The first quarter is coming to an end, and March 31 is the deadline by which the administrative bodies of the capital companies, which close the fiscal year on December 31, will have to formulate the annual accounts for the fiscal year 2022, to be subsequently submitted for approval by the general shareholders’ meetings. But, this year, with the new doctrine of the Supreme Court on the distribution of dividends of the capital companies determined judicially: Judgment 9/2023 of the Supreme Court of January 11, 2023 (appeal no. 3319/2019) the partners of capital companies face a hitherto unpublished scenario.
This judgment, issued 18 years after judgment No. 418/2005, dated May 26, 2005 (appeal No. 4744/1998), establishes the new doctrine of the Supreme Court on the distribution of dividends of capital companies determined by court order.
Therefore, there is already a jurisprudential doctrine according to which, together with the request for annulment of the corporate resolution to apply the profit for the year, considering it abusive for allocating the entire profit for the year to reserves, it is possible to include an additional request for the company to be ordered to distribute a certain amount of dividends among the shareholders.
Supreme Court Ruling 9/2023
In Ruling 9/2023 our Supreme Court considers that “With these reservations, it was no longer a “reasonable necessity” not to distribute the profits obtained in the years 2014 and 2015, to become an “unjustified” excuse for the majority to impose this agreement of non-distribution of profits, which, according to the background set out in the first legal basis, prejudiced the minority shareholder who had a 49% shareholding and had ceased to obtain economic returns from the company, while those who controlled the parent company (majority shareholder), continued to benefit from the returns provided by the remuneration as directors of the parent company, thanks also to the financial assistance provided by the subsidiary.
As the Court of Appeals correctly appreciated, this is a clear case of an agreement imposed with abuse by the majority, to the clear detriment of the minority, since it intends to deprive it of the logical economic return derived from the profits achieved by the company, without there being a reasonable need to justify it” ( F.J. Third.3, p. 7 ). (F.J. Third.3, p. 7).
The problem of the minority shareholder in the absence of distribution of dividends was already protected by the legislator by virtue of Article 348 Bis of the Capital Companies Act (added by virtue of Article 1.18 of Law 25/2011, of August 1). Said article establishes a right of separation in favor of the shareholders of a company in the event that the general meeting does not agree to distribute dividends in a certain percentage, and provided that a series of requirements established in said article are met.
What does the Supreme Court’s new doctrine on the distribution of dividends of capital companies judicially determined entail?
Now, with the new doctrine of the Supreme Court on the distribution of dividends of the capital companies judicially determined, we are facing a different situation, since with the current doctrine of the Supreme Court, the partner or shareholder no longer has to exercise the right of separation, It is enough for him to challenge the resolution that he considers abusive (by allocating the profits of the year to reserves) for the commercial court not only to declare the nullity of the resolution, but also (and here is the novelty) to substitute the will of the meeting and determine a specific percentage in the distribution of dividends in favor of all the partners, and not only of the partner or shareholder who challenged the resolution.
In this new scenario, the management bodies must act with the utmost caution and based on financial criteria duly supported by reports, etc. when drafting the proposal for the application of the profit for the year, in order to try to avoid that a meeting resolution, which approves the proposal for the application of the profit for the year, allocating the profit entirely to reserves, may be challenged as abusive for violating the right to dividends recognized by the shareholders under Article 93 of the Capital Companies Act, which recognizes the right of shareholders to participate in the distribution of corporate profits.
Author: José Ramón Bonilla Moreno (associate of the firm‘s legal department)