End of the accounting moratorium

Introduction

The Spanish Companies Act ("LSC") establishes various grounds for dissolution of commercial companies, including imbalance of assets; specifically, Article 363.1.e) of the LSC provides that a company must be dissolved "for losses that reduce the net assets to an amount less than half of the share capital, unless this is increased or reduced to a sufficient extent, and provided that it is not appropriate to file for insolvency proceedings".

When the aforementioned cause for dissolution arises, the company's administrative body is obliged to convene, within a period of 2 months, the General Shareholders' Meeting to adopt the dissolution resolution or those necessary to restore the company's balance sheet, unless the company has filed for insolvency proceedings or communicated the commencement of negotiations with creditors to reach a restructuring plan. In the event that the directors of the company fail to comply with the aforementioned obligation, they shall become jointly and severally liable for the company's obligations subsequent to the occurrence of the cause for dissolution in accordance with the provisions of article 367.1 of the LSC.

In order to mitigate the economic effects of the COVID-19 pandemic Law 3/2020 of 18 September on procedural and organisational measures to deal with COVID-19 in the field of the Administration of Justice (the "Law 3/2020"), in its article 13.1, established that for the purposes of determining the cause for dissolution due to losses of a company provided for in article 363.1.e) of the LSC, losses corresponding to the financial year 2020, the referred to as the "accounting moratorium", would not be taken into consideration. Subsequently, Article 13.1 of Law 3/2020 was amended by Article 3.2 of Royal Decree-Law 27/2021 of 23 November, which extended the accounting moratorium to 2021, such that losses for the years 2020 and 2021 would not be taken into consideration to determine whether or not the company was subject to dissolution due to losses. Finally, Article 65.1 of Royal Decree-Law 20/2022 of 27 December extended the period of application of the aforementioned moratorium until the end of the financial year beginning in 2024; in other words, it was established that during the financial years 2022, 2023 and 2024 the losses corresponding to the financial years 2020 and 2021 should not be taken into account for the purposes of assessing whether the company was in a situation of dissolution due to qualified or serious losses (without prejudice to the fact that these losses should be adequately reflected in the accounts). 

Failed attempt to extend the accounting moratorium in 2024

Given that the accounting moratorium was valid until 31 December 2024, the Government approved Royal Decree-Law 9/2024, of 23 December, adopting urgent measures in economic, tax, transport and social security matters and extending certain measures to address situations of social vulnerability (known as the "Omnibus"), published in the Official State Gazette on 24 December 2024, article 5 of which provided for the extension of the accounting moratorium until the end of the financial year beginning in 2026. Thus, in accordance with the aforementioned Royal Decree-Law, the losses of the financial years 2020 and 2021 should not be taken into account for the purposes of determining the existence of the grounds for dissolution provided for in article 363.1.e) of the LSC, during the financial years 2025 and 2026.

The adoption of the aforementioned decision by the Government by means of a Royal Decree-Law, a mechanism reserved for cases of extraordinary and urgent need, implied that this regulation was subject to validation by the Congress of Deputies. On 22 January 2025, the Congress of Deputies met and did not agree to validate the "Omnibus" Royal Decree-Law, which meant that certain measures included therein were no longer in force, including the two-year extension of the accounting moratorium. Therefore, the accounting moratorium effectively ended on 31 December 2024.

Conclusion 

The end of the accounting moratorium entails that, from the beginning of the financial year 2025, the analysis of whether the equity figure falls below half of the share capital in order to assess whether the company is within grounds for dissolution must be made by taking into account the losses for the financial years 2020 and 2021. Consequently, if the balance sheet, taking into account the losses for the financial years 2020 and 2021, shows a net worth figure of less than half of the share capital, the company's management body must convene a General Shareholders' Meeting within two months from the end of  the financial year to adopt the resolutions necessary to remove the grounds for dissolution or, alternatively, to resolve the dissolution of  the company. In order to correct the equity imbalance, one of the following measures may be chosen: 

• a capital increase
• a capital reduction by offsetting losses
• the execution of an accordion operation (simultaneous capital reduction and increase)
• the granting of a participating loan
• cash or non-cash contributions by the shareholders to account 118 of the company's financial statements. For these purposes, it will be necessary to assess which of the proposed alternatives is more efficient for the company and/or its shareholders, depending on the specific conditions.

The diligence on the part of the company's directors in convening the General Shareholders' Meeting within the specified period is essential, given that otherwise they will be jointly and severally liable for the company's debts after the occurrence of the cause for dissolution, unless they have filed for insolvency proceedings or communicated the commencement of negotiations with creditors. In the event that the General Shareholders' Meeting is not held or if any of the required resolutions (rebalancing of assets or dissolution) are not adopted, in order to avoid the joint and several liability of the directors they must file for the judicial dissolution of the company.