Spain modifies rules to dissolve companies and to control foreign investments

Royal Decree-Law 20/2022 of 27 December on measures to respond to the economic and social consequences of the war in Ukraine and to support the reconstruction of the island of La Palma and other vulnerable situations introduces two significant developments in corporate matters: it extends the temporary regime applicable to the dissolution of capital companies due to losses and it modifies the regime controlling foreign investments.

The Spanish Companies Act (CA) allows the dissolution of a capital company if it incurs in any losses that would reduce its net worth to less than half of its share capital. The CA also specifies a liability regime for directors if they fail to dissolve the company in due time or take the appropriate measures to remove the cause of the equity imbalance.

Extended measures

Exceptional measures were approved in 2020 during the Covid-19 pandemic to exclude any losses from financial years 2020 and 2021 that would determine the reason for the dissolution of capital companies when their accrued losses reduced their net worth to less than half of their share capital.

This measure is extended with the entry into force of Royal Decree-Law 20/2022 of 27 December, in such a way that the losses of financial years 2020 and 2021 will not be taken into consideration until the end of the financial year beginning in 2024. Therefore, if, after only considering the results of the financial years 2022, 2023 or 2024, there are losses that reduce the net worth to less than half of the share capital, there will be grounds for dissolution due to losses.

To avoid any confusion, it should be highlighted that this corporate moratorium only affects the dissolution due to losses of capital companies and operates differently from the so-called "insolvency moratorium", which extended the suspension of a debtor's duty to file for insolvency proceedings until 30 June 2022.

Foreign investment control

There are amendments introduced by Royal Decree-Law 20/2022 of 27 December regarding the foreign investment control regime.

The definition of foreign direct investment (FDI) is slightly revised to broaden its scope by covering all investments whereby control is acquired over the whole or part of a company. Consequently, it no longer only refers to taking control of companies but also includes investments that, as a result of a corporate transaction, legal act or business, entail the acquisition of assets or branches of activity of companies resident in Spain.

Authorisation regime extended

The authorisation regime for some FDIs in Spain has also been extended.

The suspension period for the liberalisation of FDIs made by residents of other European Union and European Free Trade Association countries is extended for a third time, this time for two years (until 31 December 2024), provided that such investments are in companies listed in Spain (those whose shares are, in whole or in part, able to trade on an official Spanish secondary market and whose registered office is in Spain) or in unlisted companies if the value of the investment exceeds half a billion euros.

These new developments came into force with the publication of Royal Decree-Law 20/2022 of 27 December in the Official State Gazette on 28 December 2022.