants the terminated distributor an indemnity of clientele or goodwill if similar prerequisites to those in the agency regulations apply.
  • another frequent dispute concerns the adequacy of the notice period for terminating the contract, especially if there is no agreement between the parties: the advice is to follow what the agency regulations stipulate and thus establish a minimum notice period of one month for each year of the contract’s duration, up to 6 months for agreements lasting more than five years;
  • regarding dispute resolution tools, mediation is an option that should be carefully considered because it is quick, inexpensive, and allows a shared solution to be sought flexibly without disrupting the business relationship.
  • if mediation fails, the parties can provide for recourse to arbitration or state court. The choice depends on the case’s specific circumstances, and one factor in favor of jurisdiction is the possibility of appeal, which is excluded in the case of arbitration.

Go deeper

Accepting the position of director (administrator or CEO) in a Spanish company entails increasing risks. Indeed, the Supreme Court – ruling by ruling – is outlining and interpreting the precepts of the Capital Companies Act (LSC) with an increasingly rigorous and demanding approach when it comes to delimiting the framework of directors’ liability.

Of course, the content of Article 43.1 b) of the General Tax Law is not new at all when it lays the foundations for the subsidiary liability of directors for debts owed to the Tax Agency:

The following persons or entities shall be subsidiarily liable for the tax debt:

b) The de facto or de jure administrators of those legal entities that have ceased their activities, for the accrued tax obligations of these that are pending at the time of the cessation, provided that they have not done what is necessary for their payment or have adopted agreements or taken measures causing the non-payment.

It could be deduced from the reading of the transcribed provision that the subsidiary liability of the directors who, at the time of the cessation of the corporate activity, effectively held the position of director, was established; but that the liability would not reach those directors who had been so in the past but were no longer directors at the time when the company had ceased to act in the legal and economic traffic, for the tax debts pending at that time.

Well, the Supreme Court (Third Chamber) in its recent judgment of March 7th, 2023, hammers one more nail in the coffin of the liability of the directors.

The case that was the subject of the ruling consisted of determining the subsidiary liability to the Tax Agency of a director whose position had expired (due to the expiration of the statutory term) and who had called a general meeting for the appointment of new members of the administrative body of the company.

The Supreme Court understands (and establishes a doctrine for the purposes of appeal) that the director with an expired position does not « exhaust » his obligations with the call of the meeting in question, but must also, pursuant to art. 365 LSC call another general meeting to adopt the resolution to file for insolvency or dissolution due to the existence of the causes of art. 363 LSC a) (cessation of activity) and d) (paralysis of the corporate bodies) as well as, if applicable, the request for judicial dissolution in his capacity as an interested party (art. 366.1 LSC).

The reproachable conduct according to the Supreme Court (which triggers the subsidiary liability) consists in the fact that, facing the cessation of the activity of the company, the only thing he did was to call a meeting for the appointment of a new director and therefore « it did not carry out the necessary acts to be able to face the payment of the tax debts, thus meeting the subjective element necessary to be able to declare its liability ».

The court ruling insists that the condition of director is not lost with the exhaustion of the mandate due to the expiration of the position since the mercantile and fiscal obligations persist; and that the call of a meeting to appoint a new director is not enough to understand that such meeting, once held, deprives the director with expired position of the condition of director, when there is a cause of dissolution that would have obliged to call another meeting with another object and another agenda to agree on the dissolution of the inactive company.

But what is remarkable and striking in this case is that the meeting called by the director (with expired position) for the appointment of new a new director was held in June 2012, the resolutions were made public on March 1st, 2013, they were registered in the commercial registry in July of the same year and the judgment expressly states that the cessation of corporate activity occurred in April 2013 (i.e. when the meeting for the appointment of new administrators had already been held, June 2012, and when the appointment of the new director had already been made public, March 1st, 2013).

The court resolution reads as follows:

« Given the date on which the cessation of the business activity was established by the judgment a quo, April 2013, the appellant should still be considered as a director of the company in that capacity, his conduct should be considered negligent for the purposes of inclusion in the cause of subsidiary liability of art. 43.1.b) LGT ». 

The claimant director argued that Art. 222 LSC and Art. 145.1 RRM state that the appointment of directors will expire, among other cases, when the term has expired and the meeting for the appointment of a new director has been held (or the term for its holding has elapsed) that is to resolve on the approval of the accounts of the previous year. And he explained that on top of that, he had fulfilled his obligations as director calling for a general shareholders meeting where new directors were appointed 9 months before the company ceased its activities. Therefore, he no longer was a “director” on April 2103.

Despite of that argument the Supreme Court insists that, whether or not the position has expired, said expiration does not exhaust or extinguish his responsibilities as director, which must be interpreted extensively: it is not enough for him to call a meeting for the appointment of new directors, but he must act to dissolve the company or file for insolvency proceedings, as if the position had full and complete validity. 

Thus, after this strong ruling, the directors of Spanish companies, in the event of termination of the activity, even if their position has expired, must know that their liability (and specifically the subsidiary liability for tax debts) will only be released if they call a meeting to dissolve the company, if the meeting does not adopt such resolution, if they request the court for the judicial dissolution or if they file voluntary insolvency proceedings.

To summarize, they will be liable if they do not act in the same way as if their position were still in full force and effect. As we said above, it is necessary to think very much about accepting positions of director of Spanish companies.

The so-called « Startup Law » in Spain (Law for the promotion of the emerging company’s ecosystem) after passing the corresponding filters, has been approved by the Spanish Parliament.

Among its various provisions on startups – which will be the subject of another article – the Startup Law also amended the « Beckham Law » (as this football player is the best known of those who benefited from this law), i.e. the special tax regime applicable to workers, professionals, entrepreneurs, and investors moving from abroad to Spain.

This regime grants enormous tax advantages to Spanish foreigners, who move their residence to Spain under certain circumstances which, in summary, are:

  • relocation as a consequence of an employment contract.
  • displacement that is ordered by the foreign employer with a letter of displacement to Spain.
  • displacement without being ordered by the employer and the labor activity is provided remotely by means of the exclusive use of electronic means.
  • acquisition of the condition of administrator of a company.
  • for the realization in Spain of an economic activity qualified as entrepreneurial activity.
  • highly qualified professional providing services to emerging companies.

The great novelty is that, until the entry into force of the new regulation, it was required that the interested party had been a non-resident for tax purposes in Spain for a period of more than 10 years so many managers were temporarily displaced outside Spain could not benefit from this regime because they had not been outside Spanish territory for more than 10 years (the displacements are not usually so long) and with the entry into force of the new legal text, the previous period of non-residence has been reduced to five (5) years.

The great advantage of this regime is that its beneficiaries (individuals) can opt to pay the Non-Resident Income Tax (IRNR), during the tax period in which the change of residence takes place and during the following five tax periods. This means that in the determination of the taxable income, part of the income that the interested party may obtain worldwide is not taxed and, in addition, that up to 600,000 euros of taxable income, the applicable tax rate would be 24% (all of which is undoubtedly an enormous tax advantage with respect to the applicable tax regime, in the same circumstances of income, to a tax resident in Spain without the coverage of this special regime).

In any case, it is important to emphasize that the application of this advantageous tax regime requires a previous and express request by the interested party, that is to say, first « knocking at the door » of the Treasury and, therefore, it is very important to make sure that all the requirements demanded by the Law are fulfilled very scrupulously, so it is always especially advisable to request in advance and with the due detail the appropriate legal advice in this respect.

Summary

Spain’s Labour and Social Security Inspectorate has inspected the « Big Four » firms to control working time and overtime, which employees claim is regularly exceeded. Spanish law requires companies to record workers’ start and end times each day to prevent employees from working longer than the stipulated day. Companies failing to comply can face fines and even criminal charges. The inspections could set a precedent for firms in the auditing and consultancy sectors.

In recent days, the press has reported on the « macro-inspection » carried out in the « Big Four » (the most important firms in the consultancy and auditing sector) by the labour authority, namely the Labour and Social Security Inspectorate (“Inspección de Trabajo y Seguridad Social”).

The aim of this inspection is, fundamentally, the control of working time, overtime and time recording, all aspects which, according to the workers themselves, are flagrantly breached by the aforementioned companies.

Thus, it seems to be a general trend that the employees of the « Big Four » work up to 12 hours a day (« from nine to nine »), which means approximately 4 hours of overtime a day; overtime that, to make matters worse, is not compensated either financially or by days off. Being forced to work during rest periods, such as weekends or holidays, is also common practice.

Given the situation and the facts described above, how can they be transferred to the legal plane? What breaches would the « Big Four » be committing, and what responsibilities would they have to face, in accordance with our Labour Law?

Well, firstly, since 2019, the year in which Royal Decree-Law 8/2019 of 8 March came into force, the company is obliged to keep a daily record of the working day, including the specific start and end times of each worker’s working day. The purpose of this measure is, precisely, to avoid what happens in the « Big Four », that is, that employees work longer than the established working day, which, in the words of the Explanatory Memorandum of the aforementioned regulation, produces a clear negative effect on the labour market:

« The performance of working time in excess of the legally or conventionally established working day has a substantial impact on the precariousness of the labour market, by affecting two essential elements of the employment relationship, working time, with a relevant influence on the personal life of the worker by making it difficult to reconcile family life, and salary. It also impacts Social Security contributions, which are reduced as they are not paid for the salary corresponding to the working day ».

The daily record of each worker’s working day is thus an essential element for the purposes of calculating overtime, i.e., those hours worked over the maximum duration of the ordinary working day, and which must, in any event, be compensated, either financially or through equivalent paid rest periods; in addition to also having a quantitative limit, insofar as article 35.2 of the Workers’ Statute provides that the number of overtime hours may not exceed 80 per year.

No less important is the certainly novel « right to digital disconnection in the workplace », which takes the form of the worker’s right to guarantee, outside the legally or conventionally established working time, respect for their rest time, leave and holidays, as well as their personal and family privacy, and which is recognized in article 88 of our current Personal Data Protection Act.

At this point, what happens then if the company transgresses the legal rules and limits on working hours, overtime, rest breaks, holidays, working time records and, in general, working time, as apparently occurs in the cases described at the beginning of this article?

Well, it faces a financial fine of 751 euros in the minimum grade, and up to 7,500 euros in the worst case, according to the Law on Infractions and Penalties in the Social Order.

In the worst-case scenario, a possible criminal liability could even be considered for allegedly committing an offense against workers’ rights. This is by no means a trivial matter, as our Criminal Code provides for such offenses to be punishable not only by a fine but also by imprisonment.

Conclusion

We are faced with the possibility that the Labour Inspectorate’s action with regard to the so-called « Big Four » will set a precedent with regard to the prohibition of endless working hours, so common in sectors such as auditing or consultancy, which will also benefit the working conditions of workers as a whole.

Where is it more suitable to set up a new limited liability company in Europe?

I will deal in this article with two countries I know well (Spain and The Netherlands) and focus on the minimum capital requested and the online incorporation of a limited liability company, sharing some thoughts and my takeaways.

Spain: the “Create and Grow Law”

In Spain, the Business Creation and Growth Law 18/2022, of September 28, 2022 (related to aspects of incorporation of companies), known as the “Create and Grow Law”, was approved last September within the framework of the Recovery, Transformation and Resilience Plan of the Spanish government. This plan channels European funds to alleviate the consequences of the Covid-19 crisis. This law is an initiative that reflects this flexibility and, as its explanatory statement indicates, aims to encourage the creation and growth of companies, in order to contribute to the economic growth of the country and its long-term resilience. Spain thus aligns itself with other neighboring countries, where there is no minimum capital to set up a company of this type.

Is this new law interesting for foreign investors or companies looking to establish themselves in Spain?

It is certainly very interesting. The fact that the Spanish legislator abandons this reference figure of 3,000 euros is very favorable for medium-large companies willing to have a permanent establishment in Spain Nevertheless, as long as the capital does not reach the figure of €3,000, the following rules will be applied, which are intended to protect the interests of creditors or third parties that contract with the company:  (i) 20% of the profit must be allocated to the legal reserve until said reserve together with the social capital reach the figure of €3,000 (the legislator seeks that the SLs constituted in this way do not remain « undercapitalized »), and (ii) as a safeguard clause for creditors of the company, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros.

Online incorporation of a company in Spain

The « CIRCE system » (procedure dependent on the Ministry of Industry, Commerce and Tourism that allows the start of the process of creating companies « over the Internet » ) entails an electronic procedure through agreements and communications with all the organizations and administrations that intervene in the process of incorporating companies.

The entrepreneur will only have to complete the Single Electronic Document (DUE) that includes a multitude of forms and CIRCE will automatically carry out all the necessary procedures to establish the company, communicating with all the organizations involved (Tax Agency, Social Security, Mercantile Registry, Notary, etc.). There is an obligation to review and sign the DUE before sending it. This system is not active yet, but it is expected that it will be in place when other complementary laws that support this digital process are approved by the Spanish Legislator which is necessary for the well-functioning of the system.

The Netherlands: The Flex BV law

The Flex BV law came into force on October 4, 2011. This law has given a lot of flexibility to the incorporation of new limited liability companies which has been very favorable for international companies working with different product lines, allowing to have one company for every product or service offered.

The Flex BV law has, among others, the following characteristics:

  • the creation of a Limited Liability Company is flexible, easy to establish and without many costs;
  • it only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a limited liability company, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

Online incorporation of a company in the Netherlands

 In the case of the Netherlands, in the Explanatory Memorandum of the bill implementing the Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 with regard to the use of digital instruments, it is proposed that incorporation of a BV electronically is only possible if payment on the shares takes place in cash, in order to initially limit the online formation of companies to simple situations. If it turns out that online formation works well, it can be considered whether it is useful to extend this possibility to situations in which contributions are made in a manner other than in money. Incorporation by natural persons using a model deed of incorporation must be possible within five working days from the date on which the notary has received all documents and information from the applicant or the date of payment of the share capital.

The incorporation of a BV digitally is postponed to the summer of 2023 since the House Committee for Justice and Security has decided that the act must be discussed in plenary.

The so called DOBV-system (Digital establishment of a BV), will entail a change in a number of work processes in the notaries in The Netherlands but for the Chamber of Commerce, no major changes will follow because the civil-law notary will supply the registration documents digitally to the Chamber of Commerce. Consequences the civil-law notary is the one who will have to offer a certain digital form of service, which citizens and companies will be able to use.

What positive and negative aspects can be highlighted?

Positives aspects:

  • it is very positive that through this new standard, many investors or international companies from both countries will be encouraged to create new SPVs, as the minimum capital is considered by many companies as a “barrier to entry”;
  • it will expedite the procedures for incorporating companies, essential vehicles for channeling the economic activities of businessmen in their transcendental task of creating wealth and employment, without notary and registration costs;
  • it will create a healthy competition between all the Notaries in Spain and between the notaries of Spain and the Netherlands. The Dutch notary bond expects that a further digitization of the notarial process could be achieved first in the real estate chain and subsequently also in business practice. It is important that the business market may be capable to respond quickly to this demand;
  • the share capital of a company will serve its partners to have the necessary funds with which to start their project, acquire the goods and resources necessary to start the economic activity and consolidate a long-term project (such as, for example, to buy the goods and services necessary to start up activities or to hire employees);
  • it creates business growth through financing alternatives to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

Negatives aspects:

  • to search financing externally to start the company’s activity, which will also surely have a cost (in the form of loans, for example, with their corresponding interest rate). Additionally, in the short or medium term the company must have a capital increase to normalize their patrimonial situation and solve this evident « underfinancing » of own resources, with which, this will also suppose an additional cost in the form of notary and registry fees that must be faced in the medium or long term after the incorporation;
  • the possibility of establishing a limited liability company with only 1 euro of share capital can facilitate the creation of fictitious legal entities by people who do not wish to carry out a real economic activity, but only use the companies as a suitable instrument for the development of legal or illegal activities;
  • additionally, it also implies a clear risk for the legal certainty and the responsibility of those companies in large contracts with third parties, leaving a limit to their minimum liability while their businesses are millionaires;
  • the online constitution system can be rigid and can also generate management and processing problems if the interested parties have not been properly advised and guided by the professionals involved before arriving at the Notary. Additionally, CIRCE’s telematic systems must function properly in order to correctly serve all those interested in the constitution of a capital company;
  • there are new requirements for companies related to anti-laundry controls, for instance, to include relevant information on invoices and payments to suppliers in their annual reports and on their corporate website.

Conclusions

Although it may apparently imply a boom in the creation of limited liability companies due to the ease of incorporation, there is still much to be done at the level of corporate law at the national level and collaboration between notaries of both countries.

Spain is, with the entering into force of the Law Creation and Growth, considered among the most advanced countries in facilitating the creation of companies, reducing regulatory obstacles and favoring business restructuring and viability. The final decision will depend on the specific needs of the business, access to finance and tax regime, among others.

Additionally, to the incorporation flexibilities, we must not forget a couple of important aspects for the shareholders and directors to be aware of:

  • a company needs to be managed as well and we need to be aware of the treasury, labor or other obligations of the companies already incorporated, even if they are non-active, they must continue to publish the annual accounts and complying with all governance requirements and formal public register notifications;
  • the responsibility of the shareholders is also important to consider. A shareholder who has direct involvement in the management, may face liability in case of bankruptcy, also in the country where the subsidiary is located. As mentioned above, in Spain, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros;
  • the last important aspect when you are doing business mainly in Europe is to consider restructuring your business or consider other forms of incorporation of companies, depending of the business model that you have opted to, for instance the use of the Societas Europaea (SE) which has the possibility to set up a holding company or a joint subsidiary together and to transfer the seat of the company without winding up the entity. The disadvantage is that you need €120,000 starting capital to set up and to have a minimum of 2 companies governed by the laws of different Member States. Other forms of incorporation are the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).

If you need additional information or you are planning to incorporate a limited liability company in Spain or in The Netherlands, get in touch to know more about your options and the right corporate advice for your business.

What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

The judgment in question is doubly interesting.

Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

As the Constitutional Court very recently reiterated in its ruling dated last October, « judicial slowness has no place in the Magna Carta ». But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

The plaintiffs sought the nullity of certain resolutions adopted at a shareholders’ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

The legislation in force at the time the meeting was held (prior to the 2014 reform) established that « resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties » could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

Following the 2014 reform, article 204 considers that « corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties » can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to « law » in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an « abuse of rights », can such a situation be considered as « contrary to law » for the purposes of the application of article 204 LSC?

The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

  • formal or outwardly correct use of a right
  • causing damage to an interest not protected by a specific legal prerogative, and
  • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

And on these premises, the Supreme Court reiterates and insists that the expression « contrary to the law » in article 204 LSC must be understood as « contrary to the legal system », which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an « in extremis » recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

Roberto Luzi Crivellini

Domaines d'intervention

  • Arbitrage
  • Distribution
  • Commerce international
  • Litiges
  • Immobilier
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    Spain | New limits on company directors’ liability

    15 mai 2023

    • Espagne
    • Entreprise

    The commercial agent has the right to obtain certain information about the sales of the principal. The Spanish Law on Agency Contracts provides (15.2 LCA) that the agent has the right to demand to see the accounts of the principal in order to verify all matters relating to the commissions due to him. And also, to be provided with the information available to the principal and necessary to verify the amount of such commissions.

    This article is in line with the 1986 Commercial Agents Directive, according to which (12.3) the agent is entitled to demand to be provided with all information at the disposal of the principal, particularly an extract from the books of account, which is necessary to verify the amount of commission due to the agent. This may not be altered to the detriment of the commercial agent by agreement.

    The question is, does this right remain even after the termination of the agency contract? In other words: once the agency contract is terminated, can the agent request the information and documentation mentioned in these articles and is the Principal obliged to provide it?

    In our opinion, the rule does not say anything that limits this right, rather the opposite is to be expected. Therefore, to the extent that there is still any possible commission that may arise from such verification, the answer must be yes. Let us see.

    The right to demand the production of accounts exists so that the agent can verify the amount of commissions. And the agent is entitled to commissions for acts and operations concluded during the term of the contract (art. 12 LCA), but also for acts or operations concluded after the termination of the contract (art. 13 LCA), and for operations not carried out due to circumstances attributable to the principal (art. 17 LCA). In addition, the agent is entitled to have the commission accrued at the time when the act or transaction should have been executed (art. 14 LCA).

    All these transactions can take place after the conclusion of the contract. Consider the usual situation where orders are placed during the contract but are accepted or executed afterwards. To reduce the agent’s right to be informed only during the term of the contract would be to limit his entitlement to the corresponding commission unduly. And it should be borne in mind that the amount of the commissions during the last five years may also influence the calculation of the client (goodwill) indemnity (art. 28 LCA), so that the agent’s interest in knowing them is twofold: what he would receive as commission, and what could increase the basis for future indemnity.

    This has been confirmed, for example, by the Provincial Court (Audiencia Provincial) of Madrid (AAP 227/2017, of 29 June [ECLI:ES:APM:2017:2873A]) which textually states:

    […] art. 15.2 of the Agency Contract Act provides for the right of the agent to demand the exhibition of the Principal’s accounts in the particulars necessary to verify everything relating to the commissions corresponding to him, as well as to be provided with the information available to the Principal and necessary to verify the amount. This does not prevent, […], the agency contract having already been terminated, as this does not imply that commissions would cease to accrue for policies, contracted with the mediation of the agent, which remain in force.

    The question then arises as to whether this right to information is unlimited in time. And here the answer would be in the negative. The limitation of the right to receive information would be linked to the statute of limitations of the right to claim the corresponding commission. If the right to receive the commission were undoubtedly time-barred, it could be argued that it would not be possible to receive information about it. But for such an exception, the statute of limitations must be clear, therefore, taking into account possible interruptions due to claims, even extrajudicial ones. In case of doubt, it will be necessary to recognise the right to demand the information, without prejudice to later invoking and recognising the impossibility of claiming the commission if the right is time-barred. And for this we must consider the limitation period for claiming commissions (in general, three years) and that of the right to claim compensation for clientele (one year).

    In short: it does not seem that the right to receive information and to examine the principal’s documentation is limited by the term of the agency contract; although, on the other hand, it would be appropriate to analyse the possible limitation period for claiming commissions. In the absence of a clear answer to this question, the right to information should, in our opinion, prevail, without prejudice to the fact that the result may not entitle the claim because it is time-barred.

    Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

    And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

    We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

    Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

    The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

    The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

    The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

    Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

    In summary and by way of conclusion

    The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

    And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

    So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.

    In this first episode of Legalmondo’s Distribution Talks series, I spoke with Ignacio Alonso, a Madrid-based lawyer with extensive experience in international commercial distribution.

    Main discussion points:

    • in Spain, there is no specific law for distribution agreements, which are governed by the general rules of the Commercial Code;
    • therefore, it is essential to draft a clear and comprehensive contract, which will be the primary source of the parties’ rights and obligations;
    • it is also good to be aware of Spanish case law on commercial distribution, which in some cases applies the law on commercial agency by analogy.
    • the most common issues involving foreign producers distributing in Spain arise at the time of termination of the relationship, mainly because case law grants the terminated distributor an indemnity of clientele or goodwill if similar prerequisites to those in the agency regulations apply.
    • another frequent dispute concerns the adequacy of the notice period for terminating the contract, especially if there is no agreement between the parties: the advice is to follow what the agency regulations stipulate and thus establish a minimum notice period of one month for each year of the contract’s duration, up to 6 months for agreements lasting more than five years;
    • regarding dispute resolution tools, mediation is an option that should be carefully considered because it is quick, inexpensive, and allows a shared solution to be sought flexibly without disrupting the business relationship.
    • if mediation fails, the parties can provide for recourse to arbitration or state court. The choice depends on the case’s specific circumstances, and one factor in favor of jurisdiction is the possibility of appeal, which is excluded in the case of arbitration.

    Go deeper

    Accepting the position of director (administrator or CEO) in a Spanish company entails increasing risks. Indeed, the Supreme Court – ruling by ruling – is outlining and interpreting the precepts of the Capital Companies Act (LSC) with an increasingly rigorous and demanding approach when it comes to delimiting the framework of directors’ liability.

    Of course, the content of Article 43.1 b) of the General Tax Law is not new at all when it lays the foundations for the subsidiary liability of directors for debts owed to the Tax Agency:

    The following persons or entities shall be subsidiarily liable for the tax debt:

    b) The de facto or de jure administrators of those legal entities that have ceased their activities, for the accrued tax obligations of these that are pending at the time of the cessation, provided that they have not done what is necessary for their payment or have adopted agreements or taken measures causing the non-payment.

    It could be deduced from the reading of the transcribed provision that the subsidiary liability of the directors who, at the time of the cessation of the corporate activity, effectively held the position of director, was established; but that the liability would not reach those directors who had been so in the past but were no longer directors at the time when the company had ceased to act in the legal and economic traffic, for the tax debts pending at that time.

    Well, the Supreme Court (Third Chamber) in its recent judgment of March 7th, 2023, hammers one more nail in the coffin of the liability of the directors.

    The case that was the subject of the ruling consisted of determining the subsidiary liability to the Tax Agency of a director whose position had expired (due to the expiration of the statutory term) and who had called a general meeting for the appointment of new members of the administrative body of the company.

    The Supreme Court understands (and establishes a doctrine for the purposes of appeal) that the director with an expired position does not « exhaust » his obligations with the call of the meeting in question, but must also, pursuant to art. 365 LSC call another general meeting to adopt the resolution to file for insolvency or dissolution due to the existence of the causes of art. 363 LSC a) (cessation of activity) and d) (paralysis of the corporate bodies) as well as, if applicable, the request for judicial dissolution in his capacity as an interested party (art. 366.1 LSC).

    The reproachable conduct according to the Supreme Court (which triggers the subsidiary liability) consists in the fact that, facing the cessation of the activity of the company, the only thing he did was to call a meeting for the appointment of a new director and therefore « it did not carry out the necessary acts to be able to face the payment of the tax debts, thus meeting the subjective element necessary to be able to declare its liability ».

    The court ruling insists that the condition of director is not lost with the exhaustion of the mandate due to the expiration of the position since the mercantile and fiscal obligations persist; and that the call of a meeting to appoint a new director is not enough to understand that such meeting, once held, deprives the director with expired position of the condition of director, when there is a cause of dissolution that would have obliged to call another meeting with another object and another agenda to agree on the dissolution of the inactive company.

    But what is remarkable and striking in this case is that the meeting called by the director (with expired position) for the appointment of new a new director was held in June 2012, the resolutions were made public on March 1st, 2013, they were registered in the commercial registry in July of the same year and the judgment expressly states that the cessation of corporate activity occurred in April 2013 (i.e. when the meeting for the appointment of new administrators had already been held, June 2012, and when the appointment of the new director had already been made public, March 1st, 2013).

    The court resolution reads as follows:

    « Given the date on which the cessation of the business activity was established by the judgment a quo, April 2013, the appellant should still be considered as a director of the company in that capacity, his conduct should be considered negligent for the purposes of inclusion in the cause of subsidiary liability of art. 43.1.b) LGT ». 

    The claimant director argued that Art. 222 LSC and Art. 145.1 RRM state that the appointment of directors will expire, among other cases, when the term has expired and the meeting for the appointment of a new director has been held (or the term for its holding has elapsed) that is to resolve on the approval of the accounts of the previous year. And he explained that on top of that, he had fulfilled his obligations as director calling for a general shareholders meeting where new directors were appointed 9 months before the company ceased its activities. Therefore, he no longer was a “director” on April 2103.

    Despite of that argument the Supreme Court insists that, whether or not the position has expired, said expiration does not exhaust or extinguish his responsibilities as director, which must be interpreted extensively: it is not enough for him to call a meeting for the appointment of new directors, but he must act to dissolve the company or file for insolvency proceedings, as if the position had full and complete validity. 

    Thus, after this strong ruling, the directors of Spanish companies, in the event of termination of the activity, even if their position has expired, must know that their liability (and specifically the subsidiary liability for tax debts) will only be released if they call a meeting to dissolve the company, if the meeting does not adopt such resolution, if they request the court for the judicial dissolution or if they file voluntary insolvency proceedings.

    To summarize, they will be liable if they do not act in the same way as if their position were still in full force and effect. As we said above, it is necessary to think very much about accepting positions of director of Spanish companies.

    The so-called « Startup Law » in Spain (Law for the promotion of the emerging company’s ecosystem) after passing the corresponding filters, has been approved by the Spanish Parliament.

    Among its various provisions on startups – which will be the subject of another article – the Startup Law also amended the « Beckham Law » (as this football player is the best known of those who benefited from this law), i.e. the special tax regime applicable to workers, professionals, entrepreneurs, and investors moving from abroad to Spain.

    This regime grants enormous tax advantages to Spanish foreigners, who move their residence to Spain under certain circumstances which, in summary, are:

    • relocation as a consequence of an employment contract.
    • displacement that is ordered by the foreign employer with a letter of displacement to Spain.
    • displacement without being ordered by the employer and the labor activity is provided remotely by means of the exclusive use of electronic means.
    • acquisition of the condition of administrator of a company.
    • for the realization in Spain of an economic activity qualified as entrepreneurial activity.
    • highly qualified professional providing services to emerging companies.

    The great novelty is that, until the entry into force of the new regulation, it was required that the interested party had been a non-resident for tax purposes in Spain for a period of more than 10 years so many managers were temporarily displaced outside Spain could not benefit from this regime because they had not been outside Spanish territory for more than 10 years (the displacements are not usually so long) and with the entry into force of the new legal text, the previous period of non-residence has been reduced to five (5) years.

    The great advantage of this regime is that its beneficiaries (individuals) can opt to pay the Non-Resident Income Tax (IRNR), during the tax period in which the change of residence takes place and during the following five tax periods. This means that in the determination of the taxable income, part of the income that the interested party may obtain worldwide is not taxed and, in addition, that up to 600,000 euros of taxable income, the applicable tax rate would be 24% (all of which is undoubtedly an enormous tax advantage with respect to the applicable tax regime, in the same circumstances of income, to a tax resident in Spain without the coverage of this special regime).

    In any case, it is important to emphasize that the application of this advantageous tax regime requires a previous and express request by the interested party, that is to say, first « knocking at the door » of the Treasury and, therefore, it is very important to make sure that all the requirements demanded by the Law are fulfilled very scrupulously, so it is always especially advisable to request in advance and with the due detail the appropriate legal advice in this respect.

    Summary

    Spain’s Labour and Social Security Inspectorate has inspected the « Big Four » firms to control working time and overtime, which employees claim is regularly exceeded. Spanish law requires companies to record workers’ start and end times each day to prevent employees from working longer than the stipulated day. Companies failing to comply can face fines and even criminal charges. The inspections could set a precedent for firms in the auditing and consultancy sectors.

    In recent days, the press has reported on the « macro-inspection » carried out in the « Big Four » (the most important firms in the consultancy and auditing sector) by the labour authority, namely the Labour and Social Security Inspectorate (“Inspección de Trabajo y Seguridad Social”).

    The aim of this inspection is, fundamentally, the control of working time, overtime and time recording, all aspects which, according to the workers themselves, are flagrantly breached by the aforementioned companies.

    Thus, it seems to be a general trend that the employees of the « Big Four » work up to 12 hours a day (« from nine to nine »), which means approximately 4 hours of overtime a day; overtime that, to make matters worse, is not compensated either financially or by days off. Being forced to work during rest periods, such as weekends or holidays, is also common practice.

    Given the situation and the facts described above, how can they be transferred to the legal plane? What breaches would the « Big Four » be committing, and what responsibilities would they have to face, in accordance with our Labour Law?

    Well, firstly, since 2019, the year in which Royal Decree-Law 8/2019 of 8 March came into force, the company is obliged to keep a daily record of the working day, including the specific start and end times of each worker’s working day. The purpose of this measure is, precisely, to avoid what happens in the « Big Four », that is, that employees work longer than the established working day, which, in the words of the Explanatory Memorandum of the aforementioned regulation, produces a clear negative effect on the labour market:

    « The performance of working time in excess of the legally or conventionally established working day has a substantial impact on the precariousness of the labour market, by affecting two essential elements of the employment relationship, working time, with a relevant influence on the personal life of the worker by making it difficult to reconcile family life, and salary. It also impacts Social Security contributions, which are reduced as they are not paid for the salary corresponding to the working day ».

    The daily record of each worker’s working day is thus an essential element for the purposes of calculating overtime, i.e., those hours worked over the maximum duration of the ordinary working day, and which must, in any event, be compensated, either financially or through equivalent paid rest periods; in addition to also having a quantitative limit, insofar as article 35.2 of the Workers’ Statute provides that the number of overtime hours may not exceed 80 per year.

    No less important is the certainly novel « right to digital disconnection in the workplace », which takes the form of the worker’s right to guarantee, outside the legally or conventionally established working time, respect for their rest time, leave and holidays, as well as their personal and family privacy, and which is recognized in article 88 of our current Personal Data Protection Act.

    At this point, what happens then if the company transgresses the legal rules and limits on working hours, overtime, rest breaks, holidays, working time records and, in general, working time, as apparently occurs in the cases described at the beginning of this article?

    Well, it faces a financial fine of 751 euros in the minimum grade, and up to 7,500 euros in the worst case, according to the Law on Infractions and Penalties in the Social Order.

    In the worst-case scenario, a possible criminal liability could even be considered for allegedly committing an offense against workers’ rights. This is by no means a trivial matter, as our Criminal Code provides for such offenses to be punishable not only by a fine but also by imprisonment.

    Conclusion

    We are faced with the possibility that the Labour Inspectorate’s action with regard to the so-called « Big Four » will set a precedent with regard to the prohibition of endless working hours, so common in sectors such as auditing or consultancy, which will also benefit the working conditions of workers as a whole.

    Where is it more suitable to set up a new limited liability company in Europe?

    I will deal in this article with two countries I know well (Spain and The Netherlands) and focus on the minimum capital requested and the online incorporation of a limited liability company, sharing some thoughts and my takeaways.

    Spain: the “Create and Grow Law”

    In Spain, the Business Creation and Growth Law 18/2022, of September 28, 2022 (related to aspects of incorporation of companies), known as the “Create and Grow Law”, was approved last September within the framework of the Recovery, Transformation and Resilience Plan of the Spanish government. This plan channels European funds to alleviate the consequences of the Covid-19 crisis. This law is an initiative that reflects this flexibility and, as its explanatory statement indicates, aims to encourage the creation and growth of companies, in order to contribute to the economic growth of the country and its long-term resilience. Spain thus aligns itself with other neighboring countries, where there is no minimum capital to set up a company of this type.

    Is this new law interesting for foreign investors or companies looking to establish themselves in Spain?

    It is certainly very interesting. The fact that the Spanish legislator abandons this reference figure of 3,000 euros is very favorable for medium-large companies willing to have a permanent establishment in Spain Nevertheless, as long as the capital does not reach the figure of €3,000, the following rules will be applied, which are intended to protect the interests of creditors or third parties that contract with the company:  (i) 20% of the profit must be allocated to the legal reserve until said reserve together with the social capital reach the figure of €3,000 (the legislator seeks that the SLs constituted in this way do not remain « undercapitalized »), and (ii) as a safeguard clause for creditors of the company, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros.

    Online incorporation of a company in Spain

    The « CIRCE system » (procedure dependent on the Ministry of Industry, Commerce and Tourism that allows the start of the process of creating companies « over the Internet » ) entails an electronic procedure through agreements and communications with all the organizations and administrations that intervene in the process of incorporating companies.

    The entrepreneur will only have to complete the Single Electronic Document (DUE) that includes a multitude of forms and CIRCE will automatically carry out all the necessary procedures to establish the company, communicating with all the organizations involved (Tax Agency, Social Security, Mercantile Registry, Notary, etc.). There is an obligation to review and sign the DUE before sending it. This system is not active yet, but it is expected that it will be in place when other complementary laws that support this digital process are approved by the Spanish Legislator which is necessary for the well-functioning of the system.

    The Netherlands: The Flex BV law

    The Flex BV law came into force on October 4, 2011. This law has given a lot of flexibility to the incorporation of new limited liability companies which has been very favorable for international companies working with different product lines, allowing to have one company for every product or service offered.

    The Flex BV law has, among others, the following characteristics:

    • the creation of a Limited Liability Company is flexible, easy to establish and without many costs;
    • it only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a limited liability company, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

    Online incorporation of a company in the Netherlands

     In the case of the Netherlands, in the Explanatory Memorandum of the bill implementing the Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 with regard to the use of digital instruments, it is proposed that incorporation of a BV electronically is only possible if payment on the shares takes place in cash, in order to initially limit the online formation of companies to simple situations. If it turns out that online formation works well, it can be considered whether it is useful to extend this possibility to situations in which contributions are made in a manner other than in money. Incorporation by natural persons using a model deed of incorporation must be possible within five working days from the date on which the notary has received all documents and information from the applicant or the date of payment of the share capital.

    The incorporation of a BV digitally is postponed to the summer of 2023 since the House Committee for Justice and Security has decided that the act must be discussed in plenary.

    The so called DOBV-system (Digital establishment of a BV), will entail a change in a number of work processes in the notaries in The Netherlands but for the Chamber of Commerce, no major changes will follow because the civil-law notary will supply the registration documents digitally to the Chamber of Commerce. Consequences the civil-law notary is the one who will have to offer a certain digital form of service, which citizens and companies will be able to use.

    What positive and negative aspects can be highlighted?

    Positives aspects:

    • it is very positive that through this new standard, many investors or international companies from both countries will be encouraged to create new SPVs, as the minimum capital is considered by many companies as a “barrier to entry”;
    • it will expedite the procedures for incorporating companies, essential vehicles for channeling the economic activities of businessmen in their transcendental task of creating wealth and employment, without notary and registration costs;
    • it will create a healthy competition between all the Notaries in Spain and between the notaries of Spain and the Netherlands. The Dutch notary bond expects that a further digitization of the notarial process could be achieved first in the real estate chain and subsequently also in business practice. It is important that the business market may be capable to respond quickly to this demand;
    • the share capital of a company will serve its partners to have the necessary funds with which to start their project, acquire the goods and resources necessary to start the economic activity and consolidate a long-term project (such as, for example, to buy the goods and services necessary to start up activities or to hire employees);
    • it creates business growth through financing alternatives to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

    Negatives aspects:

    • to search financing externally to start the company’s activity, which will also surely have a cost (in the form of loans, for example, with their corresponding interest rate). Additionally, in the short or medium term the company must have a capital increase to normalize their patrimonial situation and solve this evident « underfinancing » of own resources, with which, this will also suppose an additional cost in the form of notary and registry fees that must be faced in the medium or long term after the incorporation;
    • the possibility of establishing a limited liability company with only 1 euro of share capital can facilitate the creation of fictitious legal entities by people who do not wish to carry out a real economic activity, but only use the companies as a suitable instrument for the development of legal or illegal activities;
    • additionally, it also implies a clear risk for the legal certainty and the responsibility of those companies in large contracts with third parties, leaving a limit to their minimum liability while their businesses are millionaires;
    • the online constitution system can be rigid and can also generate management and processing problems if the interested parties have not been properly advised and guided by the professionals involved before arriving at the Notary. Additionally, CIRCE’s telematic systems must function properly in order to correctly serve all those interested in the constitution of a capital company;
    • there are new requirements for companies related to anti-laundry controls, for instance, to include relevant information on invoices and payments to suppliers in their annual reports and on their corporate website.

    Conclusions

    Although it may apparently imply a boom in the creation of limited liability companies due to the ease of incorporation, there is still much to be done at the level of corporate law at the national level and collaboration between notaries of both countries.

    Spain is, with the entering into force of the Law Creation and Growth, considered among the most advanced countries in facilitating the creation of companies, reducing regulatory obstacles and favoring business restructuring and viability. The final decision will depend on the specific needs of the business, access to finance and tax regime, among others.

    Additionally, to the incorporation flexibilities, we must not forget a couple of important aspects for the shareholders and directors to be aware of:

    • a company needs to be managed as well and we need to be aware of the treasury, labor or other obligations of the companies already incorporated, even if they are non-active, they must continue to publish the annual accounts and complying with all governance requirements and formal public register notifications;
    • the responsibility of the shareholders is also important to consider. A shareholder who has direct involvement in the management, may face liability in case of bankruptcy, also in the country where the subsidiary is located. As mentioned above, in Spain, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros;
    • the last important aspect when you are doing business mainly in Europe is to consider restructuring your business or consider other forms of incorporation of companies, depending of the business model that you have opted to, for instance the use of the Societas Europaea (SE) which has the possibility to set up a holding company or a joint subsidiary together and to transfer the seat of the company without winding up the entity. The disadvantage is that you need €120,000 starting capital to set up and to have a minimum of 2 companies governed by the laws of different Member States. Other forms of incorporation are the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).

    If you need additional information or you are planning to incorporate a limited liability company in Spain or in The Netherlands, get in touch to know more about your options and the right corporate advice for your business.

    What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

    The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

    The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

    Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

    The judgment in question is doubly interesting.

    Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

    As the Constitutional Court very recently reiterated in its ruling dated last October, « judicial slowness has no place in the Magna Carta ». But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

    Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

    The plaintiffs sought the nullity of certain resolutions adopted at a shareholders’ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

    The legislation in force at the time the meeting was held (prior to the 2014 reform) established that « resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties » could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

    Following the 2014 reform, article 204 considers that « corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties » can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

    But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to « law » in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an « abuse of rights », can such a situation be considered as « contrary to law » for the purposes of the application of article 204 LSC?

    The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

    • formal or outwardly correct use of a right
    • causing damage to an interest not protected by a specific legal prerogative, and
    • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

    And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

    The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

    And on these premises, the Supreme Court reiterates and insists that the expression « contrary to the law » in article 204 LSC must be understood as « contrary to the legal system », which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

    And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

    It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

    And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an « in extremis » recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

    Javier Gaspar

    Domaines d'intervention

    • Arbitrage
    • Distribution
    • Franchise
    • Litiges
    • Sport
    Contact Javier

    Écrire à Javier





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      Spain | Modification of the ‘Beckham Law’ in favor of Entrepreneurs and Managers

      3 mai 2023

      • Espagne
      • Démarrage

      The commercial agent has the right to obtain certain information about the sales of the principal. The Spanish Law on Agency Contracts provides (15.2 LCA) that the agent has the right to demand to see the accounts of the principal in order to verify all matters relating to the commissions due to him. And also, to be provided with the information available to the principal and necessary to verify the amount of such commissions.

      This article is in line with the 1986 Commercial Agents Directive, according to which (12.3) the agent is entitled to demand to be provided with all information at the disposal of the principal, particularly an extract from the books of account, which is necessary to verify the amount of commission due to the agent. This may not be altered to the detriment of the commercial agent by agreement.

      The question is, does this right remain even after the termination of the agency contract? In other words: once the agency contract is terminated, can the agent request the information and documentation mentioned in these articles and is the Principal obliged to provide it?

      In our opinion, the rule does not say anything that limits this right, rather the opposite is to be expected. Therefore, to the extent that there is still any possible commission that may arise from such verification, the answer must be yes. Let us see.

      The right to demand the production of accounts exists so that the agent can verify the amount of commissions. And the agent is entitled to commissions for acts and operations concluded during the term of the contract (art. 12 LCA), but also for acts or operations concluded after the termination of the contract (art. 13 LCA), and for operations not carried out due to circumstances attributable to the principal (art. 17 LCA). In addition, the agent is entitled to have the commission accrued at the time when the act or transaction should have been executed (art. 14 LCA).

      All these transactions can take place after the conclusion of the contract. Consider the usual situation where orders are placed during the contract but are accepted or executed afterwards. To reduce the agent’s right to be informed only during the term of the contract would be to limit his entitlement to the corresponding commission unduly. And it should be borne in mind that the amount of the commissions during the last five years may also influence the calculation of the client (goodwill) indemnity (art. 28 LCA), so that the agent’s interest in knowing them is twofold: what he would receive as commission, and what could increase the basis for future indemnity.

      This has been confirmed, for example, by the Provincial Court (Audiencia Provincial) of Madrid (AAP 227/2017, of 29 June [ECLI:ES:APM:2017:2873A]) which textually states:

      […] art. 15.2 of the Agency Contract Act provides for the right of the agent to demand the exhibition of the Principal’s accounts in the particulars necessary to verify everything relating to the commissions corresponding to him, as well as to be provided with the information available to the Principal and necessary to verify the amount. This does not prevent, […], the agency contract having already been terminated, as this does not imply that commissions would cease to accrue for policies, contracted with the mediation of the agent, which remain in force.

      The question then arises as to whether this right to information is unlimited in time. And here the answer would be in the negative. The limitation of the right to receive information would be linked to the statute of limitations of the right to claim the corresponding commission. If the right to receive the commission were undoubtedly time-barred, it could be argued that it would not be possible to receive information about it. But for such an exception, the statute of limitations must be clear, therefore, taking into account possible interruptions due to claims, even extrajudicial ones. In case of doubt, it will be necessary to recognise the right to demand the information, without prejudice to later invoking and recognising the impossibility of claiming the commission if the right is time-barred. And for this we must consider the limitation period for claiming commissions (in general, three years) and that of the right to claim compensation for clientele (one year).

      In short: it does not seem that the right to receive information and to examine the principal’s documentation is limited by the term of the agency contract; although, on the other hand, it would be appropriate to analyse the possible limitation period for claiming commissions. In the absence of a clear answer to this question, the right to information should, in our opinion, prevail, without prejudice to the fact that the result may not entitle the claim because it is time-barred.

      Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

      And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

      We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

      Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

      The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

      The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

      The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

      Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

      In summary and by way of conclusion

      The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

      And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

      So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.

      In this first episode of Legalmondo’s Distribution Talks series, I spoke with Ignacio Alonso, a Madrid-based lawyer with extensive experience in international commercial distribution.

      Main discussion points:

      • in Spain, there is no specific law for distribution agreements, which are governed by the general rules of the Commercial Code;
      • therefore, it is essential to draft a clear and comprehensive contract, which will be the primary source of the parties’ rights and obligations;
      • it is also good to be aware of Spanish case law on commercial distribution, which in some cases applies the law on commercial agency by analogy.
      • the most common issues involving foreign producers distributing in Spain arise at the time of termination of the relationship, mainly because case law grants the terminated distributor an indemnity of clientele or goodwill if similar prerequisites to those in the agency regulations apply.
      • another frequent dispute concerns the adequacy of the notice period for terminating the contract, especially if there is no agreement between the parties: the advice is to follow what the agency regulations stipulate and thus establish a minimum notice period of one month for each year of the contract’s duration, up to 6 months for agreements lasting more than five years;
      • regarding dispute resolution tools, mediation is an option that should be carefully considered because it is quick, inexpensive, and allows a shared solution to be sought flexibly without disrupting the business relationship.
      • if mediation fails, the parties can provide for recourse to arbitration or state court. The choice depends on the case’s specific circumstances, and one factor in favor of jurisdiction is the possibility of appeal, which is excluded in the case of arbitration.

      Go deeper

      Accepting the position of director (administrator or CEO) in a Spanish company entails increasing risks. Indeed, the Supreme Court – ruling by ruling – is outlining and interpreting the precepts of the Capital Companies Act (LSC) with an increasingly rigorous and demanding approach when it comes to delimiting the framework of directors’ liability.

      Of course, the content of Article 43.1 b) of the General Tax Law is not new at all when it lays the foundations for the subsidiary liability of directors for debts owed to the Tax Agency:

      The following persons or entities shall be subsidiarily liable for the tax debt:

      b) The de facto or de jure administrators of those legal entities that have ceased their activities, for the accrued tax obligations of these that are pending at the time of the cessation, provided that they have not done what is necessary for their payment or have adopted agreements or taken measures causing the non-payment.

      It could be deduced from the reading of the transcribed provision that the subsidiary liability of the directors who, at the time of the cessation of the corporate activity, effectively held the position of director, was established; but that the liability would not reach those directors who had been so in the past but were no longer directors at the time when the company had ceased to act in the legal and economic traffic, for the tax debts pending at that time.

      Well, the Supreme Court (Third Chamber) in its recent judgment of March 7th, 2023, hammers one more nail in the coffin of the liability of the directors.

      The case that was the subject of the ruling consisted of determining the subsidiary liability to the Tax Agency of a director whose position had expired (due to the expiration of the statutory term) and who had called a general meeting for the appointment of new members of the administrative body of the company.

      The Supreme Court understands (and establishes a doctrine for the purposes of appeal) that the director with an expired position does not « exhaust » his obligations with the call of the meeting in question, but must also, pursuant to art. 365 LSC call another general meeting to adopt the resolution to file for insolvency or dissolution due to the existence of the causes of art. 363 LSC a) (cessation of activity) and d) (paralysis of the corporate bodies) as well as, if applicable, the request for judicial dissolution in his capacity as an interested party (art. 366.1 LSC).

      The reproachable conduct according to the Supreme Court (which triggers the subsidiary liability) consists in the fact that, facing the cessation of the activity of the company, the only thing he did was to call a meeting for the appointment of a new director and therefore « it did not carry out the necessary acts to be able to face the payment of the tax debts, thus meeting the subjective element necessary to be able to declare its liability ».

      The court ruling insists that the condition of director is not lost with the exhaustion of the mandate due to the expiration of the position since the mercantile and fiscal obligations persist; and that the call of a meeting to appoint a new director is not enough to understand that such meeting, once held, deprives the director with expired position of the condition of director, when there is a cause of dissolution that would have obliged to call another meeting with another object and another agenda to agree on the dissolution of the inactive company.

      But what is remarkable and striking in this case is that the meeting called by the director (with expired position) for the appointment of new a new director was held in June 2012, the resolutions were made public on March 1st, 2013, they were registered in the commercial registry in July of the same year and the judgment expressly states that the cessation of corporate activity occurred in April 2013 (i.e. when the meeting for the appointment of new administrators had already been held, June 2012, and when the appointment of the new director had already been made public, March 1st, 2013).

      The court resolution reads as follows:

      « Given the date on which the cessation of the business activity was established by the judgment a quo, April 2013, the appellant should still be considered as a director of the company in that capacity, his conduct should be considered negligent for the purposes of inclusion in the cause of subsidiary liability of art. 43.1.b) LGT ». 

      The claimant director argued that Art. 222 LSC and Art. 145.1 RRM state that the appointment of directors will expire, among other cases, when the term has expired and the meeting for the appointment of a new director has been held (or the term for its holding has elapsed) that is to resolve on the approval of the accounts of the previous year. And he explained that on top of that, he had fulfilled his obligations as director calling for a general shareholders meeting where new directors were appointed 9 months before the company ceased its activities. Therefore, he no longer was a “director” on April 2103.

      Despite of that argument the Supreme Court insists that, whether or not the position has expired, said expiration does not exhaust or extinguish his responsibilities as director, which must be interpreted extensively: it is not enough for him to call a meeting for the appointment of new directors, but he must act to dissolve the company or file for insolvency proceedings, as if the position had full and complete validity. 

      Thus, after this strong ruling, the directors of Spanish companies, in the event of termination of the activity, even if their position has expired, must know that their liability (and specifically the subsidiary liability for tax debts) will only be released if they call a meeting to dissolve the company, if the meeting does not adopt such resolution, if they request the court for the judicial dissolution or if they file voluntary insolvency proceedings.

      To summarize, they will be liable if they do not act in the same way as if their position were still in full force and effect. As we said above, it is necessary to think very much about accepting positions of director of Spanish companies.

      The so-called « Startup Law » in Spain (Law for the promotion of the emerging company’s ecosystem) after passing the corresponding filters, has been approved by the Spanish Parliament.

      Among its various provisions on startups – which will be the subject of another article – the Startup Law also amended the « Beckham Law » (as this football player is the best known of those who benefited from this law), i.e. the special tax regime applicable to workers, professionals, entrepreneurs, and investors moving from abroad to Spain.

      This regime grants enormous tax advantages to Spanish foreigners, who move their residence to Spain under certain circumstances which, in summary, are:

      • relocation as a consequence of an employment contract.
      • displacement that is ordered by the foreign employer with a letter of displacement to Spain.
      • displacement without being ordered by the employer and the labor activity is provided remotely by means of the exclusive use of electronic means.
      • acquisition of the condition of administrator of a company.
      • for the realization in Spain of an economic activity qualified as entrepreneurial activity.
      • highly qualified professional providing services to emerging companies.

      The great novelty is that, until the entry into force of the new regulation, it was required that the interested party had been a non-resident for tax purposes in Spain for a period of more than 10 years so many managers were temporarily displaced outside Spain could not benefit from this regime because they had not been outside Spanish territory for more than 10 years (the displacements are not usually so long) and with the entry into force of the new legal text, the previous period of non-residence has been reduced to five (5) years.

      The great advantage of this regime is that its beneficiaries (individuals) can opt to pay the Non-Resident Income Tax (IRNR), during the tax period in which the change of residence takes place and during the following five tax periods. This means that in the determination of the taxable income, part of the income that the interested party may obtain worldwide is not taxed and, in addition, that up to 600,000 euros of taxable income, the applicable tax rate would be 24% (all of which is undoubtedly an enormous tax advantage with respect to the applicable tax regime, in the same circumstances of income, to a tax resident in Spain without the coverage of this special regime).

      In any case, it is important to emphasize that the application of this advantageous tax regime requires a previous and express request by the interested party, that is to say, first « knocking at the door » of the Treasury and, therefore, it is very important to make sure that all the requirements demanded by the Law are fulfilled very scrupulously, so it is always especially advisable to request in advance and with the due detail the appropriate legal advice in this respect.

      Summary

      Spain’s Labour and Social Security Inspectorate has inspected the « Big Four » firms to control working time and overtime, which employees claim is regularly exceeded. Spanish law requires companies to record workers’ start and end times each day to prevent employees from working longer than the stipulated day. Companies failing to comply can face fines and even criminal charges. The inspections could set a precedent for firms in the auditing and consultancy sectors.

      In recent days, the press has reported on the « macro-inspection » carried out in the « Big Four » (the most important firms in the consultancy and auditing sector) by the labour authority, namely the Labour and Social Security Inspectorate (“Inspección de Trabajo y Seguridad Social”).

      The aim of this inspection is, fundamentally, the control of working time, overtime and time recording, all aspects which, according to the workers themselves, are flagrantly breached by the aforementioned companies.

      Thus, it seems to be a general trend that the employees of the « Big Four » work up to 12 hours a day (« from nine to nine »), which means approximately 4 hours of overtime a day; overtime that, to make matters worse, is not compensated either financially or by days off. Being forced to work during rest periods, such as weekends or holidays, is also common practice.

      Given the situation and the facts described above, how can they be transferred to the legal plane? What breaches would the « Big Four » be committing, and what responsibilities would they have to face, in accordance with our Labour Law?

      Well, firstly, since 2019, the year in which Royal Decree-Law 8/2019 of 8 March came into force, the company is obliged to keep a daily record of the working day, including the specific start and end times of each worker’s working day. The purpose of this measure is, precisely, to avoid what happens in the « Big Four », that is, that employees work longer than the established working day, which, in the words of the Explanatory Memorandum of the aforementioned regulation, produces a clear negative effect on the labour market:

      « The performance of working time in excess of the legally or conventionally established working day has a substantial impact on the precariousness of the labour market, by affecting two essential elements of the employment relationship, working time, with a relevant influence on the personal life of the worker by making it difficult to reconcile family life, and salary. It also impacts Social Security contributions, which are reduced as they are not paid for the salary corresponding to the working day ».

      The daily record of each worker’s working day is thus an essential element for the purposes of calculating overtime, i.e., those hours worked over the maximum duration of the ordinary working day, and which must, in any event, be compensated, either financially or through equivalent paid rest periods; in addition to also having a quantitative limit, insofar as article 35.2 of the Workers’ Statute provides that the number of overtime hours may not exceed 80 per year.

      No less important is the certainly novel « right to digital disconnection in the workplace », which takes the form of the worker’s right to guarantee, outside the legally or conventionally established working time, respect for their rest time, leave and holidays, as well as their personal and family privacy, and which is recognized in article 88 of our current Personal Data Protection Act.

      At this point, what happens then if the company transgresses the legal rules and limits on working hours, overtime, rest breaks, holidays, working time records and, in general, working time, as apparently occurs in the cases described at the beginning of this article?

      Well, it faces a financial fine of 751 euros in the minimum grade, and up to 7,500 euros in the worst case, according to the Law on Infractions and Penalties in the Social Order.

      In the worst-case scenario, a possible criminal liability could even be considered for allegedly committing an offense against workers’ rights. This is by no means a trivial matter, as our Criminal Code provides for such offenses to be punishable not only by a fine but also by imprisonment.

      Conclusion

      We are faced with the possibility that the Labour Inspectorate’s action with regard to the so-called « Big Four » will set a precedent with regard to the prohibition of endless working hours, so common in sectors such as auditing or consultancy, which will also benefit the working conditions of workers as a whole.

      Where is it more suitable to set up a new limited liability company in Europe?

      I will deal in this article with two countries I know well (Spain and The Netherlands) and focus on the minimum capital requested and the online incorporation of a limited liability company, sharing some thoughts and my takeaways.

      Spain: the “Create and Grow Law”

      In Spain, the Business Creation and Growth Law 18/2022, of September 28, 2022 (related to aspects of incorporation of companies), known as the “Create and Grow Law”, was approved last September within the framework of the Recovery, Transformation and Resilience Plan of the Spanish government. This plan channels European funds to alleviate the consequences of the Covid-19 crisis. This law is an initiative that reflects this flexibility and, as its explanatory statement indicates, aims to encourage the creation and growth of companies, in order to contribute to the economic growth of the country and its long-term resilience. Spain thus aligns itself with other neighboring countries, where there is no minimum capital to set up a company of this type.

      Is this new law interesting for foreign investors or companies looking to establish themselves in Spain?

      It is certainly very interesting. The fact that the Spanish legislator abandons this reference figure of 3,000 euros is very favorable for medium-large companies willing to have a permanent establishment in Spain Nevertheless, as long as the capital does not reach the figure of €3,000, the following rules will be applied, which are intended to protect the interests of creditors or third parties that contract with the company:  (i) 20% of the profit must be allocated to the legal reserve until said reserve together with the social capital reach the figure of €3,000 (the legislator seeks that the SLs constituted in this way do not remain « undercapitalized »), and (ii) as a safeguard clause for creditors of the company, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros.

      Online incorporation of a company in Spain

      The « CIRCE system » (procedure dependent on the Ministry of Industry, Commerce and Tourism that allows the start of the process of creating companies « over the Internet » ) entails an electronic procedure through agreements and communications with all the organizations and administrations that intervene in the process of incorporating companies.

      The entrepreneur will only have to complete the Single Electronic Document (DUE) that includes a multitude of forms and CIRCE will automatically carry out all the necessary procedures to establish the company, communicating with all the organizations involved (Tax Agency, Social Security, Mercantile Registry, Notary, etc.). There is an obligation to review and sign the DUE before sending it. This system is not active yet, but it is expected that it will be in place when other complementary laws that support this digital process are approved by the Spanish Legislator which is necessary for the well-functioning of the system.

      The Netherlands: The Flex BV law

      The Flex BV law came into force on October 4, 2011. This law has given a lot of flexibility to the incorporation of new limited liability companies which has been very favorable for international companies working with different product lines, allowing to have one company for every product or service offered.

      The Flex BV law has, among others, the following characteristics:

      • the creation of a Limited Liability Company is flexible, easy to establish and without many costs;
      • it only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a limited liability company, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

      Online incorporation of a company in the Netherlands

       In the case of the Netherlands, in the Explanatory Memorandum of the bill implementing the Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 with regard to the use of digital instruments, it is proposed that incorporation of a BV electronically is only possible if payment on the shares takes place in cash, in order to initially limit the online formation of companies to simple situations. If it turns out that online formation works well, it can be considered whether it is useful to extend this possibility to situations in which contributions are made in a manner other than in money. Incorporation by natural persons using a model deed of incorporation must be possible within five working days from the date on which the notary has received all documents and information from the applicant or the date of payment of the share capital.

      The incorporation of a BV digitally is postponed to the summer of 2023 since the House Committee for Justice and Security has decided that the act must be discussed in plenary.

      The so called DOBV-system (Digital establishment of a BV), will entail a change in a number of work processes in the notaries in The Netherlands but for the Chamber of Commerce, no major changes will follow because the civil-law notary will supply the registration documents digitally to the Chamber of Commerce. Consequences the civil-law notary is the one who will have to offer a certain digital form of service, which citizens and companies will be able to use.

      What positive and negative aspects can be highlighted?

      Positives aspects:

      • it is very positive that through this new standard, many investors or international companies from both countries will be encouraged to create new SPVs, as the minimum capital is considered by many companies as a “barrier to entry”;
      • it will expedite the procedures for incorporating companies, essential vehicles for channeling the economic activities of businessmen in their transcendental task of creating wealth and employment, without notary and registration costs;
      • it will create a healthy competition between all the Notaries in Spain and between the notaries of Spain and the Netherlands. The Dutch notary bond expects that a further digitization of the notarial process could be achieved first in the real estate chain and subsequently also in business practice. It is important that the business market may be capable to respond quickly to this demand;
      • the share capital of a company will serve its partners to have the necessary funds with which to start their project, acquire the goods and resources necessary to start the economic activity and consolidate a long-term project (such as, for example, to buy the goods and services necessary to start up activities or to hire employees);
      • it creates business growth through financing alternatives to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

      Negatives aspects:

      • to search financing externally to start the company’s activity, which will also surely have a cost (in the form of loans, for example, with their corresponding interest rate). Additionally, in the short or medium term the company must have a capital increase to normalize their patrimonial situation and solve this evident « underfinancing » of own resources, with which, this will also suppose an additional cost in the form of notary and registry fees that must be faced in the medium or long term after the incorporation;
      • the possibility of establishing a limited liability company with only 1 euro of share capital can facilitate the creation of fictitious legal entities by people who do not wish to carry out a real economic activity, but only use the companies as a suitable instrument for the development of legal or illegal activities;
      • additionally, it also implies a clear risk for the legal certainty and the responsibility of those companies in large contracts with third parties, leaving a limit to their minimum liability while their businesses are millionaires;
      • the online constitution system can be rigid and can also generate management and processing problems if the interested parties have not been properly advised and guided by the professionals involved before arriving at the Notary. Additionally, CIRCE’s telematic systems must function properly in order to correctly serve all those interested in the constitution of a capital company;
      • there are new requirements for companies related to anti-laundry controls, for instance, to include relevant information on invoices and payments to suppliers in their annual reports and on their corporate website.

      Conclusions

      Although it may apparently imply a boom in the creation of limited liability companies due to the ease of incorporation, there is still much to be done at the level of corporate law at the national level and collaboration between notaries of both countries.

      Spain is, with the entering into force of the Law Creation and Growth, considered among the most advanced countries in facilitating the creation of companies, reducing regulatory obstacles and favoring business restructuring and viability. The final decision will depend on the specific needs of the business, access to finance and tax regime, among others.

      Additionally, to the incorporation flexibilities, we must not forget a couple of important aspects for the shareholders and directors to be aware of:

      • a company needs to be managed as well and we need to be aware of the treasury, labor or other obligations of the companies already incorporated, even if they are non-active, they must continue to publish the annual accounts and complying with all governance requirements and formal public register notifications;
      • the responsibility of the shareholders is also important to consider. A shareholder who has direct involvement in the management, may face liability in case of bankruptcy, also in the country where the subsidiary is located. As mentioned above, in Spain, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros;
      • the last important aspect when you are doing business mainly in Europe is to consider restructuring your business or consider other forms of incorporation of companies, depending of the business model that you have opted to, for instance the use of the Societas Europaea (SE) which has the possibility to set up a holding company or a joint subsidiary together and to transfer the seat of the company without winding up the entity. The disadvantage is that you need €120,000 starting capital to set up and to have a minimum of 2 companies governed by the laws of different Member States. Other forms of incorporation are the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).

      If you need additional information or you are planning to incorporate a limited liability company in Spain or in The Netherlands, get in touch to know more about your options and the right corporate advice for your business.

      What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

      The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

      The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

      Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

      The judgment in question is doubly interesting.

      Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

      As the Constitutional Court very recently reiterated in its ruling dated last October, « judicial slowness has no place in the Magna Carta ». But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

      Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

      The plaintiffs sought the nullity of certain resolutions adopted at a shareholders’ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

      The legislation in force at the time the meeting was held (prior to the 2014 reform) established that « resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties » could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

      Following the 2014 reform, article 204 considers that « corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties » can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

      But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to « law » in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an « abuse of rights », can such a situation be considered as « contrary to law » for the purposes of the application of article 204 LSC?

      The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

      • formal or outwardly correct use of a right
      • causing damage to an interest not protected by a specific legal prerogative, and
      • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

      And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

      The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

      And on these premises, the Supreme Court reiterates and insists that the expression « contrary to the law » in article 204 LSC must be understood as « contrary to the legal system », which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

      And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

      It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

      And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an « in extremis » recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

      Javier Gaspar Álvarez-Novoa

      Domaines d'intervention

      • Art
      • Contrats
      • Entreprise
      • Recouvrement des crédits
      • Investissements étrangers
      Contact Javier

      Écrire à Javier





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        « Big Four » firms accused of breaching Spanish labor laws on overtime

        20 février 2023

        • Espagne
        • Travail

        The commercial agent has the right to obtain certain information about the sales of the principal. The Spanish Law on Agency Contracts provides (15.2 LCA) that the agent has the right to demand to see the accounts of the principal in order to verify all matters relating to the commissions due to him. And also, to be provided with the information available to the principal and necessary to verify the amount of such commissions.

        This article is in line with the 1986 Commercial Agents Directive, according to which (12.3) the agent is entitled to demand to be provided with all information at the disposal of the principal, particularly an extract from the books of account, which is necessary to verify the amount of commission due to the agent. This may not be altered to the detriment of the commercial agent by agreement.

        The question is, does this right remain even after the termination of the agency contract? In other words: once the agency contract is terminated, can the agent request the information and documentation mentioned in these articles and is the Principal obliged to provide it?

        In our opinion, the rule does not say anything that limits this right, rather the opposite is to be expected. Therefore, to the extent that there is still any possible commission that may arise from such verification, the answer must be yes. Let us see.

        The right to demand the production of accounts exists so that the agent can verify the amount of commissions. And the agent is entitled to commissions for acts and operations concluded during the term of the contract (art. 12 LCA), but also for acts or operations concluded after the termination of the contract (art. 13 LCA), and for operations not carried out due to circumstances attributable to the principal (art. 17 LCA). In addition, the agent is entitled to have the commission accrued at the time when the act or transaction should have been executed (art. 14 LCA).

        All these transactions can take place after the conclusion of the contract. Consider the usual situation where orders are placed during the contract but are accepted or executed afterwards. To reduce the agent’s right to be informed only during the term of the contract would be to limit his entitlement to the corresponding commission unduly. And it should be borne in mind that the amount of the commissions during the last five years may also influence the calculation of the client (goodwill) indemnity (art. 28 LCA), so that the agent’s interest in knowing them is twofold: what he would receive as commission, and what could increase the basis for future indemnity.

        This has been confirmed, for example, by the Provincial Court (Audiencia Provincial) of Madrid (AAP 227/2017, of 29 June [ECLI:ES:APM:2017:2873A]) which textually states:

        […] art. 15.2 of the Agency Contract Act provides for the right of the agent to demand the exhibition of the Principal’s accounts in the particulars necessary to verify everything relating to the commissions corresponding to him, as well as to be provided with the information available to the Principal and necessary to verify the amount. This does not prevent, […], the agency contract having already been terminated, as this does not imply that commissions would cease to accrue for policies, contracted with the mediation of the agent, which remain in force.

        The question then arises as to whether this right to information is unlimited in time. And here the answer would be in the negative. The limitation of the right to receive information would be linked to the statute of limitations of the right to claim the corresponding commission. If the right to receive the commission were undoubtedly time-barred, it could be argued that it would not be possible to receive information about it. But for such an exception, the statute of limitations must be clear, therefore, taking into account possible interruptions due to claims, even extrajudicial ones. In case of doubt, it will be necessary to recognise the right to demand the information, without prejudice to later invoking and recognising the impossibility of claiming the commission if the right is time-barred. And for this we must consider the limitation period for claiming commissions (in general, three years) and that of the right to claim compensation for clientele (one year).

        In short: it does not seem that the right to receive information and to examine the principal’s documentation is limited by the term of the agency contract; although, on the other hand, it would be appropriate to analyse the possible limitation period for claiming commissions. In the absence of a clear answer to this question, the right to information should, in our opinion, prevail, without prejudice to the fact that the result may not entitle the claim because it is time-barred.

        Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

        And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

        We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

        Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

        The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

        The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

        The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

        Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

        In summary and by way of conclusion

        The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

        And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

        So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.

        In this first episode of Legalmondo’s Distribution Talks series, I spoke with Ignacio Alonso, a Madrid-based lawyer with extensive experience in international commercial distribution.

        Main discussion points:

        • in Spain, there is no specific law for distribution agreements, which are governed by the general rules of the Commercial Code;
        • therefore, it is essential to draft a clear and comprehensive contract, which will be the primary source of the parties’ rights and obligations;
        • it is also good to be aware of Spanish case law on commercial distribution, which in some cases applies the law on commercial agency by analogy.
        • the most common issues involving foreign producers distributing in Spain arise at the time of termination of the relationship, mainly because case law grants the terminated distributor an indemnity of clientele or goodwill if similar prerequisites to those in the agency regulations apply.
        • another frequent dispute concerns the adequacy of the notice period for terminating the contract, especially if there is no agreement between the parties: the advice is to follow what the agency regulations stipulate and thus establish a minimum notice period of one month for each year of the contract’s duration, up to 6 months for agreements lasting more than five years;
        • regarding dispute resolution tools, mediation is an option that should be carefully considered because it is quick, inexpensive, and allows a shared solution to be sought flexibly without disrupting the business relationship.
        • if mediation fails, the parties can provide for recourse to arbitration or state court. The choice depends on the case’s specific circumstances, and one factor in favor of jurisdiction is the possibility of appeal, which is excluded in the case of arbitration.

        Go deeper

        Accepting the position of director (administrator or CEO) in a Spanish company entails increasing risks. Indeed, the Supreme Court – ruling by ruling – is outlining and interpreting the precepts of the Capital Companies Act (LSC) with an increasingly rigorous and demanding approach when it comes to delimiting the framework of directors’ liability.

        Of course, the content of Article 43.1 b) of the General Tax Law is not new at all when it lays the foundations for the subsidiary liability of directors for debts owed to the Tax Agency:

        The following persons or entities shall be subsidiarily liable for the tax debt:

        b) The de facto or de jure administrators of those legal entities that have ceased their activities, for the accrued tax obligations of these that are pending at the time of the cessation, provided that they have not done what is necessary for their payment or have adopted agreements or taken measures causing the non-payment.

        It could be deduced from the reading of the transcribed provision that the subsidiary liability of the directors who, at the time of the cessation of the corporate activity, effectively held the position of director, was established; but that the liability would not reach those directors who had been so in the past but were no longer directors at the time when the company had ceased to act in the legal and economic traffic, for the tax debts pending at that time.

        Well, the Supreme Court (Third Chamber) in its recent judgment of March 7th, 2023, hammers one more nail in the coffin of the liability of the directors.

        The case that was the subject of the ruling consisted of determining the subsidiary liability to the Tax Agency of a director whose position had expired (due to the expiration of the statutory term) and who had called a general meeting for the appointment of new members of the administrative body of the company.

        The Supreme Court understands (and establishes a doctrine for the purposes of appeal) that the director with an expired position does not « exhaust » his obligations with the call of the meeting in question, but must also, pursuant to art. 365 LSC call another general meeting to adopt the resolution to file for insolvency or dissolution due to the existence of the causes of art. 363 LSC a) (cessation of activity) and d) (paralysis of the corporate bodies) as well as, if applicable, the request for judicial dissolution in his capacity as an interested party (art. 366.1 LSC).

        The reproachable conduct according to the Supreme Court (which triggers the subsidiary liability) consists in the fact that, facing the cessation of the activity of the company, the only thing he did was to call a meeting for the appointment of a new director and therefore « it did not carry out the necessary acts to be able to face the payment of the tax debts, thus meeting the subjective element necessary to be able to declare its liability ».

        The court ruling insists that the condition of director is not lost with the exhaustion of the mandate due to the expiration of the position since the mercantile and fiscal obligations persist; and that the call of a meeting to appoint a new director is not enough to understand that such meeting, once held, deprives the director with expired position of the condition of director, when there is a cause of dissolution that would have obliged to call another meeting with another object and another agenda to agree on the dissolution of the inactive company.

        But what is remarkable and striking in this case is that the meeting called by the director (with expired position) for the appointment of new a new director was held in June 2012, the resolutions were made public on March 1st, 2013, they were registered in the commercial registry in July of the same year and the judgment expressly states that the cessation of corporate activity occurred in April 2013 (i.e. when the meeting for the appointment of new administrators had already been held, June 2012, and when the appointment of the new director had already been made public, March 1st, 2013).

        The court resolution reads as follows:

        « Given the date on which the cessation of the business activity was established by the judgment a quo, April 2013, the appellant should still be considered as a director of the company in that capacity, his conduct should be considered negligent for the purposes of inclusion in the cause of subsidiary liability of art. 43.1.b) LGT ». 

        The claimant director argued that Art. 222 LSC and Art. 145.1 RRM state that the appointment of directors will expire, among other cases, when the term has expired and the meeting for the appointment of a new director has been held (or the term for its holding has elapsed) that is to resolve on the approval of the accounts of the previous year. And he explained that on top of that, he had fulfilled his obligations as director calling for a general shareholders meeting where new directors were appointed 9 months before the company ceased its activities. Therefore, he no longer was a “director” on April 2103.

        Despite of that argument the Supreme Court insists that, whether or not the position has expired, said expiration does not exhaust or extinguish his responsibilities as director, which must be interpreted extensively: it is not enough for him to call a meeting for the appointment of new directors, but he must act to dissolve the company or file for insolvency proceedings, as if the position had full and complete validity. 

        Thus, after this strong ruling, the directors of Spanish companies, in the event of termination of the activity, even if their position has expired, must know that their liability (and specifically the subsidiary liability for tax debts) will only be released if they call a meeting to dissolve the company, if the meeting does not adopt such resolution, if they request the court for the judicial dissolution or if they file voluntary insolvency proceedings.

        To summarize, they will be liable if they do not act in the same way as if their position were still in full force and effect. As we said above, it is necessary to think very much about accepting positions of director of Spanish companies.

        The so-called « Startup Law » in Spain (Law for the promotion of the emerging company’s ecosystem) after passing the corresponding filters, has been approved by the Spanish Parliament.

        Among its various provisions on startups – which will be the subject of another article – the Startup Law also amended the « Beckham Law » (as this football player is the best known of those who benefited from this law), i.e. the special tax regime applicable to workers, professionals, entrepreneurs, and investors moving from abroad to Spain.

        This regime grants enormous tax advantages to Spanish foreigners, who move their residence to Spain under certain circumstances which, in summary, are:

        • relocation as a consequence of an employment contract.
        • displacement that is ordered by the foreign employer with a letter of displacement to Spain.
        • displacement without being ordered by the employer and the labor activity is provided remotely by means of the exclusive use of electronic means.
        • acquisition of the condition of administrator of a company.
        • for the realization in Spain of an economic activity qualified as entrepreneurial activity.
        • highly qualified professional providing services to emerging companies.

        The great novelty is that, until the entry into force of the new regulation, it was required that the interested party had been a non-resident for tax purposes in Spain for a period of more than 10 years so many managers were temporarily displaced outside Spain could not benefit from this regime because they had not been outside Spanish territory for more than 10 years (the displacements are not usually so long) and with the entry into force of the new legal text, the previous period of non-residence has been reduced to five (5) years.

        The great advantage of this regime is that its beneficiaries (individuals) can opt to pay the Non-Resident Income Tax (IRNR), during the tax period in which the change of residence takes place and during the following five tax periods. This means that in the determination of the taxable income, part of the income that the interested party may obtain worldwide is not taxed and, in addition, that up to 600,000 euros of taxable income, the applicable tax rate would be 24% (all of which is undoubtedly an enormous tax advantage with respect to the applicable tax regime, in the same circumstances of income, to a tax resident in Spain without the coverage of this special regime).

        In any case, it is important to emphasize that the application of this advantageous tax regime requires a previous and express request by the interested party, that is to say, first « knocking at the door » of the Treasury and, therefore, it is very important to make sure that all the requirements demanded by the Law are fulfilled very scrupulously, so it is always especially advisable to request in advance and with the due detail the appropriate legal advice in this respect.

        Summary

        Spain’s Labour and Social Security Inspectorate has inspected the « Big Four » firms to control working time and overtime, which employees claim is regularly exceeded. Spanish law requires companies to record workers’ start and end times each day to prevent employees from working longer than the stipulated day. Companies failing to comply can face fines and even criminal charges. The inspections could set a precedent for firms in the auditing and consultancy sectors.

        In recent days, the press has reported on the « macro-inspection » carried out in the « Big Four » (the most important firms in the consultancy and auditing sector) by the labour authority, namely the Labour and Social Security Inspectorate (“Inspección de Trabajo y Seguridad Social”).

        The aim of this inspection is, fundamentally, the control of working time, overtime and time recording, all aspects which, according to the workers themselves, are flagrantly breached by the aforementioned companies.

        Thus, it seems to be a general trend that the employees of the « Big Four » work up to 12 hours a day (« from nine to nine »), which means approximately 4 hours of overtime a day; overtime that, to make matters worse, is not compensated either financially or by days off. Being forced to work during rest periods, such as weekends or holidays, is also common practice.

        Given the situation and the facts described above, how can they be transferred to the legal plane? What breaches would the « Big Four » be committing, and what responsibilities would they have to face, in accordance with our Labour Law?

        Well, firstly, since 2019, the year in which Royal Decree-Law 8/2019 of 8 March came into force, the company is obliged to keep a daily record of the working day, including the specific start and end times of each worker’s working day. The purpose of this measure is, precisely, to avoid what happens in the « Big Four », that is, that employees work longer than the established working day, which, in the words of the Explanatory Memorandum of the aforementioned regulation, produces a clear negative effect on the labour market:

        « The performance of working time in excess of the legally or conventionally established working day has a substantial impact on the precariousness of the labour market, by affecting two essential elements of the employment relationship, working time, with a relevant influence on the personal life of the worker by making it difficult to reconcile family life, and salary. It also impacts Social Security contributions, which are reduced as they are not paid for the salary corresponding to the working day ».

        The daily record of each worker’s working day is thus an essential element for the purposes of calculating overtime, i.e., those hours worked over the maximum duration of the ordinary working day, and which must, in any event, be compensated, either financially or through equivalent paid rest periods; in addition to also having a quantitative limit, insofar as article 35.2 of the Workers’ Statute provides that the number of overtime hours may not exceed 80 per year.

        No less important is the certainly novel « right to digital disconnection in the workplace », which takes the form of the worker’s right to guarantee, outside the legally or conventionally established working time, respect for their rest time, leave and holidays, as well as their personal and family privacy, and which is recognized in article 88 of our current Personal Data Protection Act.

        At this point, what happens then if the company transgresses the legal rules and limits on working hours, overtime, rest breaks, holidays, working time records and, in general, working time, as apparently occurs in the cases described at the beginning of this article?

        Well, it faces a financial fine of 751 euros in the minimum grade, and up to 7,500 euros in the worst case, according to the Law on Infractions and Penalties in the Social Order.

        In the worst-case scenario, a possible criminal liability could even be considered for allegedly committing an offense against workers’ rights. This is by no means a trivial matter, as our Criminal Code provides for such offenses to be punishable not only by a fine but also by imprisonment.

        Conclusion

        We are faced with the possibility that the Labour Inspectorate’s action with regard to the so-called « Big Four » will set a precedent with regard to the prohibition of endless working hours, so common in sectors such as auditing or consultancy, which will also benefit the working conditions of workers as a whole.

        Where is it more suitable to set up a new limited liability company in Europe?

        I will deal in this article with two countries I know well (Spain and The Netherlands) and focus on the minimum capital requested and the online incorporation of a limited liability company, sharing some thoughts and my takeaways.

        Spain: the “Create and Grow Law”

        In Spain, the Business Creation and Growth Law 18/2022, of September 28, 2022 (related to aspects of incorporation of companies), known as the “Create and Grow Law”, was approved last September within the framework of the Recovery, Transformation and Resilience Plan of the Spanish government. This plan channels European funds to alleviate the consequences of the Covid-19 crisis. This law is an initiative that reflects this flexibility and, as its explanatory statement indicates, aims to encourage the creation and growth of companies, in order to contribute to the economic growth of the country and its long-term resilience. Spain thus aligns itself with other neighboring countries, where there is no minimum capital to set up a company of this type.

        Is this new law interesting for foreign investors or companies looking to establish themselves in Spain?

        It is certainly very interesting. The fact that the Spanish legislator abandons this reference figure of 3,000 euros is very favorable for medium-large companies willing to have a permanent establishment in Spain Nevertheless, as long as the capital does not reach the figure of €3,000, the following rules will be applied, which are intended to protect the interests of creditors or third parties that contract with the company:  (i) 20% of the profit must be allocated to the legal reserve until said reserve together with the social capital reach the figure of €3,000 (the legislator seeks that the SLs constituted in this way do not remain « undercapitalized »), and (ii) as a safeguard clause for creditors of the company, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros.

        Online incorporation of a company in Spain

        The « CIRCE system » (procedure dependent on the Ministry of Industry, Commerce and Tourism that allows the start of the process of creating companies « over the Internet » ) entails an electronic procedure through agreements and communications with all the organizations and administrations that intervene in the process of incorporating companies.

        The entrepreneur will only have to complete the Single Electronic Document (DUE) that includes a multitude of forms and CIRCE will automatically carry out all the necessary procedures to establish the company, communicating with all the organizations involved (Tax Agency, Social Security, Mercantile Registry, Notary, etc.). There is an obligation to review and sign the DUE before sending it. This system is not active yet, but it is expected that it will be in place when other complementary laws that support this digital process are approved by the Spanish Legislator which is necessary for the well-functioning of the system.

        The Netherlands: The Flex BV law

        The Flex BV law came into force on October 4, 2011. This law has given a lot of flexibility to the incorporation of new limited liability companies which has been very favorable for international companies working with different product lines, allowing to have one company for every product or service offered.

        The Flex BV law has, among others, the following characteristics:

        • the creation of a Limited Liability Company is flexible, easy to establish and without many costs;
        • it only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a limited liability company, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

        Online incorporation of a company in the Netherlands

         In the case of the Netherlands, in the Explanatory Memorandum of the bill implementing the Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 with regard to the use of digital instruments, it is proposed that incorporation of a BV electronically is only possible if payment on the shares takes place in cash, in order to initially limit the online formation of companies to simple situations. If it turns out that online formation works well, it can be considered whether it is useful to extend this possibility to situations in which contributions are made in a manner other than in money. Incorporation by natural persons using a model deed of incorporation must be possible within five working days from the date on which the notary has received all documents and information from the applicant or the date of payment of the share capital.

        The incorporation of a BV digitally is postponed to the summer of 2023 since the House Committee for Justice and Security has decided that the act must be discussed in plenary.

        The so called DOBV-system (Digital establishment of a BV), will entail a change in a number of work processes in the notaries in The Netherlands but for the Chamber of Commerce, no major changes will follow because the civil-law notary will supply the registration documents digitally to the Chamber of Commerce. Consequences the civil-law notary is the one who will have to offer a certain digital form of service, which citizens and companies will be able to use.

        What positive and negative aspects can be highlighted?

        Positives aspects:

        • it is very positive that through this new standard, many investors or international companies from both countries will be encouraged to create new SPVs, as the minimum capital is considered by many companies as a “barrier to entry”;
        • it will expedite the procedures for incorporating companies, essential vehicles for channeling the economic activities of businessmen in their transcendental task of creating wealth and employment, without notary and registration costs;
        • it will create a healthy competition between all the Notaries in Spain and between the notaries of Spain and the Netherlands. The Dutch notary bond expects that a further digitization of the notarial process could be achieved first in the real estate chain and subsequently also in business practice. It is important that the business market may be capable to respond quickly to this demand;
        • the share capital of a company will serve its partners to have the necessary funds with which to start their project, acquire the goods and resources necessary to start the economic activity and consolidate a long-term project (such as, for example, to buy the goods and services necessary to start up activities or to hire employees);
        • it creates business growth through financing alternatives to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

        Negatives aspects:

        • to search financing externally to start the company’s activity, which will also surely have a cost (in the form of loans, for example, with their corresponding interest rate). Additionally, in the short or medium term the company must have a capital increase to normalize their patrimonial situation and solve this evident « underfinancing » of own resources, with which, this will also suppose an additional cost in the form of notary and registry fees that must be faced in the medium or long term after the incorporation;
        • the possibility of establishing a limited liability company with only 1 euro of share capital can facilitate the creation of fictitious legal entities by people who do not wish to carry out a real economic activity, but only use the companies as a suitable instrument for the development of legal or illegal activities;
        • additionally, it also implies a clear risk for the legal certainty and the responsibility of those companies in large contracts with third parties, leaving a limit to their minimum liability while their businesses are millionaires;
        • the online constitution system can be rigid and can also generate management and processing problems if the interested parties have not been properly advised and guided by the professionals involved before arriving at the Notary. Additionally, CIRCE’s telematic systems must function properly in order to correctly serve all those interested in the constitution of a capital company;
        • there are new requirements for companies related to anti-laundry controls, for instance, to include relevant information on invoices and payments to suppliers in their annual reports and on their corporate website.

        Conclusions

        Although it may apparently imply a boom in the creation of limited liability companies due to the ease of incorporation, there is still much to be done at the level of corporate law at the national level and collaboration between notaries of both countries.

        Spain is, with the entering into force of the Law Creation and Growth, considered among the most advanced countries in facilitating the creation of companies, reducing regulatory obstacles and favoring business restructuring and viability. The final decision will depend on the specific needs of the business, access to finance and tax regime, among others.

        Additionally, to the incorporation flexibilities, we must not forget a couple of important aspects for the shareholders and directors to be aware of:

        • a company needs to be managed as well and we need to be aware of the treasury, labor or other obligations of the companies already incorporated, even if they are non-active, they must continue to publish the annual accounts and complying with all governance requirements and formal public register notifications;
        • the responsibility of the shareholders is also important to consider. A shareholder who has direct involvement in the management, may face liability in case of bankruptcy, also in the country where the subsidiary is located. As mentioned above, in Spain, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros;
        • the last important aspect when you are doing business mainly in Europe is to consider restructuring your business or consider other forms of incorporation of companies, depending of the business model that you have opted to, for instance the use of the Societas Europaea (SE) which has the possibility to set up a holding company or a joint subsidiary together and to transfer the seat of the company without winding up the entity. The disadvantage is that you need €120,000 starting capital to set up and to have a minimum of 2 companies governed by the laws of different Member States. Other forms of incorporation are the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).

        If you need additional information or you are planning to incorporate a limited liability company in Spain or in The Netherlands, get in touch to know more about your options and the right corporate advice for your business.

        What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

        The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

        The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

        Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

        The judgment in question is doubly interesting.

        Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

        As the Constitutional Court very recently reiterated in its ruling dated last October, « judicial slowness has no place in the Magna Carta ». But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

        Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

        The plaintiffs sought the nullity of certain resolutions adopted at a shareholders’ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

        The legislation in force at the time the meeting was held (prior to the 2014 reform) established that « resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties » could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

        Following the 2014 reform, article 204 considers that « corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties » can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

        But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to « law » in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an « abuse of rights », can such a situation be considered as « contrary to law » for the purposes of the application of article 204 LSC?

        The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

        • formal or outwardly correct use of a right
        • causing damage to an interest not protected by a specific legal prerogative, and
        • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

        And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

        The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

        And on these premises, the Supreme Court reiterates and insists that the expression « contrary to the law » in article 204 LSC must be understood as « contrary to the legal system », which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

        And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

        It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

        And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an « in extremis » recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

        Javier Gaspar

        Domaines d'intervention

        • Arbitrage
        • Distribution
        • Franchise
        • Litiges
        • Sport
        Contact Javier

        Écrire à Javier





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          The incorporation of limited liability companies in The Netherlands and in Spain

          24 janvier 2023

          • Pays-Bas
          • Espagne
          • Entreprise

          The commercial agent has the right to obtain certain information about the sales of the principal. The Spanish Law on Agency Contracts provides (15.2 LCA) that the agent has the right to demand to see the accounts of the principal in order to verify all matters relating to the commissions due to him. And also, to be provided with the information available to the principal and necessary to verify the amount of such commissions.

          This article is in line with the 1986 Commercial Agents Directive, according to which (12.3) the agent is entitled to demand to be provided with all information at the disposal of the principal, particularly an extract from the books of account, which is necessary to verify the amount of commission due to the agent. This may not be altered to the detriment of the commercial agent by agreement.

          The question is, does this right remain even after the termination of the agency contract? In other words: once the agency contract is terminated, can the agent request the information and documentation mentioned in these articles and is the Principal obliged to provide it?

          In our opinion, the rule does not say anything that limits this right, rather the opposite is to be expected. Therefore, to the extent that there is still any possible commission that may arise from such verification, the answer must be yes. Let us see.

          The right to demand the production of accounts exists so that the agent can verify the amount of commissions. And the agent is entitled to commissions for acts and operations concluded during the term of the contract (art. 12 LCA), but also for acts or operations concluded after the termination of the contract (art. 13 LCA), and for operations not carried out due to circumstances attributable to the principal (art. 17 LCA). In addition, the agent is entitled to have the commission accrued at the time when the act or transaction should have been executed (art. 14 LCA).

          All these transactions can take place after the conclusion of the contract. Consider the usual situation where orders are placed during the contract but are accepted or executed afterwards. To reduce the agent’s right to be informed only during the term of the contract would be to limit his entitlement to the corresponding commission unduly. And it should be borne in mind that the amount of the commissions during the last five years may also influence the calculation of the client (goodwill) indemnity (art. 28 LCA), so that the agent’s interest in knowing them is twofold: what he would receive as commission, and what could increase the basis for future indemnity.

          This has been confirmed, for example, by the Provincial Court (Audiencia Provincial) of Madrid (AAP 227/2017, of 29 June [ECLI:ES:APM:2017:2873A]) which textually states:

          […] art. 15.2 of the Agency Contract Act provides for the right of the agent to demand the exhibition of the Principal’s accounts in the particulars necessary to verify everything relating to the commissions corresponding to him, as well as to be provided with the information available to the Principal and necessary to verify the amount. This does not prevent, […], the agency contract having already been terminated, as this does not imply that commissions would cease to accrue for policies, contracted with the mediation of the agent, which remain in force.

          The question then arises as to whether this right to information is unlimited in time. And here the answer would be in the negative. The limitation of the right to receive information would be linked to the statute of limitations of the right to claim the corresponding commission. If the right to receive the commission were undoubtedly time-barred, it could be argued that it would not be possible to receive information about it. But for such an exception, the statute of limitations must be clear, therefore, taking into account possible interruptions due to claims, even extrajudicial ones. In case of doubt, it will be necessary to recognise the right to demand the information, without prejudice to later invoking and recognising the impossibility of claiming the commission if the right is time-barred. And for this we must consider the limitation period for claiming commissions (in general, three years) and that of the right to claim compensation for clientele (one year).

          In short: it does not seem that the right to receive information and to examine the principal’s documentation is limited by the term of the agency contract; although, on the other hand, it would be appropriate to analyse the possible limitation period for claiming commissions. In the absence of a clear answer to this question, the right to information should, in our opinion, prevail, without prejudice to the fact that the result may not entitle the claim because it is time-barred.

          Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

          And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

          We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

          Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

          The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

          The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

          The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

          Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

          In summary and by way of conclusion

          The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

          And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

          So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.

          In this first episode of Legalmondo’s Distribution Talks series, I spoke with Ignacio Alonso, a Madrid-based lawyer with extensive experience in international commercial distribution.

          Main discussion points:

          • in Spain, there is no specific law for distribution agreements, which are governed by the general rules of the Commercial Code;
          • therefore, it is essential to draft a clear and comprehensive contract, which will be the primary source of the parties’ rights and obligations;
          • it is also good to be aware of Spanish case law on commercial distribution, which in some cases applies the law on commercial agency by analogy.
          • the most common issues involving foreign producers distributing in Spain arise at the time of termination of the relationship, mainly because case law grants the terminated distributor an indemnity of clientele or goodwill if similar prerequisites to those in the agency regulations apply.
          • another frequent dispute concerns the adequacy of the notice period for terminating the contract, especially if there is no agreement between the parties: the advice is to follow what the agency regulations stipulate and thus establish a minimum notice period of one month for each year of the contract’s duration, up to 6 months for agreements lasting more than five years;
          • regarding dispute resolution tools, mediation is an option that should be carefully considered because it is quick, inexpensive, and allows a shared solution to be sought flexibly without disrupting the business relationship.
          • if mediation fails, the parties can provide for recourse to arbitration or state court. The choice depends on the case’s specific circumstances, and one factor in favor of jurisdiction is the possibility of appeal, which is excluded in the case of arbitration.

          Go deeper

          Accepting the position of director (administrator or CEO) in a Spanish company entails increasing risks. Indeed, the Supreme Court – ruling by ruling – is outlining and interpreting the precepts of the Capital Companies Act (LSC) with an increasingly rigorous and demanding approach when it comes to delimiting the framework of directors’ liability.

          Of course, the content of Article 43.1 b) of the General Tax Law is not new at all when it lays the foundations for the subsidiary liability of directors for debts owed to the Tax Agency:

          The following persons or entities shall be subsidiarily liable for the tax debt:

          b) The de facto or de jure administrators of those legal entities that have ceased their activities, for the accrued tax obligations of these that are pending at the time of the cessation, provided that they have not done what is necessary for their payment or have adopted agreements or taken measures causing the non-payment.

          It could be deduced from the reading of the transcribed provision that the subsidiary liability of the directors who, at the time of the cessation of the corporate activity, effectively held the position of director, was established; but that the liability would not reach those directors who had been so in the past but were no longer directors at the time when the company had ceased to act in the legal and economic traffic, for the tax debts pending at that time.

          Well, the Supreme Court (Third Chamber) in its recent judgment of March 7th, 2023, hammers one more nail in the coffin of the liability of the directors.

          The case that was the subject of the ruling consisted of determining the subsidiary liability to the Tax Agency of a director whose position had expired (due to the expiration of the statutory term) and who had called a general meeting for the appointment of new members of the administrative body of the company.

          The Supreme Court understands (and establishes a doctrine for the purposes of appeal) that the director with an expired position does not « exhaust » his obligations with the call of the meeting in question, but must also, pursuant to art. 365 LSC call another general meeting to adopt the resolution to file for insolvency or dissolution due to the existence of the causes of art. 363 LSC a) (cessation of activity) and d) (paralysis of the corporate bodies) as well as, if applicable, the request for judicial dissolution in his capacity as an interested party (art. 366.1 LSC).

          The reproachable conduct according to the Supreme Court (which triggers the subsidiary liability) consists in the fact that, facing the cessation of the activity of the company, the only thing he did was to call a meeting for the appointment of a new director and therefore « it did not carry out the necessary acts to be able to face the payment of the tax debts, thus meeting the subjective element necessary to be able to declare its liability ».

          The court ruling insists that the condition of director is not lost with the exhaustion of the mandate due to the expiration of the position since the mercantile and fiscal obligations persist; and that the call of a meeting to appoint a new director is not enough to understand that such meeting, once held, deprives the director with expired position of the condition of director, when there is a cause of dissolution that would have obliged to call another meeting with another object and another agenda to agree on the dissolution of the inactive company.

          But what is remarkable and striking in this case is that the meeting called by the director (with expired position) for the appointment of new a new director was held in June 2012, the resolutions were made public on March 1st, 2013, they were registered in the commercial registry in July of the same year and the judgment expressly states that the cessation of corporate activity occurred in April 2013 (i.e. when the meeting for the appointment of new administrators had already been held, June 2012, and when the appointment of the new director had already been made public, March 1st, 2013).

          The court resolution reads as follows:

          « Given the date on which the cessation of the business activity was established by the judgment a quo, April 2013, the appellant should still be considered as a director of the company in that capacity, his conduct should be considered negligent for the purposes of inclusion in the cause of subsidiary liability of art. 43.1.b) LGT ». 

          The claimant director argued that Art. 222 LSC and Art. 145.1 RRM state that the appointment of directors will expire, among other cases, when the term has expired and the meeting for the appointment of a new director has been held (or the term for its holding has elapsed) that is to resolve on the approval of the accounts of the previous year. And he explained that on top of that, he had fulfilled his obligations as director calling for a general shareholders meeting where new directors were appointed 9 months before the company ceased its activities. Therefore, he no longer was a “director” on April 2103.

          Despite of that argument the Supreme Court insists that, whether or not the position has expired, said expiration does not exhaust or extinguish his responsibilities as director, which must be interpreted extensively: it is not enough for him to call a meeting for the appointment of new directors, but he must act to dissolve the company or file for insolvency proceedings, as if the position had full and complete validity. 

          Thus, after this strong ruling, the directors of Spanish companies, in the event of termination of the activity, even if their position has expired, must know that their liability (and specifically the subsidiary liability for tax debts) will only be released if they call a meeting to dissolve the company, if the meeting does not adopt such resolution, if they request the court for the judicial dissolution or if they file voluntary insolvency proceedings.

          To summarize, they will be liable if they do not act in the same way as if their position were still in full force and effect. As we said above, it is necessary to think very much about accepting positions of director of Spanish companies.

          The so-called « Startup Law » in Spain (Law for the promotion of the emerging company’s ecosystem) after passing the corresponding filters, has been approved by the Spanish Parliament.

          Among its various provisions on startups – which will be the subject of another article – the Startup Law also amended the « Beckham Law » (as this football player is the best known of those who benefited from this law), i.e. the special tax regime applicable to workers, professionals, entrepreneurs, and investors moving from abroad to Spain.

          This regime grants enormous tax advantages to Spanish foreigners, who move their residence to Spain under certain circumstances which, in summary, are:

          • relocation as a consequence of an employment contract.
          • displacement that is ordered by the foreign employer with a letter of displacement to Spain.
          • displacement without being ordered by the employer and the labor activity is provided remotely by means of the exclusive use of electronic means.
          • acquisition of the condition of administrator of a company.
          • for the realization in Spain of an economic activity qualified as entrepreneurial activity.
          • highly qualified professional providing services to emerging companies.

          The great novelty is that, until the entry into force of the new regulation, it was required that the interested party had been a non-resident for tax purposes in Spain for a period of more than 10 years so many managers were temporarily displaced outside Spain could not benefit from this regime because they had not been outside Spanish territory for more than 10 years (the displacements are not usually so long) and with the entry into force of the new legal text, the previous period of non-residence has been reduced to five (5) years.

          The great advantage of this regime is that its beneficiaries (individuals) can opt to pay the Non-Resident Income Tax (IRNR), during the tax period in which the change of residence takes place and during the following five tax periods. This means that in the determination of the taxable income, part of the income that the interested party may obtain worldwide is not taxed and, in addition, that up to 600,000 euros of taxable income, the applicable tax rate would be 24% (all of which is undoubtedly an enormous tax advantage with respect to the applicable tax regime, in the same circumstances of income, to a tax resident in Spain without the coverage of this special regime).

          In any case, it is important to emphasize that the application of this advantageous tax regime requires a previous and express request by the interested party, that is to say, first « knocking at the door » of the Treasury and, therefore, it is very important to make sure that all the requirements demanded by the Law are fulfilled very scrupulously, so it is always especially advisable to request in advance and with the due detail the appropriate legal advice in this respect.

          Summary

          Spain’s Labour and Social Security Inspectorate has inspected the « Big Four » firms to control working time and overtime, which employees claim is regularly exceeded. Spanish law requires companies to record workers’ start and end times each day to prevent employees from working longer than the stipulated day. Companies failing to comply can face fines and even criminal charges. The inspections could set a precedent for firms in the auditing and consultancy sectors.

          In recent days, the press has reported on the « macro-inspection » carried out in the « Big Four » (the most important firms in the consultancy and auditing sector) by the labour authority, namely the Labour and Social Security Inspectorate (“Inspección de Trabajo y Seguridad Social”).

          The aim of this inspection is, fundamentally, the control of working time, overtime and time recording, all aspects which, according to the workers themselves, are flagrantly breached by the aforementioned companies.

          Thus, it seems to be a general trend that the employees of the « Big Four » work up to 12 hours a day (« from nine to nine »), which means approximately 4 hours of overtime a day; overtime that, to make matters worse, is not compensated either financially or by days off. Being forced to work during rest periods, such as weekends or holidays, is also common practice.

          Given the situation and the facts described above, how can they be transferred to the legal plane? What breaches would the « Big Four » be committing, and what responsibilities would they have to face, in accordance with our Labour Law?

          Well, firstly, since 2019, the year in which Royal Decree-Law 8/2019 of 8 March came into force, the company is obliged to keep a daily record of the working day, including the specific start and end times of each worker’s working day. The purpose of this measure is, precisely, to avoid what happens in the « Big Four », that is, that employees work longer than the established working day, which, in the words of the Explanatory Memorandum of the aforementioned regulation, produces a clear negative effect on the labour market:

          « The performance of working time in excess of the legally or conventionally established working day has a substantial impact on the precariousness of the labour market, by affecting two essential elements of the employment relationship, working time, with a relevant influence on the personal life of the worker by making it difficult to reconcile family life, and salary. It also impacts Social Security contributions, which are reduced as they are not paid for the salary corresponding to the working day ».

          The daily record of each worker’s working day is thus an essential element for the purposes of calculating overtime, i.e., those hours worked over the maximum duration of the ordinary working day, and which must, in any event, be compensated, either financially or through equivalent paid rest periods; in addition to also having a quantitative limit, insofar as article 35.2 of the Workers’ Statute provides that the number of overtime hours may not exceed 80 per year.

          No less important is the certainly novel « right to digital disconnection in the workplace », which takes the form of the worker’s right to guarantee, outside the legally or conventionally established working time, respect for their rest time, leave and holidays, as well as their personal and family privacy, and which is recognized in article 88 of our current Personal Data Protection Act.

          At this point, what happens then if the company transgresses the legal rules and limits on working hours, overtime, rest breaks, holidays, working time records and, in general, working time, as apparently occurs in the cases described at the beginning of this article?

          Well, it faces a financial fine of 751 euros in the minimum grade, and up to 7,500 euros in the worst case, according to the Law on Infractions and Penalties in the Social Order.

          In the worst-case scenario, a possible criminal liability could even be considered for allegedly committing an offense against workers’ rights. This is by no means a trivial matter, as our Criminal Code provides for such offenses to be punishable not only by a fine but also by imprisonment.

          Conclusion

          We are faced with the possibility that the Labour Inspectorate’s action with regard to the so-called « Big Four » will set a precedent with regard to the prohibition of endless working hours, so common in sectors such as auditing or consultancy, which will also benefit the working conditions of workers as a whole.

          Where is it more suitable to set up a new limited liability company in Europe?

          I will deal in this article with two countries I know well (Spain and The Netherlands) and focus on the minimum capital requested and the online incorporation of a limited liability company, sharing some thoughts and my takeaways.

          Spain: the “Create and Grow Law”

          In Spain, the Business Creation and Growth Law 18/2022, of September 28, 2022 (related to aspects of incorporation of companies), known as the “Create and Grow Law”, was approved last September within the framework of the Recovery, Transformation and Resilience Plan of the Spanish government. This plan channels European funds to alleviate the consequences of the Covid-19 crisis. This law is an initiative that reflects this flexibility and, as its explanatory statement indicates, aims to encourage the creation and growth of companies, in order to contribute to the economic growth of the country and its long-term resilience. Spain thus aligns itself with other neighboring countries, where there is no minimum capital to set up a company of this type.

          Is this new law interesting for foreign investors or companies looking to establish themselves in Spain?

          It is certainly very interesting. The fact that the Spanish legislator abandons this reference figure of 3,000 euros is very favorable for medium-large companies willing to have a permanent establishment in Spain Nevertheless, as long as the capital does not reach the figure of €3,000, the following rules will be applied, which are intended to protect the interests of creditors or third parties that contract with the company:  (i) 20% of the profit must be allocated to the legal reserve until said reserve together with the social capital reach the figure of €3,000 (the legislator seeks that the SLs constituted in this way do not remain « undercapitalized »), and (ii) as a safeguard clause for creditors of the company, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros.

          Online incorporation of a company in Spain

          The « CIRCE system » (procedure dependent on the Ministry of Industry, Commerce and Tourism that allows the start of the process of creating companies « over the Internet » ) entails an electronic procedure through agreements and communications with all the organizations and administrations that intervene in the process of incorporating companies.

          The entrepreneur will only have to complete the Single Electronic Document (DUE) that includes a multitude of forms and CIRCE will automatically carry out all the necessary procedures to establish the company, communicating with all the organizations involved (Tax Agency, Social Security, Mercantile Registry, Notary, etc.). There is an obligation to review and sign the DUE before sending it. This system is not active yet, but it is expected that it will be in place when other complementary laws that support this digital process are approved by the Spanish Legislator which is necessary for the well-functioning of the system.

          The Netherlands: The Flex BV law

          The Flex BV law came into force on October 4, 2011. This law has given a lot of flexibility to the incorporation of new limited liability companies which has been very favorable for international companies working with different product lines, allowing to have one company for every product or service offered.

          The Flex BV law has, among others, the following characteristics:

          • the creation of a Limited Liability Company is flexible, easy to establish and without many costs;
          • it only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a limited liability company, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

          Online incorporation of a company in the Netherlands

           In the case of the Netherlands, in the Explanatory Memorandum of the bill implementing the Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 with regard to the use of digital instruments, it is proposed that incorporation of a BV electronically is only possible if payment on the shares takes place in cash, in order to initially limit the online formation of companies to simple situations. If it turns out that online formation works well, it can be considered whether it is useful to extend this possibility to situations in which contributions are made in a manner other than in money. Incorporation by natural persons using a model deed of incorporation must be possible within five working days from the date on which the notary has received all documents and information from the applicant or the date of payment of the share capital.

          The incorporation of a BV digitally is postponed to the summer of 2023 since the House Committee for Justice and Security has decided that the act must be discussed in plenary.

          The so called DOBV-system (Digital establishment of a BV), will entail a change in a number of work processes in the notaries in The Netherlands but for the Chamber of Commerce, no major changes will follow because the civil-law notary will supply the registration documents digitally to the Chamber of Commerce. Consequences the civil-law notary is the one who will have to offer a certain digital form of service, which citizens and companies will be able to use.

          What positive and negative aspects can be highlighted?

          Positives aspects:

          • it is very positive that through this new standard, many investors or international companies from both countries will be encouraged to create new SPVs, as the minimum capital is considered by many companies as a “barrier to entry”;
          • it will expedite the procedures for incorporating companies, essential vehicles for channeling the economic activities of businessmen in their transcendental task of creating wealth and employment, without notary and registration costs;
          • it will create a healthy competition between all the Notaries in Spain and between the notaries of Spain and the Netherlands. The Dutch notary bond expects that a further digitization of the notarial process could be achieved first in the real estate chain and subsequently also in business practice. It is important that the business market may be capable to respond quickly to this demand;
          • the share capital of a company will serve its partners to have the necessary funds with which to start their project, acquire the goods and resources necessary to start the economic activity and consolidate a long-term project (such as, for example, to buy the goods and services necessary to start up activities or to hire employees);
          • it creates business growth through financing alternatives to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

          Negatives aspects:

          • to search financing externally to start the company’s activity, which will also surely have a cost (in the form of loans, for example, with their corresponding interest rate). Additionally, in the short or medium term the company must have a capital increase to normalize their patrimonial situation and solve this evident « underfinancing » of own resources, with which, this will also suppose an additional cost in the form of notary and registry fees that must be faced in the medium or long term after the incorporation;
          • the possibility of establishing a limited liability company with only 1 euro of share capital can facilitate the creation of fictitious legal entities by people who do not wish to carry out a real economic activity, but only use the companies as a suitable instrument for the development of legal or illegal activities;
          • additionally, it also implies a clear risk for the legal certainty and the responsibility of those companies in large contracts with third parties, leaving a limit to their minimum liability while their businesses are millionaires;
          • the online constitution system can be rigid and can also generate management and processing problems if the interested parties have not been properly advised and guided by the professionals involved before arriving at the Notary. Additionally, CIRCE’s telematic systems must function properly in order to correctly serve all those interested in the constitution of a capital company;
          • there are new requirements for companies related to anti-laundry controls, for instance, to include relevant information on invoices and payments to suppliers in their annual reports and on their corporate website.

          Conclusions

          Although it may apparently imply a boom in the creation of limited liability companies due to the ease of incorporation, there is still much to be done at the level of corporate law at the national level and collaboration between notaries of both countries.

          Spain is, with the entering into force of the Law Creation and Growth, considered among the most advanced countries in facilitating the creation of companies, reducing regulatory obstacles and favoring business restructuring and viability. The final decision will depend on the specific needs of the business, access to finance and tax regime, among others.

          Additionally, to the incorporation flexibilities, we must not forget a couple of important aspects for the shareholders and directors to be aware of:

          • a company needs to be managed as well and we need to be aware of the treasury, labor or other obligations of the companies already incorporated, even if they are non-active, they must continue to publish the annual accounts and complying with all governance requirements and formal public register notifications;
          • the responsibility of the shareholders is also important to consider. A shareholder who has direct involvement in the management, may face liability in case of bankruptcy, also in the country where the subsidiary is located. As mentioned above, in Spain, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros;
          • the last important aspect when you are doing business mainly in Europe is to consider restructuring your business or consider other forms of incorporation of companies, depending of the business model that you have opted to, for instance the use of the Societas Europaea (SE) which has the possibility to set up a holding company or a joint subsidiary together and to transfer the seat of the company without winding up the entity. The disadvantage is that you need €120,000 starting capital to set up and to have a minimum of 2 companies governed by the laws of different Member States. Other forms of incorporation are the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).

          If you need additional information or you are planning to incorporate a limited liability company in Spain or in The Netherlands, get in touch to know more about your options and the right corporate advice for your business.

          What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

          The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

          The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

          Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

          The judgment in question is doubly interesting.

          Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

          As the Constitutional Court very recently reiterated in its ruling dated last October, « judicial slowness has no place in the Magna Carta ». But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

          Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

          The plaintiffs sought the nullity of certain resolutions adopted at a shareholders’ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

          The legislation in force at the time the meeting was held (prior to the 2014 reform) established that « resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties » could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

          Following the 2014 reform, article 204 considers that « corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties » can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

          But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to « law » in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an « abuse of rights », can such a situation be considered as « contrary to law » for the purposes of the application of article 204 LSC?

          The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

          • formal or outwardly correct use of a right
          • causing damage to an interest not protected by a specific legal prerogative, and
          • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

          And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

          The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

          And on these premises, the Supreme Court reiterates and insists that the expression « contrary to the law » in article 204 LSC must be understood as « contrary to the legal system », which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

          And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

          It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

          And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an « in extremis » recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

          Sonia García Navasquillo

          Domaines d'intervention

          • Commerce international
          • Conformité
          • Entreprise
          • Règlement extrajudiciaire des litiges
          Contact Sonia

          Écrire à Sonia





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            Spain – Abuse of rights in corporate resolutions

            15 décembre 2022

            • Espagne
            • Entreprise
            • Litiges

            The commercial agent has the right to obtain certain information about the sales of the principal. The Spanish Law on Agency Contracts provides (15.2 LCA) that the agent has the right to demand to see the accounts of the principal in order to verify all matters relating to the commissions due to him. And also, to be provided with the information available to the principal and necessary to verify the amount of such commissions.

            This article is in line with the 1986 Commercial Agents Directive, according to which (12.3) the agent is entitled to demand to be provided with all information at the disposal of the principal, particularly an extract from the books of account, which is necessary to verify the amount of commission due to the agent. This may not be altered to the detriment of the commercial agent by agreement.

            The question is, does this right remain even after the termination of the agency contract? In other words: once the agency contract is terminated, can the agent request the information and documentation mentioned in these articles and is the Principal obliged to provide it?

            In our opinion, the rule does not say anything that limits this right, rather the opposite is to be expected. Therefore, to the extent that there is still any possible commission that may arise from such verification, the answer must be yes. Let us see.

            The right to demand the production of accounts exists so that the agent can verify the amount of commissions. And the agent is entitled to commissions for acts and operations concluded during the term of the contract (art. 12 LCA), but also for acts or operations concluded after the termination of the contract (art. 13 LCA), and for operations not carried out due to circumstances attributable to the principal (art. 17 LCA). In addition, the agent is entitled to have the commission accrued at the time when the act or transaction should have been executed (art. 14 LCA).

            All these transactions can take place after the conclusion of the contract. Consider the usual situation where orders are placed during the contract but are accepted or executed afterwards. To reduce the agent’s right to be informed only during the term of the contract would be to limit his entitlement to the corresponding commission unduly. And it should be borne in mind that the amount of the commissions during the last five years may also influence the calculation of the client (goodwill) indemnity (art. 28 LCA), so that the agent’s interest in knowing them is twofold: what he would receive as commission, and what could increase the basis for future indemnity.

            This has been confirmed, for example, by the Provincial Court (Audiencia Provincial) of Madrid (AAP 227/2017, of 29 June [ECLI:ES:APM:2017:2873A]) which textually states:

            […] art. 15.2 of the Agency Contract Act provides for the right of the agent to demand the exhibition of the Principal’s accounts in the particulars necessary to verify everything relating to the commissions corresponding to him, as well as to be provided with the information available to the Principal and necessary to verify the amount. This does not prevent, […], the agency contract having already been terminated, as this does not imply that commissions would cease to accrue for policies, contracted with the mediation of the agent, which remain in force.

            The question then arises as to whether this right to information is unlimited in time. And here the answer would be in the negative. The limitation of the right to receive information would be linked to the statute of limitations of the right to claim the corresponding commission. If the right to receive the commission were undoubtedly time-barred, it could be argued that it would not be possible to receive information about it. But for such an exception, the statute of limitations must be clear, therefore, taking into account possible interruptions due to claims, even extrajudicial ones. In case of doubt, it will be necessary to recognise the right to demand the information, without prejudice to later invoking and recognising the impossibility of claiming the commission if the right is time-barred. And for this we must consider the limitation period for claiming commissions (in general, three years) and that of the right to claim compensation for clientele (one year).

            In short: it does not seem that the right to receive information and to examine the principal’s documentation is limited by the term of the agency contract; although, on the other hand, it would be appropriate to analyse the possible limitation period for claiming commissions. In the absence of a clear answer to this question, the right to information should, in our opinion, prevail, without prejudice to the fact that the result may not entitle the claim because it is time-barred.

            Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

            And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

            We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

            Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

            The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

            The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

            The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

            Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

            In summary and by way of conclusion

            The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

            And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

            So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.

            In this first episode of Legalmondo’s Distribution Talks series, I spoke with Ignacio Alonso, a Madrid-based lawyer with extensive experience in international commercial distribution.

            Main discussion points:

            • in Spain, there is no specific law for distribution agreements, which are governed by the general rules of the Commercial Code;
            • therefore, it is essential to draft a clear and comprehensive contract, which will be the primary source of the parties’ rights and obligations;
            • it is also good to be aware of Spanish case law on commercial distribution, which in some cases applies the law on commercial agency by analogy.
            • the most common issues involving foreign producers distributing in Spain arise at the time of termination of the relationship, mainly because case law grants the terminated distributor an indemnity of clientele or goodwill if similar prerequisites to those in the agency regulations apply.
            • another frequent dispute concerns the adequacy of the notice period for terminating the contract, especially if there is no agreement between the parties: the advice is to follow what the agency regulations stipulate and thus establish a minimum notice period of one month for each year of the contract’s duration, up to 6 months for agreements lasting more than five years;
            • regarding dispute resolution tools, mediation is an option that should be carefully considered because it is quick, inexpensive, and allows a shared solution to be sought flexibly without disrupting the business relationship.
            • if mediation fails, the parties can provide for recourse to arbitration or state court. The choice depends on the case’s specific circumstances, and one factor in favor of jurisdiction is the possibility of appeal, which is excluded in the case of arbitration.

            Go deeper

            Accepting the position of director (administrator or CEO) in a Spanish company entails increasing risks. Indeed, the Supreme Court – ruling by ruling – is outlining and interpreting the precepts of the Capital Companies Act (LSC) with an increasingly rigorous and demanding approach when it comes to delimiting the framework of directors’ liability.

            Of course, the content of Article 43.1 b) of the General Tax Law is not new at all when it lays the foundations for the subsidiary liability of directors for debts owed to the Tax Agency:

            The following persons or entities shall be subsidiarily liable for the tax debt:

            b) The de facto or de jure administrators of those legal entities that have ceased their activities, for the accrued tax obligations of these that are pending at the time of the cessation, provided that they have not done what is necessary for their payment or have adopted agreements or taken measures causing the non-payment.

            It could be deduced from the reading of the transcribed provision that the subsidiary liability of the directors who, at the time of the cessation of the corporate activity, effectively held the position of director, was established; but that the liability would not reach those directors who had been so in the past but were no longer directors at the time when the company had ceased to act in the legal and economic traffic, for the tax debts pending at that time.

            Well, the Supreme Court (Third Chamber) in its recent judgment of March 7th, 2023, hammers one more nail in the coffin of the liability of the directors.

            The case that was the subject of the ruling consisted of determining the subsidiary liability to the Tax Agency of a director whose position had expired (due to the expiration of the statutory term) and who had called a general meeting for the appointment of new members of the administrative body of the company.

            The Supreme Court understands (and establishes a doctrine for the purposes of appeal) that the director with an expired position does not « exhaust » his obligations with the call of the meeting in question, but must also, pursuant to art. 365 LSC call another general meeting to adopt the resolution to file for insolvency or dissolution due to the existence of the causes of art. 363 LSC a) (cessation of activity) and d) (paralysis of the corporate bodies) as well as, if applicable, the request for judicial dissolution in his capacity as an interested party (art. 366.1 LSC).

            The reproachable conduct according to the Supreme Court (which triggers the subsidiary liability) consists in the fact that, facing the cessation of the activity of the company, the only thing he did was to call a meeting for the appointment of a new director and therefore « it did not carry out the necessary acts to be able to face the payment of the tax debts, thus meeting the subjective element necessary to be able to declare its liability ».

            The court ruling insists that the condition of director is not lost with the exhaustion of the mandate due to the expiration of the position since the mercantile and fiscal obligations persist; and that the call of a meeting to appoint a new director is not enough to understand that such meeting, once held, deprives the director with expired position of the condition of director, when there is a cause of dissolution that would have obliged to call another meeting with another object and another agenda to agree on the dissolution of the inactive company.

            But what is remarkable and striking in this case is that the meeting called by the director (with expired position) for the appointment of new a new director was held in June 2012, the resolutions were made public on March 1st, 2013, they were registered in the commercial registry in July of the same year and the judgment expressly states that the cessation of corporate activity occurred in April 2013 (i.e. when the meeting for the appointment of new administrators had already been held, June 2012, and when the appointment of the new director had already been made public, March 1st, 2013).

            The court resolution reads as follows:

            « Given the date on which the cessation of the business activity was established by the judgment a quo, April 2013, the appellant should still be considered as a director of the company in that capacity, his conduct should be considered negligent for the purposes of inclusion in the cause of subsidiary liability of art. 43.1.b) LGT ». 

            The claimant director argued that Art. 222 LSC and Art. 145.1 RRM state that the appointment of directors will expire, among other cases, when the term has expired and the meeting for the appointment of a new director has been held (or the term for its holding has elapsed) that is to resolve on the approval of the accounts of the previous year. And he explained that on top of that, he had fulfilled his obligations as director calling for a general shareholders meeting where new directors were appointed 9 months before the company ceased its activities. Therefore, he no longer was a “director” on April 2103.

            Despite of that argument the Supreme Court insists that, whether or not the position has expired, said expiration does not exhaust or extinguish his responsibilities as director, which must be interpreted extensively: it is not enough for him to call a meeting for the appointment of new directors, but he must act to dissolve the company or file for insolvency proceedings, as if the position had full and complete validity. 

            Thus, after this strong ruling, the directors of Spanish companies, in the event of termination of the activity, even if their position has expired, must know that their liability (and specifically the subsidiary liability for tax debts) will only be released if they call a meeting to dissolve the company, if the meeting does not adopt such resolution, if they request the court for the judicial dissolution or if they file voluntary insolvency proceedings.

            To summarize, they will be liable if they do not act in the same way as if their position were still in full force and effect. As we said above, it is necessary to think very much about accepting positions of director of Spanish companies.

            The so-called « Startup Law » in Spain (Law for the promotion of the emerging company’s ecosystem) after passing the corresponding filters, has been approved by the Spanish Parliament.

            Among its various provisions on startups – which will be the subject of another article – the Startup Law also amended the « Beckham Law » (as this football player is the best known of those who benefited from this law), i.e. the special tax regime applicable to workers, professionals, entrepreneurs, and investors moving from abroad to Spain.

            This regime grants enormous tax advantages to Spanish foreigners, who move their residence to Spain under certain circumstances which, in summary, are:

            • relocation as a consequence of an employment contract.
            • displacement that is ordered by the foreign employer with a letter of displacement to Spain.
            • displacement without being ordered by the employer and the labor activity is provided remotely by means of the exclusive use of electronic means.
            • acquisition of the condition of administrator of a company.
            • for the realization in Spain of an economic activity qualified as entrepreneurial activity.
            • highly qualified professional providing services to emerging companies.

            The great novelty is that, until the entry into force of the new regulation, it was required that the interested party had been a non-resident for tax purposes in Spain for a period of more than 10 years so many managers were temporarily displaced outside Spain could not benefit from this regime because they had not been outside Spanish territory for more than 10 years (the displacements are not usually so long) and with the entry into force of the new legal text, the previous period of non-residence has been reduced to five (5) years.

            The great advantage of this regime is that its beneficiaries (individuals) can opt to pay the Non-Resident Income Tax (IRNR), during the tax period in which the change of residence takes place and during the following five tax periods. This means that in the determination of the taxable income, part of the income that the interested party may obtain worldwide is not taxed and, in addition, that up to 600,000 euros of taxable income, the applicable tax rate would be 24% (all of which is undoubtedly an enormous tax advantage with respect to the applicable tax regime, in the same circumstances of income, to a tax resident in Spain without the coverage of this special regime).

            In any case, it is important to emphasize that the application of this advantageous tax regime requires a previous and express request by the interested party, that is to say, first « knocking at the door » of the Treasury and, therefore, it is very important to make sure that all the requirements demanded by the Law are fulfilled very scrupulously, so it is always especially advisable to request in advance and with the due detail the appropriate legal advice in this respect.

            Summary

            Spain’s Labour and Social Security Inspectorate has inspected the « Big Four » firms to control working time and overtime, which employees claim is regularly exceeded. Spanish law requires companies to record workers’ start and end times each day to prevent employees from working longer than the stipulated day. Companies failing to comply can face fines and even criminal charges. The inspections could set a precedent for firms in the auditing and consultancy sectors.

            In recent days, the press has reported on the « macro-inspection » carried out in the « Big Four » (the most important firms in the consultancy and auditing sector) by the labour authority, namely the Labour and Social Security Inspectorate (“Inspección de Trabajo y Seguridad Social”).

            The aim of this inspection is, fundamentally, the control of working time, overtime and time recording, all aspects which, according to the workers themselves, are flagrantly breached by the aforementioned companies.

            Thus, it seems to be a general trend that the employees of the « Big Four » work up to 12 hours a day (« from nine to nine »), which means approximately 4 hours of overtime a day; overtime that, to make matters worse, is not compensated either financially or by days off. Being forced to work during rest periods, such as weekends or holidays, is also common practice.

            Given the situation and the facts described above, how can they be transferred to the legal plane? What breaches would the « Big Four » be committing, and what responsibilities would they have to face, in accordance with our Labour Law?

            Well, firstly, since 2019, the year in which Royal Decree-Law 8/2019 of 8 March came into force, the company is obliged to keep a daily record of the working day, including the specific start and end times of each worker’s working day. The purpose of this measure is, precisely, to avoid what happens in the « Big Four », that is, that employees work longer than the established working day, which, in the words of the Explanatory Memorandum of the aforementioned regulation, produces a clear negative effect on the labour market:

            « The performance of working time in excess of the legally or conventionally established working day has a substantial impact on the precariousness of the labour market, by affecting two essential elements of the employment relationship, working time, with a relevant influence on the personal life of the worker by making it difficult to reconcile family life, and salary. It also impacts Social Security contributions, which are reduced as they are not paid for the salary corresponding to the working day ».

            The daily record of each worker’s working day is thus an essential element for the purposes of calculating overtime, i.e., those hours worked over the maximum duration of the ordinary working day, and which must, in any event, be compensated, either financially or through equivalent paid rest periods; in addition to also having a quantitative limit, insofar as article 35.2 of the Workers’ Statute provides that the number of overtime hours may not exceed 80 per year.

            No less important is the certainly novel « right to digital disconnection in the workplace », which takes the form of the worker’s right to guarantee, outside the legally or conventionally established working time, respect for their rest time, leave and holidays, as well as their personal and family privacy, and which is recognized in article 88 of our current Personal Data Protection Act.

            At this point, what happens then if the company transgresses the legal rules and limits on working hours, overtime, rest breaks, holidays, working time records and, in general, working time, as apparently occurs in the cases described at the beginning of this article?

            Well, it faces a financial fine of 751 euros in the minimum grade, and up to 7,500 euros in the worst case, according to the Law on Infractions and Penalties in the Social Order.

            In the worst-case scenario, a possible criminal liability could even be considered for allegedly committing an offense against workers’ rights. This is by no means a trivial matter, as our Criminal Code provides for such offenses to be punishable not only by a fine but also by imprisonment.

            Conclusion

            We are faced with the possibility that the Labour Inspectorate’s action with regard to the so-called « Big Four » will set a precedent with regard to the prohibition of endless working hours, so common in sectors such as auditing or consultancy, which will also benefit the working conditions of workers as a whole.

            Where is it more suitable to set up a new limited liability company in Europe?

            I will deal in this article with two countries I know well (Spain and The Netherlands) and focus on the minimum capital requested and the online incorporation of a limited liability company, sharing some thoughts and my takeaways.

            Spain: the “Create and Grow Law”

            In Spain, the Business Creation and Growth Law 18/2022, of September 28, 2022 (related to aspects of incorporation of companies), known as the “Create and Grow Law”, was approved last September within the framework of the Recovery, Transformation and Resilience Plan of the Spanish government. This plan channels European funds to alleviate the consequences of the Covid-19 crisis. This law is an initiative that reflects this flexibility and, as its explanatory statement indicates, aims to encourage the creation and growth of companies, in order to contribute to the economic growth of the country and its long-term resilience. Spain thus aligns itself with other neighboring countries, where there is no minimum capital to set up a company of this type.

            Is this new law interesting for foreign investors or companies looking to establish themselves in Spain?

            It is certainly very interesting. The fact that the Spanish legislator abandons this reference figure of 3,000 euros is very favorable for medium-large companies willing to have a permanent establishment in Spain Nevertheless, as long as the capital does not reach the figure of €3,000, the following rules will be applied, which are intended to protect the interests of creditors or third parties that contract with the company:  (i) 20% of the profit must be allocated to the legal reserve until said reserve together with the social capital reach the figure of €3,000 (the legislator seeks that the SLs constituted in this way do not remain « undercapitalized »), and (ii) as a safeguard clause for creditors of the company, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros.

            Online incorporation of a company in Spain

            The « CIRCE system » (procedure dependent on the Ministry of Industry, Commerce and Tourism that allows the start of the process of creating companies « over the Internet » ) entails an electronic procedure through agreements and communications with all the organizations and administrations that intervene in the process of incorporating companies.

            The entrepreneur will only have to complete the Single Electronic Document (DUE) that includes a multitude of forms and CIRCE will automatically carry out all the necessary procedures to establish the company, communicating with all the organizations involved (Tax Agency, Social Security, Mercantile Registry, Notary, etc.). There is an obligation to review and sign the DUE before sending it. This system is not active yet, but it is expected that it will be in place when other complementary laws that support this digital process are approved by the Spanish Legislator which is necessary for the well-functioning of the system.

            The Netherlands: The Flex BV law

            The Flex BV law came into force on October 4, 2011. This law has given a lot of flexibility to the incorporation of new limited liability companies which has been very favorable for international companies working with different product lines, allowing to have one company for every product or service offered.

            The Flex BV law has, among others, the following characteristics:

            • the creation of a Limited Liability Company is flexible, easy to establish and without many costs;
            • it only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a limited liability company, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

            Online incorporation of a company in the Netherlands

             In the case of the Netherlands, in the Explanatory Memorandum of the bill implementing the Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 with regard to the use of digital instruments, it is proposed that incorporation of a BV electronically is only possible if payment on the shares takes place in cash, in order to initially limit the online formation of companies to simple situations. If it turns out that online formation works well, it can be considered whether it is useful to extend this possibility to situations in which contributions are made in a manner other than in money. Incorporation by natural persons using a model deed of incorporation must be possible within five working days from the date on which the notary has received all documents and information from the applicant or the date of payment of the share capital.

            The incorporation of a BV digitally is postponed to the summer of 2023 since the House Committee for Justice and Security has decided that the act must be discussed in plenary.

            The so called DOBV-system (Digital establishment of a BV), will entail a change in a number of work processes in the notaries in The Netherlands but for the Chamber of Commerce, no major changes will follow because the civil-law notary will supply the registration documents digitally to the Chamber of Commerce. Consequences the civil-law notary is the one who will have to offer a certain digital form of service, which citizens and companies will be able to use.

            What positive and negative aspects can be highlighted?

            Positives aspects:

            • it is very positive that through this new standard, many investors or international companies from both countries will be encouraged to create new SPVs, as the minimum capital is considered by many companies as a “barrier to entry”;
            • it will expedite the procedures for incorporating companies, essential vehicles for channeling the economic activities of businessmen in their transcendental task of creating wealth and employment, without notary and registration costs;
            • it will create a healthy competition between all the Notaries in Spain and between the notaries of Spain and the Netherlands. The Dutch notary bond expects that a further digitization of the notarial process could be achieved first in the real estate chain and subsequently also in business practice. It is important that the business market may be capable to respond quickly to this demand;
            • the share capital of a company will serve its partners to have the necessary funds with which to start their project, acquire the goods and resources necessary to start the economic activity and consolidate a long-term project (such as, for example, to buy the goods and services necessary to start up activities or to hire employees);
            • it creates business growth through financing alternatives to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

            Negatives aspects:

            • to search financing externally to start the company’s activity, which will also surely have a cost (in the form of loans, for example, with their corresponding interest rate). Additionally, in the short or medium term the company must have a capital increase to normalize their patrimonial situation and solve this evident « underfinancing » of own resources, with which, this will also suppose an additional cost in the form of notary and registry fees that must be faced in the medium or long term after the incorporation;
            • the possibility of establishing a limited liability company with only 1 euro of share capital can facilitate the creation of fictitious legal entities by people who do not wish to carry out a real economic activity, but only use the companies as a suitable instrument for the development of legal or illegal activities;
            • additionally, it also implies a clear risk for the legal certainty and the responsibility of those companies in large contracts with third parties, leaving a limit to their minimum liability while their businesses are millionaires;
            • the online constitution system can be rigid and can also generate management and processing problems if the interested parties have not been properly advised and guided by the professionals involved before arriving at the Notary. Additionally, CIRCE’s telematic systems must function properly in order to correctly serve all those interested in the constitution of a capital company;
            • there are new requirements for companies related to anti-laundry controls, for instance, to include relevant information on invoices and payments to suppliers in their annual reports and on their corporate website.

            Conclusions

            Although it may apparently imply a boom in the creation of limited liability companies due to the ease of incorporation, there is still much to be done at the level of corporate law at the national level and collaboration between notaries of both countries.

            Spain is, with the entering into force of the Law Creation and Growth, considered among the most advanced countries in facilitating the creation of companies, reducing regulatory obstacles and favoring business restructuring and viability. The final decision will depend on the specific needs of the business, access to finance and tax regime, among others.

            Additionally, to the incorporation flexibilities, we must not forget a couple of important aspects for the shareholders and directors to be aware of:

            • a company needs to be managed as well and we need to be aware of the treasury, labor or other obligations of the companies already incorporated, even if they are non-active, they must continue to publish the annual accounts and complying with all governance requirements and formal public register notifications;
            • the responsibility of the shareholders is also important to consider. A shareholder who has direct involvement in the management, may face liability in case of bankruptcy, also in the country where the subsidiary is located. As mentioned above, in Spain, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros;
            • the last important aspect when you are doing business mainly in Europe is to consider restructuring your business or consider other forms of incorporation of companies, depending of the business model that you have opted to, for instance the use of the Societas Europaea (SE) which has the possibility to set up a holding company or a joint subsidiary together and to transfer the seat of the company without winding up the entity. The disadvantage is that you need €120,000 starting capital to set up and to have a minimum of 2 companies governed by the laws of different Member States. Other forms of incorporation are the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).

            If you need additional information or you are planning to incorporate a limited liability company in Spain or in The Netherlands, get in touch to know more about your options and the right corporate advice for your business.

            What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

            The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

            The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

            Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

            The judgment in question is doubly interesting.

            Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

            As the Constitutional Court very recently reiterated in its ruling dated last October, « judicial slowness has no place in the Magna Carta ». But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

            Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

            The plaintiffs sought the nullity of certain resolutions adopted at a shareholders’ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

            The legislation in force at the time the meeting was held (prior to the 2014 reform) established that « resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties » could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

            Following the 2014 reform, article 204 considers that « corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties » can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

            But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to « law » in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an « abuse of rights », can such a situation be considered as « contrary to law » for the purposes of the application of article 204 LSC?

            The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

            • formal or outwardly correct use of a right
            • causing damage to an interest not protected by a specific legal prerogative, and
            • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

            And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

            The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

            And on these premises, the Supreme Court reiterates and insists that the expression « contrary to the law » in article 204 LSC must be understood as « contrary to the legal system », which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

            And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

            It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

            And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an « in extremis » recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

            Javier Gaspar

            Domaines d'intervention

            • Arbitrage
            • Distribution
            • Franchise
            • Litiges
            • Sport
            Contact Javier

            Écrire à Javier





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              Spain – Resignation of a company director (is not so easy)

              3 octobre 2022

              • Espagne
              • Entreprise

              The commercial agent has the right to obtain certain information about the sales of the principal. The Spanish Law on Agency Contracts provides (15.2 LCA) that the agent has the right to demand to see the accounts of the principal in order to verify all matters relating to the commissions due to him. And also, to be provided with the information available to the principal and necessary to verify the amount of such commissions.

              This article is in line with the 1986 Commercial Agents Directive, according to which (12.3) the agent is entitled to demand to be provided with all information at the disposal of the principal, particularly an extract from the books of account, which is necessary to verify the amount of commission due to the agent. This may not be altered to the detriment of the commercial agent by agreement.

              The question is, does this right remain even after the termination of the agency contract? In other words: once the agency contract is terminated, can the agent request the information and documentation mentioned in these articles and is the Principal obliged to provide it?

              In our opinion, the rule does not say anything that limits this right, rather the opposite is to be expected. Therefore, to the extent that there is still any possible commission that may arise from such verification, the answer must be yes. Let us see.

              The right to demand the production of accounts exists so that the agent can verify the amount of commissions. And the agent is entitled to commissions for acts and operations concluded during the term of the contract (art. 12 LCA), but also for acts or operations concluded after the termination of the contract (art. 13 LCA), and for operations not carried out due to circumstances attributable to the principal (art. 17 LCA). In addition, the agent is entitled to have the commission accrued at the time when the act or transaction should have been executed (art. 14 LCA).

              All these transactions can take place after the conclusion of the contract. Consider the usual situation where orders are placed during the contract but are accepted or executed afterwards. To reduce the agent’s right to be informed only during the term of the contract would be to limit his entitlement to the corresponding commission unduly. And it should be borne in mind that the amount of the commissions during the last five years may also influence the calculation of the client (goodwill) indemnity (art. 28 LCA), so that the agent’s interest in knowing them is twofold: what he would receive as commission, and what could increase the basis for future indemnity.

              This has been confirmed, for example, by the Provincial Court (Audiencia Provincial) of Madrid (AAP 227/2017, of 29 June [ECLI:ES:APM:2017:2873A]) which textually states:

              […] art. 15.2 of the Agency Contract Act provides for the right of the agent to demand the exhibition of the Principal’s accounts in the particulars necessary to verify everything relating to the commissions corresponding to him, as well as to be provided with the information available to the Principal and necessary to verify the amount. This does not prevent, […], the agency contract having already been terminated, as this does not imply that commissions would cease to accrue for policies, contracted with the mediation of the agent, which remain in force.

              The question then arises as to whether this right to information is unlimited in time. And here the answer would be in the negative. The limitation of the right to receive information would be linked to the statute of limitations of the right to claim the corresponding commission. If the right to receive the commission were undoubtedly time-barred, it could be argued that it would not be possible to receive information about it. But for such an exception, the statute of limitations must be clear, therefore, taking into account possible interruptions due to claims, even extrajudicial ones. In case of doubt, it will be necessary to recognise the right to demand the information, without prejudice to later invoking and recognising the impossibility of claiming the commission if the right is time-barred. And for this we must consider the limitation period for claiming commissions (in general, three years) and that of the right to claim compensation for clientele (one year).

              In short: it does not seem that the right to receive information and to examine the principal’s documentation is limited by the term of the agency contract; although, on the other hand, it would be appropriate to analyse the possible limitation period for claiming commissions. In the absence of a clear answer to this question, the right to information should, in our opinion, prevail, without prejudice to the fact that the result may not entitle the claim because it is time-barred.

              Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

              And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

              We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

              Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

              The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

              The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

              The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

              Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

              In summary and by way of conclusion

              The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

              And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

              So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.

              In this first episode of Legalmondo’s Distribution Talks series, I spoke with Ignacio Alonso, a Madrid-based lawyer with extensive experience in international commercial distribution.

              Main discussion points:

              • in Spain, there is no specific law for distribution agreements, which are governed by the general rules of the Commercial Code;
              • therefore, it is essential to draft a clear and comprehensive contract, which will be the primary source of the parties’ rights and obligations;
              • it is also good to be aware of Spanish case law on commercial distribution, which in some cases applies the law on commercial agency by analogy.
              • the most common issues involving foreign producers distributing in Spain arise at the time of termination of the relationship, mainly because case law grants the terminated distributor an indemnity of clientele or goodwill if similar prerequisites to those in the agency regulations apply.
              • another frequent dispute concerns the adequacy of the notice period for terminating the contract, especially if there is no agreement between the parties: the advice is to follow what the agency regulations stipulate and thus establish a minimum notice period of one month for each year of the contract’s duration, up to 6 months for agreements lasting more than five years;
              • regarding dispute resolution tools, mediation is an option that should be carefully considered because it is quick, inexpensive, and allows a shared solution to be sought flexibly without disrupting the business relationship.
              • if mediation fails, the parties can provide for recourse to arbitration or state court. The choice depends on the case’s specific circumstances, and one factor in favor of jurisdiction is the possibility of appeal, which is excluded in the case of arbitration.

              Go deeper

              Accepting the position of director (administrator or CEO) in a Spanish company entails increasing risks. Indeed, the Supreme Court – ruling by ruling – is outlining and interpreting the precepts of the Capital Companies Act (LSC) with an increasingly rigorous and demanding approach when it comes to delimiting the framework of directors’ liability.

              Of course, the content of Article 43.1 b) of the General Tax Law is not new at all when it lays the foundations for the subsidiary liability of directors for debts owed to the Tax Agency:

              The following persons or entities shall be subsidiarily liable for the tax debt:

              b) The de facto or de jure administrators of those legal entities that have ceased their activities, for the accrued tax obligations of these that are pending at the time of the cessation, provided that they have not done what is necessary for their payment or have adopted agreements or taken measures causing the non-payment.

              It could be deduced from the reading of the transcribed provision that the subsidiary liability of the directors who, at the time of the cessation of the corporate activity, effectively held the position of director, was established; but that the liability would not reach those directors who had been so in the past but were no longer directors at the time when the company had ceased to act in the legal and economic traffic, for the tax debts pending at that time.

              Well, the Supreme Court (Third Chamber) in its recent judgment of March 7th, 2023, hammers one more nail in the coffin of the liability of the directors.

              The case that was the subject of the ruling consisted of determining the subsidiary liability to the Tax Agency of a director whose position had expired (due to the expiration of the statutory term) and who had called a general meeting for the appointment of new members of the administrative body of the company.

              The Supreme Court understands (and establishes a doctrine for the purposes of appeal) that the director with an expired position does not « exhaust » his obligations with the call of the meeting in question, but must also, pursuant to art. 365 LSC call another general meeting to adopt the resolution to file for insolvency or dissolution due to the existence of the causes of art. 363 LSC a) (cessation of activity) and d) (paralysis of the corporate bodies) as well as, if applicable, the request for judicial dissolution in his capacity as an interested party (art. 366.1 LSC).

              The reproachable conduct according to the Supreme Court (which triggers the subsidiary liability) consists in the fact that, facing the cessation of the activity of the company, the only thing he did was to call a meeting for the appointment of a new director and therefore « it did not carry out the necessary acts to be able to face the payment of the tax debts, thus meeting the subjective element necessary to be able to declare its liability ».

              The court ruling insists that the condition of director is not lost with the exhaustion of the mandate due to the expiration of the position since the mercantile and fiscal obligations persist; and that the call of a meeting to appoint a new director is not enough to understand that such meeting, once held, deprives the director with expired position of the condition of director, when there is a cause of dissolution that would have obliged to call another meeting with another object and another agenda to agree on the dissolution of the inactive company.

              But what is remarkable and striking in this case is that the meeting called by the director (with expired position) for the appointment of new a new director was held in June 2012, the resolutions were made public on March 1st, 2013, they were registered in the commercial registry in July of the same year and the judgment expressly states that the cessation of corporate activity occurred in April 2013 (i.e. when the meeting for the appointment of new administrators had already been held, June 2012, and when the appointment of the new director had already been made public, March 1st, 2013).

              The court resolution reads as follows:

              « Given the date on which the cessation of the business activity was established by the judgment a quo, April 2013, the appellant should still be considered as a director of the company in that capacity, his conduct should be considered negligent for the purposes of inclusion in the cause of subsidiary liability of art. 43.1.b) LGT ». 

              The claimant director argued that Art. 222 LSC and Art. 145.1 RRM state that the appointment of directors will expire, among other cases, when the term has expired and the meeting for the appointment of a new director has been held (or the term for its holding has elapsed) that is to resolve on the approval of the accounts of the previous year. And he explained that on top of that, he had fulfilled his obligations as director calling for a general shareholders meeting where new directors were appointed 9 months before the company ceased its activities. Therefore, he no longer was a “director” on April 2103.

              Despite of that argument the Supreme Court insists that, whether or not the position has expired, said expiration does not exhaust or extinguish his responsibilities as director, which must be interpreted extensively: it is not enough for him to call a meeting for the appointment of new directors, but he must act to dissolve the company or file for insolvency proceedings, as if the position had full and complete validity. 

              Thus, after this strong ruling, the directors of Spanish companies, in the event of termination of the activity, even if their position has expired, must know that their liability (and specifically the subsidiary liability for tax debts) will only be released if they call a meeting to dissolve the company, if the meeting does not adopt such resolution, if they request the court for the judicial dissolution or if they file voluntary insolvency proceedings.

              To summarize, they will be liable if they do not act in the same way as if their position were still in full force and effect. As we said above, it is necessary to think very much about accepting positions of director of Spanish companies.

              The so-called « Startup Law » in Spain (Law for the promotion of the emerging company’s ecosystem) after passing the corresponding filters, has been approved by the Spanish Parliament.

              Among its various provisions on startups – which will be the subject of another article – the Startup Law also amended the « Beckham Law » (as this football player is the best known of those who benefited from this law), i.e. the special tax regime applicable to workers, professionals, entrepreneurs, and investors moving from abroad to Spain.

              This regime grants enormous tax advantages to Spanish foreigners, who move their residence to Spain under certain circumstances which, in summary, are:

              • relocation as a consequence of an employment contract.
              • displacement that is ordered by the foreign employer with a letter of displacement to Spain.
              • displacement without being ordered by the employer and the labor activity is provided remotely by means of the exclusive use of electronic means.
              • acquisition of the condition of administrator of a company.
              • for the realization in Spain of an economic activity qualified as entrepreneurial activity.
              • highly qualified professional providing services to emerging companies.

              The great novelty is that, until the entry into force of the new regulation, it was required that the interested party had been a non-resident for tax purposes in Spain for a period of more than 10 years so many managers were temporarily displaced outside Spain could not benefit from this regime because they had not been outside Spanish territory for more than 10 years (the displacements are not usually so long) and with the entry into force of the new legal text, the previous period of non-residence has been reduced to five (5) years.

              The great advantage of this regime is that its beneficiaries (individuals) can opt to pay the Non-Resident Income Tax (IRNR), during the tax period in which the change of residence takes place and during the following five tax periods. This means that in the determination of the taxable income, part of the income that the interested party may obtain worldwide is not taxed and, in addition, that up to 600,000 euros of taxable income, the applicable tax rate would be 24% (all of which is undoubtedly an enormous tax advantage with respect to the applicable tax regime, in the same circumstances of income, to a tax resident in Spain without the coverage of this special regime).

              In any case, it is important to emphasize that the application of this advantageous tax regime requires a previous and express request by the interested party, that is to say, first « knocking at the door » of the Treasury and, therefore, it is very important to make sure that all the requirements demanded by the Law are fulfilled very scrupulously, so it is always especially advisable to request in advance and with the due detail the appropriate legal advice in this respect.

              Summary

              Spain’s Labour and Social Security Inspectorate has inspected the « Big Four » firms to control working time and overtime, which employees claim is regularly exceeded. Spanish law requires companies to record workers’ start and end times each day to prevent employees from working longer than the stipulated day. Companies failing to comply can face fines and even criminal charges. The inspections could set a precedent for firms in the auditing and consultancy sectors.

              In recent days, the press has reported on the « macro-inspection » carried out in the « Big Four » (the most important firms in the consultancy and auditing sector) by the labour authority, namely the Labour and Social Security Inspectorate (“Inspección de Trabajo y Seguridad Social”).

              The aim of this inspection is, fundamentally, the control of working time, overtime and time recording, all aspects which, according to the workers themselves, are flagrantly breached by the aforementioned companies.

              Thus, it seems to be a general trend that the employees of the « Big Four » work up to 12 hours a day (« from nine to nine »), which means approximately 4 hours of overtime a day; overtime that, to make matters worse, is not compensated either financially or by days off. Being forced to work during rest periods, such as weekends or holidays, is also common practice.

              Given the situation and the facts described above, how can they be transferred to the legal plane? What breaches would the « Big Four » be committing, and what responsibilities would they have to face, in accordance with our Labour Law?

              Well, firstly, since 2019, the year in which Royal Decree-Law 8/2019 of 8 March came into force, the company is obliged to keep a daily record of the working day, including the specific start and end times of each worker’s working day. The purpose of this measure is, precisely, to avoid what happens in the « Big Four », that is, that employees work longer than the established working day, which, in the words of the Explanatory Memorandum of the aforementioned regulation, produces a clear negative effect on the labour market:

              « The performance of working time in excess of the legally or conventionally established working day has a substantial impact on the precariousness of the labour market, by affecting two essential elements of the employment relationship, working time, with a relevant influence on the personal life of the worker by making it difficult to reconcile family life, and salary. It also impacts Social Security contributions, which are reduced as they are not paid for the salary corresponding to the working day ».

              The daily record of each worker’s working day is thus an essential element for the purposes of calculating overtime, i.e., those hours worked over the maximum duration of the ordinary working day, and which must, in any event, be compensated, either financially or through equivalent paid rest periods; in addition to also having a quantitative limit, insofar as article 35.2 of the Workers’ Statute provides that the number of overtime hours may not exceed 80 per year.

              No less important is the certainly novel « right to digital disconnection in the workplace », which takes the form of the worker’s right to guarantee, outside the legally or conventionally established working time, respect for their rest time, leave and holidays, as well as their personal and family privacy, and which is recognized in article 88 of our current Personal Data Protection Act.

              At this point, what happens then if the company transgresses the legal rules and limits on working hours, overtime, rest breaks, holidays, working time records and, in general, working time, as apparently occurs in the cases described at the beginning of this article?

              Well, it faces a financial fine of 751 euros in the minimum grade, and up to 7,500 euros in the worst case, according to the Law on Infractions and Penalties in the Social Order.

              In the worst-case scenario, a possible criminal liability could even be considered for allegedly committing an offense against workers’ rights. This is by no means a trivial matter, as our Criminal Code provides for such offenses to be punishable not only by a fine but also by imprisonment.

              Conclusion

              We are faced with the possibility that the Labour Inspectorate’s action with regard to the so-called « Big Four » will set a precedent with regard to the prohibition of endless working hours, so common in sectors such as auditing or consultancy, which will also benefit the working conditions of workers as a whole.

              Where is it more suitable to set up a new limited liability company in Europe?

              I will deal in this article with two countries I know well (Spain and The Netherlands) and focus on the minimum capital requested and the online incorporation of a limited liability company, sharing some thoughts and my takeaways.

              Spain: the “Create and Grow Law”

              In Spain, the Business Creation and Growth Law 18/2022, of September 28, 2022 (related to aspects of incorporation of companies), known as the “Create and Grow Law”, was approved last September within the framework of the Recovery, Transformation and Resilience Plan of the Spanish government. This plan channels European funds to alleviate the consequences of the Covid-19 crisis. This law is an initiative that reflects this flexibility and, as its explanatory statement indicates, aims to encourage the creation and growth of companies, in order to contribute to the economic growth of the country and its long-term resilience. Spain thus aligns itself with other neighboring countries, where there is no minimum capital to set up a company of this type.

              Is this new law interesting for foreign investors or companies looking to establish themselves in Spain?

              It is certainly very interesting. The fact that the Spanish legislator abandons this reference figure of 3,000 euros is very favorable for medium-large companies willing to have a permanent establishment in Spain Nevertheless, as long as the capital does not reach the figure of €3,000, the following rules will be applied, which are intended to protect the interests of creditors or third parties that contract with the company:  (i) 20% of the profit must be allocated to the legal reserve until said reserve together with the social capital reach the figure of €3,000 (the legislator seeks that the SLs constituted in this way do not remain « undercapitalized »), and (ii) as a safeguard clause for creditors of the company, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros.

              Online incorporation of a company in Spain

              The « CIRCE system » (procedure dependent on the Ministry of Industry, Commerce and Tourism that allows the start of the process of creating companies « over the Internet » ) entails an electronic procedure through agreements and communications with all the organizations and administrations that intervene in the process of incorporating companies.

              The entrepreneur will only have to complete the Single Electronic Document (DUE) that includes a multitude of forms and CIRCE will automatically carry out all the necessary procedures to establish the company, communicating with all the organizations involved (Tax Agency, Social Security, Mercantile Registry, Notary, etc.). There is an obligation to review and sign the DUE before sending it. This system is not active yet, but it is expected that it will be in place when other complementary laws that support this digital process are approved by the Spanish Legislator which is necessary for the well-functioning of the system.

              The Netherlands: The Flex BV law

              The Flex BV law came into force on October 4, 2011. This law has given a lot of flexibility to the incorporation of new limited liability companies which has been very favorable for international companies working with different product lines, allowing to have one company for every product or service offered.

              The Flex BV law has, among others, the following characteristics:

              • the creation of a Limited Liability Company is flexible, easy to establish and without many costs;
              • it only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a limited liability company, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

              Online incorporation of a company in the Netherlands

               In the case of the Netherlands, in the Explanatory Memorandum of the bill implementing the Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 with regard to the use of digital instruments, it is proposed that incorporation of a BV electronically is only possible if payment on the shares takes place in cash, in order to initially limit the online formation of companies to simple situations. If it turns out that online formation works well, it can be considered whether it is useful to extend this possibility to situations in which contributions are made in a manner other than in money. Incorporation by natural persons using a model deed of incorporation must be possible within five working days from the date on which the notary has received all documents and information from the applicant or the date of payment of the share capital.

              The incorporation of a BV digitally is postponed to the summer of 2023 since the House Committee for Justice and Security has decided that the act must be discussed in plenary.

              The so called DOBV-system (Digital establishment of a BV), will entail a change in a number of work processes in the notaries in The Netherlands but for the Chamber of Commerce, no major changes will follow because the civil-law notary will supply the registration documents digitally to the Chamber of Commerce. Consequences the civil-law notary is the one who will have to offer a certain digital form of service, which citizens and companies will be able to use.

              What positive and negative aspects can be highlighted?

              Positives aspects:

              • it is very positive that through this new standard, many investors or international companies from both countries will be encouraged to create new SPVs, as the minimum capital is considered by many companies as a “barrier to entry”;
              • it will expedite the procedures for incorporating companies, essential vehicles for channeling the economic activities of businessmen in their transcendental task of creating wealth and employment, without notary and registration costs;
              • it will create a healthy competition between all the Notaries in Spain and between the notaries of Spain and the Netherlands. The Dutch notary bond expects that a further digitization of the notarial process could be achieved first in the real estate chain and subsequently also in business practice. It is important that the business market may be capable to respond quickly to this demand;
              • the share capital of a company will serve its partners to have the necessary funds with which to start their project, acquire the goods and resources necessary to start the economic activity and consolidate a long-term project (such as, for example, to buy the goods and services necessary to start up activities or to hire employees);
              • it creates business growth through financing alternatives to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

              Negatives aspects:

              • to search financing externally to start the company’s activity, which will also surely have a cost (in the form of loans, for example, with their corresponding interest rate). Additionally, in the short or medium term the company must have a capital increase to normalize their patrimonial situation and solve this evident « underfinancing » of own resources, with which, this will also suppose an additional cost in the form of notary and registry fees that must be faced in the medium or long term after the incorporation;
              • the possibility of establishing a limited liability company with only 1 euro of share capital can facilitate the creation of fictitious legal entities by people who do not wish to carry out a real economic activity, but only use the companies as a suitable instrument for the development of legal or illegal activities;
              • additionally, it also implies a clear risk for the legal certainty and the responsibility of those companies in large contracts with third parties, leaving a limit to their minimum liability while their businesses are millionaires;
              • the online constitution system can be rigid and can also generate management and processing problems if the interested parties have not been properly advised and guided by the professionals involved before arriving at the Notary. Additionally, CIRCE’s telematic systems must function properly in order to correctly serve all those interested in the constitution of a capital company;
              • there are new requirements for companies related to anti-laundry controls, for instance, to include relevant information on invoices and payments to suppliers in their annual reports and on their corporate website.

              Conclusions

              Although it may apparently imply a boom in the creation of limited liability companies due to the ease of incorporation, there is still much to be done at the level of corporate law at the national level and collaboration between notaries of both countries.

              Spain is, with the entering into force of the Law Creation and Growth, considered among the most advanced countries in facilitating the creation of companies, reducing regulatory obstacles and favoring business restructuring and viability. The final decision will depend on the specific needs of the business, access to finance and tax regime, among others.

              Additionally, to the incorporation flexibilities, we must not forget a couple of important aspects for the shareholders and directors to be aware of:

              • a company needs to be managed as well and we need to be aware of the treasury, labor or other obligations of the companies already incorporated, even if they are non-active, they must continue to publish the annual accounts and complying with all governance requirements and formal public register notifications;
              • the responsibility of the shareholders is also important to consider. A shareholder who has direct involvement in the management, may face liability in case of bankruptcy, also in the country where the subsidiary is located. As mentioned above, in Spain, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros;
              • the last important aspect when you are doing business mainly in Europe is to consider restructuring your business or consider other forms of incorporation of companies, depending of the business model that you have opted to, for instance the use of the Societas Europaea (SE) which has the possibility to set up a holding company or a joint subsidiary together and to transfer the seat of the company without winding up the entity. The disadvantage is that you need €120,000 starting capital to set up and to have a minimum of 2 companies governed by the laws of different Member States. Other forms of incorporation are the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).

              If you need additional information or you are planning to incorporate a limited liability company in Spain or in The Netherlands, get in touch to know more about your options and the right corporate advice for your business.

              What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

              The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

              The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

              Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

              The judgment in question is doubly interesting.

              Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

              As the Constitutional Court very recently reiterated in its ruling dated last October, « judicial slowness has no place in the Magna Carta ». But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

              Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

              The plaintiffs sought the nullity of certain resolutions adopted at a shareholders’ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

              The legislation in force at the time the meeting was held (prior to the 2014 reform) established that « resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties » could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

              Following the 2014 reform, article 204 considers that « corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties » can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

              But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to « law » in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an « abuse of rights », can such a situation be considered as « contrary to law » for the purposes of the application of article 204 LSC?

              The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

              • formal or outwardly correct use of a right
              • causing damage to an interest not protected by a specific legal prerogative, and
              • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

              And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

              The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

              And on these premises, the Supreme Court reiterates and insists that the expression « contrary to the law » in article 204 LSC must be understood as « contrary to the legal system », which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

              And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

              It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

              And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an « in extremis » recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

              Javier Gaspar

              Domaines d'intervention

              • Arbitrage
              • Distribution
              • Franchise
              • Litiges
              • Sport
              Contact Javier

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                Espagne – Accords de distribution et compensation du goodwill (clientèle)

                20 avril 2022

                • Espagne
                • Distribution

                The commercial agent has the right to obtain certain information about the sales of the principal. The Spanish Law on Agency Contracts provides (15.2 LCA) that the agent has the right to demand to see the accounts of the principal in order to verify all matters relating to the commissions due to him. And also, to be provided with the information available to the principal and necessary to verify the amount of such commissions.

                This article is in line with the 1986 Commercial Agents Directive, according to which (12.3) the agent is entitled to demand to be provided with all information at the disposal of the principal, particularly an extract from the books of account, which is necessary to verify the amount of commission due to the agent. This may not be altered to the detriment of the commercial agent by agreement.

                The question is, does this right remain even after the termination of the agency contract? In other words: once the agency contract is terminated, can the agent request the information and documentation mentioned in these articles and is the Principal obliged to provide it?

                In our opinion, the rule does not say anything that limits this right, rather the opposite is to be expected. Therefore, to the extent that there is still any possible commission that may arise from such verification, the answer must be yes. Let us see.

                The right to demand the production of accounts exists so that the agent can verify the amount of commissions. And the agent is entitled to commissions for acts and operations concluded during the term of the contract (art. 12 LCA), but also for acts or operations concluded after the termination of the contract (art. 13 LCA), and for operations not carried out due to circumstances attributable to the principal (art. 17 LCA). In addition, the agent is entitled to have the commission accrued at the time when the act or transaction should have been executed (art. 14 LCA).

                All these transactions can take place after the conclusion of the contract. Consider the usual situation where orders are placed during the contract but are accepted or executed afterwards. To reduce the agent’s right to be informed only during the term of the contract would be to limit his entitlement to the corresponding commission unduly. And it should be borne in mind that the amount of the commissions during the last five years may also influence the calculation of the client (goodwill) indemnity (art. 28 LCA), so that the agent’s interest in knowing them is twofold: what he would receive as commission, and what could increase the basis for future indemnity.

                This has been confirmed, for example, by the Provincial Court (Audiencia Provincial) of Madrid (AAP 227/2017, of 29 June [ECLI:ES:APM:2017:2873A]) which textually states:

                […] art. 15.2 of the Agency Contract Act provides for the right of the agent to demand the exhibition of the Principal’s accounts in the particulars necessary to verify everything relating to the commissions corresponding to him, as well as to be provided with the information available to the Principal and necessary to verify the amount. This does not prevent, […], the agency contract having already been terminated, as this does not imply that commissions would cease to accrue for policies, contracted with the mediation of the agent, which remain in force.

                The question then arises as to whether this right to information is unlimited in time. And here the answer would be in the negative. The limitation of the right to receive information would be linked to the statute of limitations of the right to claim the corresponding commission. If the right to receive the commission were undoubtedly time-barred, it could be argued that it would not be possible to receive information about it. But for such an exception, the statute of limitations must be clear, therefore, taking into account possible interruptions due to claims, even extrajudicial ones. In case of doubt, it will be necessary to recognise the right to demand the information, without prejudice to later invoking and recognising the impossibility of claiming the commission if the right is time-barred. And for this we must consider the limitation period for claiming commissions (in general, three years) and that of the right to claim compensation for clientele (one year).

                In short: it does not seem that the right to receive information and to examine the principal’s documentation is limited by the term of the agency contract; although, on the other hand, it would be appropriate to analyse the possible limitation period for claiming commissions. In the absence of a clear answer to this question, the right to information should, in our opinion, prevail, without prejudice to the fact that the result may not entitle the claim because it is time-barred.

                Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

                And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

                We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

                Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

                The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

                The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

                The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

                Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

                In summary and by way of conclusion

                The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

                And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

                So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.

                In this first episode of Legalmondo’s Distribution Talks series, I spoke with Ignacio Alonso, a Madrid-based lawyer with extensive experience in international commercial distribution.

                Main discussion points:

                • in Spain, there is no specific law for distribution agreements, which are governed by the general rules of the Commercial Code;
                • therefore, it is essential to draft a clear and comprehensive contract, which will be the primary source of the parties’ rights and obligations;
                • it is also good to be aware of Spanish case law on commercial distribution, which in some cases applies the law on commercial agency by analogy.
                • the most common issues involving foreign producers distributing in Spain arise at the time of termination of the relationship, mainly because case law grants the terminated distributor an indemnity of clientele or goodwill if similar prerequisites to those in the agency regulations apply.
                • another frequent dispute concerns the adequacy of the notice period for terminating the contract, especially if there is no agreement between the parties: the advice is to follow what the agency regulations stipulate and thus establish a minimum notice period of one month for each year of the contract’s duration, up to 6 months for agreements lasting more than five years;
                • regarding dispute resolution tools, mediation is an option that should be carefully considered because it is quick, inexpensive, and allows a shared solution to be sought flexibly without disrupting the business relationship.
                • if mediation fails, the parties can provide for recourse to arbitration or state court. The choice depends on the case’s specific circumstances, and one factor in favor of jurisdiction is the possibility of appeal, which is excluded in the case of arbitration.

                Go deeper

                Accepting the position of director (administrator or CEO) in a Spanish company entails increasing risks. Indeed, the Supreme Court – ruling by ruling – is outlining and interpreting the precepts of the Capital Companies Act (LSC) with an increasingly rigorous and demanding approach when it comes to delimiting the framework of directors’ liability.

                Of course, the content of Article 43.1 b) of the General Tax Law is not new at all when it lays the foundations for the subsidiary liability of directors for debts owed to the Tax Agency:

                The following persons or entities shall be subsidiarily liable for the tax debt:

                b) The de facto or de jure administrators of those legal entities that have ceased their activities, for the accrued tax obligations of these that are pending at the time of the cessation, provided that they have not done what is necessary for their payment or have adopted agreements or taken measures causing the non-payment.

                It could be deduced from the reading of the transcribed provision that the subsidiary liability of the directors who, at the time of the cessation of the corporate activity, effectively held the position of director, was established; but that the liability would not reach those directors who had been so in the past but were no longer directors at the time when the company had ceased to act in the legal and economic traffic, for the tax debts pending at that time.

                Well, the Supreme Court (Third Chamber) in its recent judgment of March 7th, 2023, hammers one more nail in the coffin of the liability of the directors.

                The case that was the subject of the ruling consisted of determining the subsidiary liability to the Tax Agency of a director whose position had expired (due to the expiration of the statutory term) and who had called a general meeting for the appointment of new members of the administrative body of the company.

                The Supreme Court understands (and establishes a doctrine for the purposes of appeal) that the director with an expired position does not « exhaust » his obligations with the call of the meeting in question, but must also, pursuant to art. 365 LSC call another general meeting to adopt the resolution to file for insolvency or dissolution due to the existence of the causes of art. 363 LSC a) (cessation of activity) and d) (paralysis of the corporate bodies) as well as, if applicable, the request for judicial dissolution in his capacity as an interested party (art. 366.1 LSC).

                The reproachable conduct according to the Supreme Court (which triggers the subsidiary liability) consists in the fact that, facing the cessation of the activity of the company, the only thing he did was to call a meeting for the appointment of a new director and therefore « it did not carry out the necessary acts to be able to face the payment of the tax debts, thus meeting the subjective element necessary to be able to declare its liability ».

                The court ruling insists that the condition of director is not lost with the exhaustion of the mandate due to the expiration of the position since the mercantile and fiscal obligations persist; and that the call of a meeting to appoint a new director is not enough to understand that such meeting, once held, deprives the director with expired position of the condition of director, when there is a cause of dissolution that would have obliged to call another meeting with another object and another agenda to agree on the dissolution of the inactive company.

                But what is remarkable and striking in this case is that the meeting called by the director (with expired position) for the appointment of new a new director was held in June 2012, the resolutions were made public on March 1st, 2013, they were registered in the commercial registry in July of the same year and the judgment expressly states that the cessation of corporate activity occurred in April 2013 (i.e. when the meeting for the appointment of new administrators had already been held, June 2012, and when the appointment of the new director had already been made public, March 1st, 2013).

                The court resolution reads as follows:

                « Given the date on which the cessation of the business activity was established by the judgment a quo, April 2013, the appellant should still be considered as a director of the company in that capacity, his conduct should be considered negligent for the purposes of inclusion in the cause of subsidiary liability of art. 43.1.b) LGT ». 

                The claimant director argued that Art. 222 LSC and Art. 145.1 RRM state that the appointment of directors will expire, among other cases, when the term has expired and the meeting for the appointment of a new director has been held (or the term for its holding has elapsed) that is to resolve on the approval of the accounts of the previous year. And he explained that on top of that, he had fulfilled his obligations as director calling for a general shareholders meeting where new directors were appointed 9 months before the company ceased its activities. Therefore, he no longer was a “director” on April 2103.

                Despite of that argument the Supreme Court insists that, whether or not the position has expired, said expiration does not exhaust or extinguish his responsibilities as director, which must be interpreted extensively: it is not enough for him to call a meeting for the appointment of new directors, but he must act to dissolve the company or file for insolvency proceedings, as if the position had full and complete validity. 

                Thus, after this strong ruling, the directors of Spanish companies, in the event of termination of the activity, even if their position has expired, must know that their liability (and specifically the subsidiary liability for tax debts) will only be released if they call a meeting to dissolve the company, if the meeting does not adopt such resolution, if they request the court for the judicial dissolution or if they file voluntary insolvency proceedings.

                To summarize, they will be liable if they do not act in the same way as if their position were still in full force and effect. As we said above, it is necessary to think very much about accepting positions of director of Spanish companies.

                The so-called « Startup Law » in Spain (Law for the promotion of the emerging company’s ecosystem) after passing the corresponding filters, has been approved by the Spanish Parliament.

                Among its various provisions on startups – which will be the subject of another article – the Startup Law also amended the « Beckham Law » (as this football player is the best known of those who benefited from this law), i.e. the special tax regime applicable to workers, professionals, entrepreneurs, and investors moving from abroad to Spain.

                This regime grants enormous tax advantages to Spanish foreigners, who move their residence to Spain under certain circumstances which, in summary, are:

                • relocation as a consequence of an employment contract.
                • displacement that is ordered by the foreign employer with a letter of displacement to Spain.
                • displacement without being ordered by the employer and the labor activity is provided remotely by means of the exclusive use of electronic means.
                • acquisition of the condition of administrator of a company.
                • for the realization in Spain of an economic activity qualified as entrepreneurial activity.
                • highly qualified professional providing services to emerging companies.

                The great novelty is that, until the entry into force of the new regulation, it was required that the interested party had been a non-resident for tax purposes in Spain for a period of more than 10 years so many managers were temporarily displaced outside Spain could not benefit from this regime because they had not been outside Spanish territory for more than 10 years (the displacements are not usually so long) and with the entry into force of the new legal text, the previous period of non-residence has been reduced to five (5) years.

                The great advantage of this regime is that its beneficiaries (individuals) can opt to pay the Non-Resident Income Tax (IRNR), during the tax period in which the change of residence takes place and during the following five tax periods. This means that in the determination of the taxable income, part of the income that the interested party may obtain worldwide is not taxed and, in addition, that up to 600,000 euros of taxable income, the applicable tax rate would be 24% (all of which is undoubtedly an enormous tax advantage with respect to the applicable tax regime, in the same circumstances of income, to a tax resident in Spain without the coverage of this special regime).

                In any case, it is important to emphasize that the application of this advantageous tax regime requires a previous and express request by the interested party, that is to say, first « knocking at the door » of the Treasury and, therefore, it is very important to make sure that all the requirements demanded by the Law are fulfilled very scrupulously, so it is always especially advisable to request in advance and with the due detail the appropriate legal advice in this respect.

                Summary

                Spain’s Labour and Social Security Inspectorate has inspected the « Big Four » firms to control working time and overtime, which employees claim is regularly exceeded. Spanish law requires companies to record workers’ start and end times each day to prevent employees from working longer than the stipulated day. Companies failing to comply can face fines and even criminal charges. The inspections could set a precedent for firms in the auditing and consultancy sectors.

                In recent days, the press has reported on the « macro-inspection » carried out in the « Big Four » (the most important firms in the consultancy and auditing sector) by the labour authority, namely the Labour and Social Security Inspectorate (“Inspección de Trabajo y Seguridad Social”).

                The aim of this inspection is, fundamentally, the control of working time, overtime and time recording, all aspects which, according to the workers themselves, are flagrantly breached by the aforementioned companies.

                Thus, it seems to be a general trend that the employees of the « Big Four » work up to 12 hours a day (« from nine to nine »), which means approximately 4 hours of overtime a day; overtime that, to make matters worse, is not compensated either financially or by days off. Being forced to work during rest periods, such as weekends or holidays, is also common practice.

                Given the situation and the facts described above, how can they be transferred to the legal plane? What breaches would the « Big Four » be committing, and what responsibilities would they have to face, in accordance with our Labour Law?

                Well, firstly, since 2019, the year in which Royal Decree-Law 8/2019 of 8 March came into force, the company is obliged to keep a daily record of the working day, including the specific start and end times of each worker’s working day. The purpose of this measure is, precisely, to avoid what happens in the « Big Four », that is, that employees work longer than the established working day, which, in the words of the Explanatory Memorandum of the aforementioned regulation, produces a clear negative effect on the labour market:

                « The performance of working time in excess of the legally or conventionally established working day has a substantial impact on the precariousness of the labour market, by affecting two essential elements of the employment relationship, working time, with a relevant influence on the personal life of the worker by making it difficult to reconcile family life, and salary. It also impacts Social Security contributions, which are reduced as they are not paid for the salary corresponding to the working day ».

                The daily record of each worker’s working day is thus an essential element for the purposes of calculating overtime, i.e., those hours worked over the maximum duration of the ordinary working day, and which must, in any event, be compensated, either financially or through equivalent paid rest periods; in addition to also having a quantitative limit, insofar as article 35.2 of the Workers’ Statute provides that the number of overtime hours may not exceed 80 per year.

                No less important is the certainly novel « right to digital disconnection in the workplace », which takes the form of the worker’s right to guarantee, outside the legally or conventionally established working time, respect for their rest time, leave and holidays, as well as their personal and family privacy, and which is recognized in article 88 of our current Personal Data Protection Act.

                At this point, what happens then if the company transgresses the legal rules and limits on working hours, overtime, rest breaks, holidays, working time records and, in general, working time, as apparently occurs in the cases described at the beginning of this article?

                Well, it faces a financial fine of 751 euros in the minimum grade, and up to 7,500 euros in the worst case, according to the Law on Infractions and Penalties in the Social Order.

                In the worst-case scenario, a possible criminal liability could even be considered for allegedly committing an offense against workers’ rights. This is by no means a trivial matter, as our Criminal Code provides for such offenses to be punishable not only by a fine but also by imprisonment.

                Conclusion

                We are faced with the possibility that the Labour Inspectorate’s action with regard to the so-called « Big Four » will set a precedent with regard to the prohibition of endless working hours, so common in sectors such as auditing or consultancy, which will also benefit the working conditions of workers as a whole.

                Where is it more suitable to set up a new limited liability company in Europe?

                I will deal in this article with two countries I know well (Spain and The Netherlands) and focus on the minimum capital requested and the online incorporation of a limited liability company, sharing some thoughts and my takeaways.

                Spain: the “Create and Grow Law”

                In Spain, the Business Creation and Growth Law 18/2022, of September 28, 2022 (related to aspects of incorporation of companies), known as the “Create and Grow Law”, was approved last September within the framework of the Recovery, Transformation and Resilience Plan of the Spanish government. This plan channels European funds to alleviate the consequences of the Covid-19 crisis. This law is an initiative that reflects this flexibility and, as its explanatory statement indicates, aims to encourage the creation and growth of companies, in order to contribute to the economic growth of the country and its long-term resilience. Spain thus aligns itself with other neighboring countries, where there is no minimum capital to set up a company of this type.

                Is this new law interesting for foreign investors or companies looking to establish themselves in Spain?

                It is certainly very interesting. The fact that the Spanish legislator abandons this reference figure of 3,000 euros is very favorable for medium-large companies willing to have a permanent establishment in Spain Nevertheless, as long as the capital does not reach the figure of €3,000, the following rules will be applied, which are intended to protect the interests of creditors or third parties that contract with the company:  (i) 20% of the profit must be allocated to the legal reserve until said reserve together with the social capital reach the figure of €3,000 (the legislator seeks that the SLs constituted in this way do not remain « undercapitalized »), and (ii) as a safeguard clause for creditors of the company, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros.

                Online incorporation of a company in Spain

                The « CIRCE system » (procedure dependent on the Ministry of Industry, Commerce and Tourism that allows the start of the process of creating companies « over the Internet » ) entails an electronic procedure through agreements and communications with all the organizations and administrations that intervene in the process of incorporating companies.

                The entrepreneur will only have to complete the Single Electronic Document (DUE) that includes a multitude of forms and CIRCE will automatically carry out all the necessary procedures to establish the company, communicating with all the organizations involved (Tax Agency, Social Security, Mercantile Registry, Notary, etc.). There is an obligation to review and sign the DUE before sending it. This system is not active yet, but it is expected that it will be in place when other complementary laws that support this digital process are approved by the Spanish Legislator which is necessary for the well-functioning of the system.

                The Netherlands: The Flex BV law

                The Flex BV law came into force on October 4, 2011. This law has given a lot of flexibility to the incorporation of new limited liability companies which has been very favorable for international companies working with different product lines, allowing to have one company for every product or service offered.

                The Flex BV law has, among others, the following characteristics:

                • the creation of a Limited Liability Company is flexible, easy to establish and without many costs;
                • it only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a limited liability company, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

                Online incorporation of a company in the Netherlands

                 In the case of the Netherlands, in the Explanatory Memorandum of the bill implementing the Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 with regard to the use of digital instruments, it is proposed that incorporation of a BV electronically is only possible if payment on the shares takes place in cash, in order to initially limit the online formation of companies to simple situations. If it turns out that online formation works well, it can be considered whether it is useful to extend this possibility to situations in which contributions are made in a manner other than in money. Incorporation by natural persons using a model deed of incorporation must be possible within five working days from the date on which the notary has received all documents and information from the applicant or the date of payment of the share capital.

                The incorporation of a BV digitally is postponed to the summer of 2023 since the House Committee for Justice and Security has decided that the act must be discussed in plenary.

                The so called DOBV-system (Digital establishment of a BV), will entail a change in a number of work processes in the notaries in The Netherlands but for the Chamber of Commerce, no major changes will follow because the civil-law notary will supply the registration documents digitally to the Chamber of Commerce. Consequences the civil-law notary is the one who will have to offer a certain digital form of service, which citizens and companies will be able to use.

                What positive and negative aspects can be highlighted?

                Positives aspects:

                • it is very positive that through this new standard, many investors or international companies from both countries will be encouraged to create new SPVs, as the minimum capital is considered by many companies as a “barrier to entry”;
                • it will expedite the procedures for incorporating companies, essential vehicles for channeling the economic activities of businessmen in their transcendental task of creating wealth and employment, without notary and registration costs;
                • it will create a healthy competition between all the Notaries in Spain and between the notaries of Spain and the Netherlands. The Dutch notary bond expects that a further digitization of the notarial process could be achieved first in the real estate chain and subsequently also in business practice. It is important that the business market may be capable to respond quickly to this demand;
                • the share capital of a company will serve its partners to have the necessary funds with which to start their project, acquire the goods and resources necessary to start the economic activity and consolidate a long-term project (such as, for example, to buy the goods and services necessary to start up activities or to hire employees);
                • it creates business growth through financing alternatives to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

                Negatives aspects:

                • to search financing externally to start the company’s activity, which will also surely have a cost (in the form of loans, for example, with their corresponding interest rate). Additionally, in the short or medium term the company must have a capital increase to normalize their patrimonial situation and solve this evident « underfinancing » of own resources, with which, this will also suppose an additional cost in the form of notary and registry fees that must be faced in the medium or long term after the incorporation;
                • the possibility of establishing a limited liability company with only 1 euro of share capital can facilitate the creation of fictitious legal entities by people who do not wish to carry out a real economic activity, but only use the companies as a suitable instrument for the development of legal or illegal activities;
                • additionally, it also implies a clear risk for the legal certainty and the responsibility of those companies in large contracts with third parties, leaving a limit to their minimum liability while their businesses are millionaires;
                • the online constitution system can be rigid and can also generate management and processing problems if the interested parties have not been properly advised and guided by the professionals involved before arriving at the Notary. Additionally, CIRCE’s telematic systems must function properly in order to correctly serve all those interested in the constitution of a capital company;
                • there are new requirements for companies related to anti-laundry controls, for instance, to include relevant information on invoices and payments to suppliers in their annual reports and on their corporate website.

                Conclusions

                Although it may apparently imply a boom in the creation of limited liability companies due to the ease of incorporation, there is still much to be done at the level of corporate law at the national level and collaboration between notaries of both countries.

                Spain is, with the entering into force of the Law Creation and Growth, considered among the most advanced countries in facilitating the creation of companies, reducing regulatory obstacles and favoring business restructuring and viability. The final decision will depend on the specific needs of the business, access to finance and tax regime, among others.

                Additionally, to the incorporation flexibilities, we must not forget a couple of important aspects for the shareholders and directors to be aware of:

                • a company needs to be managed as well and we need to be aware of the treasury, labor or other obligations of the companies already incorporated, even if they are non-active, they must continue to publish the annual accounts and complying with all governance requirements and formal public register notifications;
                • the responsibility of the shareholders is also important to consider. A shareholder who has direct involvement in the management, may face liability in case of bankruptcy, also in the country where the subsidiary is located. As mentioned above, in Spain, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros;
                • the last important aspect when you are doing business mainly in Europe is to consider restructuring your business or consider other forms of incorporation of companies, depending of the business model that you have opted to, for instance the use of the Societas Europaea (SE) which has the possibility to set up a holding company or a joint subsidiary together and to transfer the seat of the company without winding up the entity. The disadvantage is that you need €120,000 starting capital to set up and to have a minimum of 2 companies governed by the laws of different Member States. Other forms of incorporation are the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).

                If you need additional information or you are planning to incorporate a limited liability company in Spain or in The Netherlands, get in touch to know more about your options and the right corporate advice for your business.

                What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

                The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

                The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

                Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

                The judgment in question is doubly interesting.

                Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

                As the Constitutional Court very recently reiterated in its ruling dated last October, « judicial slowness has no place in the Magna Carta ». But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

                Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

                The plaintiffs sought the nullity of certain resolutions adopted at a shareholders’ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

                The legislation in force at the time the meeting was held (prior to the 2014 reform) established that « resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties » could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

                Following the 2014 reform, article 204 considers that « corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties » can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

                But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to « law » in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an « abuse of rights », can such a situation be considered as « contrary to law » for the purposes of the application of article 204 LSC?

                The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

                • formal or outwardly correct use of a right
                • causing damage to an interest not protected by a specific legal prerogative, and
                • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

                And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

                The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

                And on these premises, the Supreme Court reiterates and insists that the expression « contrary to the law » in article 204 LSC must be understood as « contrary to the legal system », which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

                And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

                It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

                And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an « in extremis » recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

                Ignacio Alonso

                Domaines d'intervention

                • Agence
                • Entreprise
                • Distribution
                • Franchise
                Contact Ignacio

                Écrire à Ignacio





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                  Espagne | Rémunération de la clientèle pour les agents et les distributeurs

                  5 avril 2022

                  • Espagne
                  • Agence
                  • Contrats
                  • Distribution

                  The commercial agent has the right to obtain certain information about the sales of the principal. The Spanish Law on Agency Contracts provides (15.2 LCA) that the agent has the right to demand to see the accounts of the principal in order to verify all matters relating to the commissions due to him. And also, to be provided with the information available to the principal and necessary to verify the amount of such commissions.

                  This article is in line with the 1986 Commercial Agents Directive, according to which (12.3) the agent is entitled to demand to be provided with all information at the disposal of the principal, particularly an extract from the books of account, which is necessary to verify the amount of commission due to the agent. This may not be altered to the detriment of the commercial agent by agreement.

                  The question is, does this right remain even after the termination of the agency contract? In other words: once the agency contract is terminated, can the agent request the information and documentation mentioned in these articles and is the Principal obliged to provide it?

                  In our opinion, the rule does not say anything that limits this right, rather the opposite is to be expected. Therefore, to the extent that there is still any possible commission that may arise from such verification, the answer must be yes. Let us see.

                  The right to demand the production of accounts exists so that the agent can verify the amount of commissions. And the agent is entitled to commissions for acts and operations concluded during the term of the contract (art. 12 LCA), but also for acts or operations concluded after the termination of the contract (art. 13 LCA), and for operations not carried out due to circumstances attributable to the principal (art. 17 LCA). In addition, the agent is entitled to have the commission accrued at the time when the act or transaction should have been executed (art. 14 LCA).

                  All these transactions can take place after the conclusion of the contract. Consider the usual situation where orders are placed during the contract but are accepted or executed afterwards. To reduce the agent’s right to be informed only during the term of the contract would be to limit his entitlement to the corresponding commission unduly. And it should be borne in mind that the amount of the commissions during the last five years may also influence the calculation of the client (goodwill) indemnity (art. 28 LCA), so that the agent’s interest in knowing them is twofold: what he would receive as commission, and what could increase the basis for future indemnity.

                  This has been confirmed, for example, by the Provincial Court (Audiencia Provincial) of Madrid (AAP 227/2017, of 29 June [ECLI:ES:APM:2017:2873A]) which textually states:

                  […] art. 15.2 of the Agency Contract Act provides for the right of the agent to demand the exhibition of the Principal’s accounts in the particulars necessary to verify everything relating to the commissions corresponding to him, as well as to be provided with the information available to the Principal and necessary to verify the amount. This does not prevent, […], the agency contract having already been terminated, as this does not imply that commissions would cease to accrue for policies, contracted with the mediation of the agent, which remain in force.

                  The question then arises as to whether this right to information is unlimited in time. And here the answer would be in the negative. The limitation of the right to receive information would be linked to the statute of limitations of the right to claim the corresponding commission. If the right to receive the commission were undoubtedly time-barred, it could be argued that it would not be possible to receive information about it. But for such an exception, the statute of limitations must be clear, therefore, taking into account possible interruptions due to claims, even extrajudicial ones. In case of doubt, it will be necessary to recognise the right to demand the information, without prejudice to later invoking and recognising the impossibility of claiming the commission if the right is time-barred. And for this we must consider the limitation period for claiming commissions (in general, three years) and that of the right to claim compensation for clientele (one year).

                  In short: it does not seem that the right to receive information and to examine the principal’s documentation is limited by the term of the agency contract; although, on the other hand, it would be appropriate to analyse the possible limitation period for claiming commissions. In the absence of a clear answer to this question, the right to information should, in our opinion, prevail, without prejudice to the fact that the result may not entitle the claim because it is time-barred.

                  Summary: If you are an entrepreneur, you know that in Spain at the end of an agency contract you will probably have to pay your agent a client indemnity. Is it possible to get rid of it? This is the big question we tried to answer in a previous post.

                  And now the question is: is it possible to pay it in advance (e.g. as a part of the commission)? And if we do it and, in the end, we didn’t owe it, can we get the money back? In Spain, the courts have answered in the affirmative. But beware: there are conditions. Let’s go into detail.

                  We already know: upon termination of an agency contract, the principal must normally pay the agent a client indemnity if he has increased the number of clients or operations with pre-existing clients, and if his activity can continue to produce advantages for the employer. Is it possible to pay it in advance?

                  Spanish courts seem to accept such an advance, but it is necessary to be very attentive to how the clause is drafted. Some rulings help us to understand it better.

                  The Seville Court of Appeal (24 January 2019) analysed the payment of part of the commission on account of such indemnity. And it considered that if it had been paid, this amount had to be deducted from the indemnity; and if it had not been paid, it had to be paid in full. The Madrid Court (22 November 2017) had reached the same conclusion and with a similar agreement.

                  The Valladolid Court (4 February 2019) also did not oppose an advance payment of indemnity for clientele. It only required that the clause was clear, that it was actually paid and as an advance payment of such compensation and not for any other reason.

                  The Court of Navarra (12 November 2004) confirmed that what was relevant was the clarity of the clause, although it rejected it because in drafting it, the elements that make up such indemnity were not taken into account: bringing in new clients or a significant increase in operations with pre-existing ones, nor that such activity could continue to produce substantial advantages for the employer.

                  Finally, the Barcelona Court of Appeal (28 June 2019) did not dispute the validity of the advance payment either. What is more, it admitted the possibility that once paid it would have to be returned if the indemnity was not appropriate.

                  In summary and by way of conclusion

                  The courts seem to admit the prepayment of the customer indemnity and that what has been paid can be deducted from a future indemnity. However, the clause must be very clear and respect the legal requirements (new or increased customers and the possible continuity of the advantages for the employer) since, in case of doubt, it will probably be rejected.

                  And on one occasion, the possibility of recovering the advance payment has even been admitted if in the end there was no indemnity obligation and it had been clearly agreed.

                  So: if you are an entrepreneur and need to draft an agency contract in Spain, consider this possibility, study it, and get advice from someone who can prepare a good clause for you.

                  In this first episode of Legalmondo’s Distribution Talks series, I spoke with Ignacio Alonso, a Madrid-based lawyer with extensive experience in international commercial distribution.

                  Main discussion points:

                  • in Spain, there is no specific law for distribution agreements, which are governed by the general rules of the Commercial Code;
                  • therefore, it is essential to draft a clear and comprehensive contract, which will be the primary source of the parties’ rights and obligations;
                  • it is also good to be aware of Spanish case law on commercial distribution, which in some cases applies the law on commercial agency by analogy.
                  • the most common issues involving foreign producers distributing in Spain arise at the time of termination of the relationship, mainly because case law grants the terminated distributor an indemnity of clientele or goodwill if similar prerequisites to those in the agency regulations apply.
                  • another frequent dispute concerns the adequacy of the notice period for terminating the contract, especially if there is no agreement between the parties: the advice is to follow what the agency regulations stipulate and thus establish a minimum notice period of one month for each year of the contract’s duration, up to 6 months for agreements lasting more than five years;
                  • regarding dispute resolution tools, mediation is an option that should be carefully considered because it is quick, inexpensive, and allows a shared solution to be sought flexibly without disrupting the business relationship.
                  • if mediation fails, the parties can provide for recourse to arbitration or state court. The choice depends on the case’s specific circumstances, and one factor in favor of jurisdiction is the possibility of appeal, which is excluded in the case of arbitration.

                  Go deeper

                  Accepting the position of director (administrator or CEO) in a Spanish company entails increasing risks. Indeed, the Supreme Court – ruling by ruling – is outlining and interpreting the precepts of the Capital Companies Act (LSC) with an increasingly rigorous and demanding approach when it comes to delimiting the framework of directors’ liability.

                  Of course, the content of Article 43.1 b) of the General Tax Law is not new at all when it lays the foundations for the subsidiary liability of directors for debts owed to the Tax Agency:

                  The following persons or entities shall be subsidiarily liable for the tax debt:

                  b) The de facto or de jure administrators of those legal entities that have ceased their activities, for the accrued tax obligations of these that are pending at the time of the cessation, provided that they have not done what is necessary for their payment or have adopted agreements or taken measures causing the non-payment.

                  It could be deduced from the reading of the transcribed provision that the subsidiary liability of the directors who, at the time of the cessation of the corporate activity, effectively held the position of director, was established; but that the liability would not reach those directors who had been so in the past but were no longer directors at the time when the company had ceased to act in the legal and economic traffic, for the tax debts pending at that time.

                  Well, the Supreme Court (Third Chamber) in its recent judgment of March 7th, 2023, hammers one more nail in the coffin of the liability of the directors.

                  The case that was the subject of the ruling consisted of determining the subsidiary liability to the Tax Agency of a director whose position had expired (due to the expiration of the statutory term) and who had called a general meeting for the appointment of new members of the administrative body of the company.

                  The Supreme Court understands (and establishes a doctrine for the purposes of appeal) that the director with an expired position does not « exhaust » his obligations with the call of the meeting in question, but must also, pursuant to art. 365 LSC call another general meeting to adopt the resolution to file for insolvency or dissolution due to the existence of the causes of art. 363 LSC a) (cessation of activity) and d) (paralysis of the corporate bodies) as well as, if applicable, the request for judicial dissolution in his capacity as an interested party (art. 366.1 LSC).

                  The reproachable conduct according to the Supreme Court (which triggers the subsidiary liability) consists in the fact that, facing the cessation of the activity of the company, the only thing he did was to call a meeting for the appointment of a new director and therefore « it did not carry out the necessary acts to be able to face the payment of the tax debts, thus meeting the subjective element necessary to be able to declare its liability ».

                  The court ruling insists that the condition of director is not lost with the exhaustion of the mandate due to the expiration of the position since the mercantile and fiscal obligations persist; and that the call of a meeting to appoint a new director is not enough to understand that such meeting, once held, deprives the director with expired position of the condition of director, when there is a cause of dissolution that would have obliged to call another meeting with another object and another agenda to agree on the dissolution of the inactive company.

                  But what is remarkable and striking in this case is that the meeting called by the director (with expired position) for the appointment of new a new director was held in June 2012, the resolutions were made public on March 1st, 2013, they were registered in the commercial registry in July of the same year and the judgment expressly states that the cessation of corporate activity occurred in April 2013 (i.e. when the meeting for the appointment of new administrators had already been held, June 2012, and when the appointment of the new director had already been made public, March 1st, 2013).

                  The court resolution reads as follows:

                  « Given the date on which the cessation of the business activity was established by the judgment a quo, April 2013, the appellant should still be considered as a director of the company in that capacity, his conduct should be considered negligent for the purposes of inclusion in the cause of subsidiary liability of art. 43.1.b) LGT ». 

                  The claimant director argued that Art. 222 LSC and Art. 145.1 RRM state that the appointment of directors will expire, among other cases, when the term has expired and the meeting for the appointment of a new director has been held (or the term for its holding has elapsed) that is to resolve on the approval of the accounts of the previous year. And he explained that on top of that, he had fulfilled his obligations as director calling for a general shareholders meeting where new directors were appointed 9 months before the company ceased its activities. Therefore, he no longer was a “director” on April 2103.

                  Despite of that argument the Supreme Court insists that, whether or not the position has expired, said expiration does not exhaust or extinguish his responsibilities as director, which must be interpreted extensively: it is not enough for him to call a meeting for the appointment of new directors, but he must act to dissolve the company or file for insolvency proceedings, as if the position had full and complete validity. 

                  Thus, after this strong ruling, the directors of Spanish companies, in the event of termination of the activity, even if their position has expired, must know that their liability (and specifically the subsidiary liability for tax debts) will only be released if they call a meeting to dissolve the company, if the meeting does not adopt such resolution, if they request the court for the judicial dissolution or if they file voluntary insolvency proceedings.

                  To summarize, they will be liable if they do not act in the same way as if their position were still in full force and effect. As we said above, it is necessary to think very much about accepting positions of director of Spanish companies.

                  The so-called « Startup Law » in Spain (Law for the promotion of the emerging company’s ecosystem) after passing the corresponding filters, has been approved by the Spanish Parliament.

                  Among its various provisions on startups – which will be the subject of another article – the Startup Law also amended the « Beckham Law » (as this football player is the best known of those who benefited from this law), i.e. the special tax regime applicable to workers, professionals, entrepreneurs, and investors moving from abroad to Spain.

                  This regime grants enormous tax advantages to Spanish foreigners, who move their residence to Spain under certain circumstances which, in summary, are:

                  • relocation as a consequence of an employment contract.
                  • displacement that is ordered by the foreign employer with a letter of displacement to Spain.
                  • displacement without being ordered by the employer and the labor activity is provided remotely by means of the exclusive use of electronic means.
                  • acquisition of the condition of administrator of a company.
                  • for the realization in Spain of an economic activity qualified as entrepreneurial activity.
                  • highly qualified professional providing services to emerging companies.

                  The great novelty is that, until the entry into force of the new regulation, it was required that the interested party had been a non-resident for tax purposes in Spain for a period of more than 10 years so many managers were temporarily displaced outside Spain could not benefit from this regime because they had not been outside Spanish territory for more than 10 years (the displacements are not usually so long) and with the entry into force of the new legal text, the previous period of non-residence has been reduced to five (5) years.

                  The great advantage of this regime is that its beneficiaries (individuals) can opt to pay the Non-Resident Income Tax (IRNR), during the tax period in which the change of residence takes place and during the following five tax periods. This means that in the determination of the taxable income, part of the income that the interested party may obtain worldwide is not taxed and, in addition, that up to 600,000 euros of taxable income, the applicable tax rate would be 24% (all of which is undoubtedly an enormous tax advantage with respect to the applicable tax regime, in the same circumstances of income, to a tax resident in Spain without the coverage of this special regime).

                  In any case, it is important to emphasize that the application of this advantageous tax regime requires a previous and express request by the interested party, that is to say, first « knocking at the door » of the Treasury and, therefore, it is very important to make sure that all the requirements demanded by the Law are fulfilled very scrupulously, so it is always especially advisable to request in advance and with the due detail the appropriate legal advice in this respect.

                  Summary

                  Spain’s Labour and Social Security Inspectorate has inspected the « Big Four » firms to control working time and overtime, which employees claim is regularly exceeded. Spanish law requires companies to record workers’ start and end times each day to prevent employees from working longer than the stipulated day. Companies failing to comply can face fines and even criminal charges. The inspections could set a precedent for firms in the auditing and consultancy sectors.

                  In recent days, the press has reported on the « macro-inspection » carried out in the « Big Four » (the most important firms in the consultancy and auditing sector) by the labour authority, namely the Labour and Social Security Inspectorate (“Inspección de Trabajo y Seguridad Social”).

                  The aim of this inspection is, fundamentally, the control of working time, overtime and time recording, all aspects which, according to the workers themselves, are flagrantly breached by the aforementioned companies.

                  Thus, it seems to be a general trend that the employees of the « Big Four » work up to 12 hours a day (« from nine to nine »), which means approximately 4 hours of overtime a day; overtime that, to make matters worse, is not compensated either financially or by days off. Being forced to work during rest periods, such as weekends or holidays, is also common practice.

                  Given the situation and the facts described above, how can they be transferred to the legal plane? What breaches would the « Big Four » be committing, and what responsibilities would they have to face, in accordance with our Labour Law?

                  Well, firstly, since 2019, the year in which Royal Decree-Law 8/2019 of 8 March came into force, the company is obliged to keep a daily record of the working day, including the specific start and end times of each worker’s working day. The purpose of this measure is, precisely, to avoid what happens in the « Big Four », that is, that employees work longer than the established working day, which, in the words of the Explanatory Memorandum of the aforementioned regulation, produces a clear negative effect on the labour market:

                  « The performance of working time in excess of the legally or conventionally established working day has a substantial impact on the precariousness of the labour market, by affecting two essential elements of the employment relationship, working time, with a relevant influence on the personal life of the worker by making it difficult to reconcile family life, and salary. It also impacts Social Security contributions, which are reduced as they are not paid for the salary corresponding to the working day ».

                  The daily record of each worker’s working day is thus an essential element for the purposes of calculating overtime, i.e., those hours worked over the maximum duration of the ordinary working day, and which must, in any event, be compensated, either financially or through equivalent paid rest periods; in addition to also having a quantitative limit, insofar as article 35.2 of the Workers’ Statute provides that the number of overtime hours may not exceed 80 per year.

                  No less important is the certainly novel « right to digital disconnection in the workplace », which takes the form of the worker’s right to guarantee, outside the legally or conventionally established working time, respect for their rest time, leave and holidays, as well as their personal and family privacy, and which is recognized in article 88 of our current Personal Data Protection Act.

                  At this point, what happens then if the company transgresses the legal rules and limits on working hours, overtime, rest breaks, holidays, working time records and, in general, working time, as apparently occurs in the cases described at the beginning of this article?

                  Well, it faces a financial fine of 751 euros in the minimum grade, and up to 7,500 euros in the worst case, according to the Law on Infractions and Penalties in the Social Order.

                  In the worst-case scenario, a possible criminal liability could even be considered for allegedly committing an offense against workers’ rights. This is by no means a trivial matter, as our Criminal Code provides for such offenses to be punishable not only by a fine but also by imprisonment.

                  Conclusion

                  We are faced with the possibility that the Labour Inspectorate’s action with regard to the so-called « Big Four » will set a precedent with regard to the prohibition of endless working hours, so common in sectors such as auditing or consultancy, which will also benefit the working conditions of workers as a whole.

                  Where is it more suitable to set up a new limited liability company in Europe?

                  I will deal in this article with two countries I know well (Spain and The Netherlands) and focus on the minimum capital requested and the online incorporation of a limited liability company, sharing some thoughts and my takeaways.

                  Spain: the “Create and Grow Law”

                  In Spain, the Business Creation and Growth Law 18/2022, of September 28, 2022 (related to aspects of incorporation of companies), known as the “Create and Grow Law”, was approved last September within the framework of the Recovery, Transformation and Resilience Plan of the Spanish government. This plan channels European funds to alleviate the consequences of the Covid-19 crisis. This law is an initiative that reflects this flexibility and, as its explanatory statement indicates, aims to encourage the creation and growth of companies, in order to contribute to the economic growth of the country and its long-term resilience. Spain thus aligns itself with other neighboring countries, where there is no minimum capital to set up a company of this type.

                  Is this new law interesting for foreign investors or companies looking to establish themselves in Spain?

                  It is certainly very interesting. The fact that the Spanish legislator abandons this reference figure of 3,000 euros is very favorable for medium-large companies willing to have a permanent establishment in Spain Nevertheless, as long as the capital does not reach the figure of €3,000, the following rules will be applied, which are intended to protect the interests of creditors or third parties that contract with the company:  (i) 20% of the profit must be allocated to the legal reserve until said reserve together with the social capital reach the figure of €3,000 (the legislator seeks that the SLs constituted in this way do not remain « undercapitalized »), and (ii) as a safeguard clause for creditors of the company, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros.

                  Online incorporation of a company in Spain

                  The « CIRCE system » (procedure dependent on the Ministry of Industry, Commerce and Tourism that allows the start of the process of creating companies « over the Internet » ) entails an electronic procedure through agreements and communications with all the organizations and administrations that intervene in the process of incorporating companies.

                  The entrepreneur will only have to complete the Single Electronic Document (DUE) that includes a multitude of forms and CIRCE will automatically carry out all the necessary procedures to establish the company, communicating with all the organizations involved (Tax Agency, Social Security, Mercantile Registry, Notary, etc.). There is an obligation to review and sign the DUE before sending it. This system is not active yet, but it is expected that it will be in place when other complementary laws that support this digital process are approved by the Spanish Legislator which is necessary for the well-functioning of the system.

                  The Netherlands: The Flex BV law

                  The Flex BV law came into force on October 4, 2011. This law has given a lot of flexibility to the incorporation of new limited liability companies which has been very favorable for international companies working with different product lines, allowing to have one company for every product or service offered.

                  The Flex BV law has, among others, the following characteristics:

                  • the creation of a Limited Liability Company is flexible, easy to establish and without many costs;
                  • it only requires one shareholder who must be registered with the Dutch Trade Register. The minimum share capital for setting it up is 1 euro. The liability of the shareholder is limited to the amount of money he has invested in the company. Being a limited liability company, the BV is liable for any debts, not the director or shareholder as private individuals, except in case of mismanagement or fraud. The company requires at least one director, and the shareholders can fill this position. The company registration procedure is quite fast due to the minimum documentation required.

                  Online incorporation of a company in the Netherlands

                   In the case of the Netherlands, in the Explanatory Memorandum of the bill implementing the Directive (EU) 2019/1151 of the European Parliament and of the Council of 20 June 2019 amending Directive (EU) 2017/1132 with regard to the use of digital instruments, it is proposed that incorporation of a BV electronically is only possible if payment on the shares takes place in cash, in order to initially limit the online formation of companies to simple situations. If it turns out that online formation works well, it can be considered whether it is useful to extend this possibility to situations in which contributions are made in a manner other than in money. Incorporation by natural persons using a model deed of incorporation must be possible within five working days from the date on which the notary has received all documents and information from the applicant or the date of payment of the share capital.

                  The incorporation of a BV digitally is postponed to the summer of 2023 since the House Committee for Justice and Security has decided that the act must be discussed in plenary.

                  The so called DOBV-system (Digital establishment of a BV), will entail a change in a number of work processes in the notaries in The Netherlands but for the Chamber of Commerce, no major changes will follow because the civil-law notary will supply the registration documents digitally to the Chamber of Commerce. Consequences the civil-law notary is the one who will have to offer a certain digital form of service, which citizens and companies will be able to use.

                  What positive and negative aspects can be highlighted?

                  Positives aspects:

                  • it is very positive that through this new standard, many investors or international companies from both countries will be encouraged to create new SPVs, as the minimum capital is considered by many companies as a “barrier to entry”;
                  • it will expedite the procedures for incorporating companies, essential vehicles for channeling the economic activities of businessmen in their transcendental task of creating wealth and employment, without notary and registration costs;
                  • it will create a healthy competition between all the Notaries in Spain and between the notaries of Spain and the Netherlands. The Dutch notary bond expects that a further digitization of the notarial process could be achieved first in the real estate chain and subsequently also in business practice. It is important that the business market may be capable to respond quickly to this demand;
                  • the share capital of a company will serve its partners to have the necessary funds with which to start their project, acquire the goods and resources necessary to start the economic activity and consolidate a long-term project (such as, for example, to buy the goods and services necessary to start up activities or to hire employees);
                  • it creates business growth through financing alternatives to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

                  Negatives aspects:

                  • to search financing externally to start the company’s activity, which will also surely have a cost (in the form of loans, for example, with their corresponding interest rate). Additionally, in the short or medium term the company must have a capital increase to normalize their patrimonial situation and solve this evident « underfinancing » of own resources, with which, this will also suppose an additional cost in the form of notary and registry fees that must be faced in the medium or long term after the incorporation;
                  • the possibility of establishing a limited liability company with only 1 euro of share capital can facilitate the creation of fictitious legal entities by people who do not wish to carry out a real economic activity, but only use the companies as a suitable instrument for the development of legal or illegal activities;
                  • additionally, it also implies a clear risk for the legal certainty and the responsibility of those companies in large contracts with third parties, leaving a limit to their minimum liability while their businesses are millionaires;
                  • the online constitution system can be rigid and can also generate management and processing problems if the interested parties have not been properly advised and guided by the professionals involved before arriving at the Notary. Additionally, CIRCE’s telematic systems must function properly in order to correctly serve all those interested in the constitution of a capital company;
                  • there are new requirements for companies related to anti-laundry controls, for instance, to include relevant information on invoices and payments to suppliers in their annual reports and on their corporate website.

                  Conclusions

                  Although it may apparently imply a boom in the creation of limited liability companies due to the ease of incorporation, there is still much to be done at the level of corporate law at the national level and collaboration between notaries of both countries.

                  Spain is, with the entering into force of the Law Creation and Growth, considered among the most advanced countries in facilitating the creation of companies, reducing regulatory obstacles and favoring business restructuring and viability. The final decision will depend on the specific needs of the business, access to finance and tax regime, among others.

                  Additionally, to the incorporation flexibilities, we must not forget a couple of important aspects for the shareholders and directors to be aware of:

                  • a company needs to be managed as well and we need to be aware of the treasury, labor or other obligations of the companies already incorporated, even if they are non-active, they must continue to publish the annual accounts and complying with all governance requirements and formal public register notifications;
                  • the responsibility of the shareholders is also important to consider. A shareholder who has direct involvement in the management, may face liability in case of bankruptcy, also in the country where the subsidiary is located. As mentioned above, in Spain, in the event of voluntary or forced liquidation of the company, if the company’s assets are insufficient to meet its obligations of payment, the partners will be jointly and severally liable for the difference between the subscribed capital and the figure of 3,000 euros;
                  • the last important aspect when you are doing business mainly in Europe is to consider restructuring your business or consider other forms of incorporation of companies, depending of the business model that you have opted to, for instance the use of the Societas Europaea (SE) which has the possibility to set up a holding company or a joint subsidiary together and to transfer the seat of the company without winding up the entity. The disadvantage is that you need €120,000 starting capital to set up and to have a minimum of 2 companies governed by the laws of different Member States. Other forms of incorporation are the European Cooperative Society (SCE) and the European Economic Interest Grouping (EEIG).

                  If you need additional information or you are planning to incorporate a limited liability company in Spain or in The Netherlands, get in touch to know more about your options and the right corporate advice for your business.

                  What do the mythical Vega Sicilia wines, El Cid Campeador and the abuse of rights have in common? If you read on, you will find out.

                  The Vega Sicilia Único was for many years considered the best, the most prestigious and the most expensive Spanish wine.

                  The abuse of rights is a legal institute that allows the defense of situations in which the opponent acts with (apparent and formal) subjection to the law, but making a spurious use of the law with the intention of harming the injured party.

                  Last October, the Supreme Court handed down a judgment declaring certain agreements adopted by Bodegas Vega Sicilia S.A., producer of Vega Sicilia Único wine, to be null and void based on the principle of abuse of rights.

                  The judgment in question is doubly interesting.

                  Firstly, because it highlights the endemic evil of Spanish justice: it declares the nullity of resolutions adopted at a meeting held in March 2013, which were the subject of a lawsuit in February 2014, with a first instance ruling that same year, appealed to the Provincial Court of Valladolid who issued its judgement on 2019  and  four years later the Supreme Court has put an end to the lawsuit: nine years after the shareholders meeting whose resolutions were the subject of the challenge.

                  As the Constitutional Court very recently reiterated in its ruling dated last October, « judicial slowness has no place in the Magna Carta ». But, although it has no place, or should not have a place, our courts continue to insist that it does and, as an example, this case that we are commenting on is, unfortunately, no exception.

                  Beyond the barbarity of a litigant having to wait for nine years to find a final solution to his claim, the judgment we are commenting on is of interest for other reasons.

                  The plaintiffs sought the nullity of certain resolutions adopted at a shareholders’ meeting, basing their claim on the fact that these resolutions constituted an abuse of rights since, through them, the shareholders of Bodegas Vega Sicilia S.A. sought to take control of Bodegas Vega Sicilia away from the company of which the plaintiffs were in turn shareholders.

                  The legislation in force at the time the meeting was held (prior to the 2014 reform) established that « resolutions that are contrary to the law, oppose the articles of association or harm the corporate interest to the benefit of one or more shareholders or third parties » could be challenged, adding that those contrary to the law would be null and void and the remaining resolutions could be annulled.

                  Following the 2014 reform, article 204 considers that « corporate resolutions that are contrary to the law, are contrary to the articles of association or the regulations of the company meeting or harm the corporate interest to the benefit of one or more shareholders or third parties » can be challenged and no longer distinguishes between null and voidable resolutions; although it partially recovers the concept of radical nullity in the case of resolutions contrary to public order by establishing that in such cases the action does not have a statute of limitations or lapse.

                  But both with the regulations prior to the reform and with those currently in force, the controversy resolved by the ruling we are commenting on is the same: when the legislator requires the agreement to be contrary to « law » in order to be able to challenge it, does he mean that it contravenes a precept of the Capital Companies Act (LSC), or can it be considered a requirement for challengeability if it contravenes any other positive precept of any other legal text? And finally, if the resolution in question is classified as constituting an « abuse of rights », can such a situation be considered as « contrary to law » for the purposes of the application of article 204 LSC?

                  The Chamber reminds us of the requirements for the concurrence of abuse of rights in corporate matters:

                  • formal or outwardly correct use of a right
                  • causing damage to an interest not protected by a specific legal prerogative, and
                  • the immorality or antisociality (sic) of that conduct manifested subjectively (intention to damage or absence of legitimate interest) or objectively (abnormal exercise of the right contrary to the economic and social purposes of the same).

                  And it then refers to the numerous occasions on which its case law has reiterated that, although the regulation on challenging corporate resolutions does not expressly mention abuse of rights, this is no obstacle to annulling resolutions in such cases, since according to article 7 of the Civil Code (which prohibits abuse of rights), they must be deemed as contrary to the law.

                  The interest and peculiarity of this case lies in the fact that the contested resolutions were neither adopted in the interests of the company nor did they cause any harm to it, since the alleged harm was caused to a third party formally outside the company.

                  And on these premises, the Supreme Court reiterates and insists that the expression « contrary to the law » in article 204 LSC must be understood as « contrary to the legal system », which includes those agreements adopted in fraud of the law, in bad faith or with abuse of rights, all of which are included and regulated in the Preliminary Title of the Civil Code. For these reasons, the judgment of the Provincial Court upholds the claim and declares the nullity of the contested agreements.

                  And what has El Cid got to do with all this? Is it a typo? No, not at all. Legend has it (invented, it seems, by a monk of the monastery of San Pedro de Cardeña to attract visitors) that Rodrigo Diaz de Vivar won a battle on the walls of Valencia against the Almoravids, after his death, saddling his corpse on his legendary horse Babieca.

                  It turns out that his almost fellow countryman, David Alvarez, buyer of the winery in the 1980s, the latter from León, the former from Burgos, but both old Castilians, also won his last battle after his death; David Alvarez was, together with one of his daughters, a plaintiff against the agreements of Bodegas Vega Sicilia and died in 2015; seven years later the Supreme Court has given him the right against the Almogavars, in this case, his own children.

                  And two lessons: first, justice is not justice if it is slow, a phrase apocryphally attributed to Seneca; it was not in this case for David Alvarez. Secondly, the abuse of rights is not only an « in extremis » recourse when one does not find frank legal support for one’s claims; on the contrary, it is, on many occasions, the solution.

                  Ignacio Alonso

                  Domaines d'intervention

                  • Agence
                  • Entreprise
                  • Distribution
                  • Franchise
                  Contact Ignacio

                  Écrire à Ignacio





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