New provision regarding the right of separation for shareholders – PwC Tax & Legal Services

On 1 January 2017, article 348 bis of the Spanish Law on Corporations (“LOC”) came into force again. It had been in force for less than nine months (from October 2011 to June 2012) and then it was suspended until the aforementioned date. The article establishes the right of separation for shareholders in the event of a lack of distribution of dividends.

By virtue of this provision, any shareholder of a corporation, except those of listed companies, who voted in favour of the distribution of corporate profits shall have the right of separation in the event the general shareholders’ meeting does not approve the distribution “of, at least, one third of the profits from operations related to the corporate object obtained during the previous financial year, which are legitimately distributable”.

The referenced right of separation could be exercised “as of the fifth financial year from the entry of the corporation in the Commercial Registry”. This provision was conceived in 2011 by our legislator to, on the one hand, avoid the abuse of law by the corporation majority that, year after year, resolved the non-distribution of dividends and, on the other hand, to solve the null and void capacity of our courts that could only revoke the resolutions approving the non-distribution of dividends on the basis of abuse of law and with no other material consequence than the mere declaration of nullity of said resolutions (for example under judgment handed down by Spanish Supreme Court on 7 December 2011).

As a result of the abovementioned aims, article 348 bis LOCwas incorporated into our legal system in 2011. However, one might say that we went from one extreme to the other, given that it could be argued that article 348 bis LOC virtually establishes a corporate obligation to pay a mandatory minimum dividend.

Notwithstanding the fact that article 348 bis LOC has now come back into force, there is a widespread view that, for example, the application of this provision may generate economic difficulties for the corporations and, as a consequence, a great deal of litigation in the short-term. There is also a view that its wording leaves room for improvement, technically speaking. There is also a general feeling that article 348 bis LOC could be suspended once again, amended or even repealed.

In line with the above, alternative wordings for article 348 bis LOC have been suggested. This is the case, for example, with the proposal suggested by the notary Segismundo Álvarez Royo-Vilanova and the registrar Luis Fernández del Pozo (LA LEY 2033/2017) by virtue of which, amongst other novelties, the right of separation for shareholders would not be feasible if the reimbursement to be made to said shareholders would seriously jeopardise the solvency or continuity of the corporation within a one-year period.

Serious thought should be given to whether current article 348 bis LOC is the appropriate instrument or not for avoiding the abuse of law by the corporation majority that, year after year, resolve the non-distribution of dividends. On the assumption that this anomalous situation needs a legal solution, maybe this provision should have been understood as an appropriate tool available for our courts so that, in case of the existence of an abuse of law declared by our courts, the right of separation was an automatic consequence of such abuse of law.

Of course, many other suggestions may be made regarding a provision widely criticised. All in all, to date, article 348 bis LOC is in full force and, provided that it is not suspended again, repealed or its wording amended during the next few months, its application already gains special relevance for the ordinary general shareholders’ meetings to be held prior to 30 June 2017 for approving the annual accounts for the 2016 financial year.

Jacobo Lavilla Pons is a partner at PwC Tax & Legal Services. He can be contacted at

Ignacio García Errandonea is an associate at PwC Tax & Legal Services. He can be contacted at