17 May CHALLENGE OF SOCIAL AGREEMENTS

The challenge of social agreements is provided for in articles 204 to 208 of the Capital Companies Act. From 1% of the share capital, the partner or partners can challenge the resolutions of the board of directors. Likewise, they may challenge the corporate resolutions adopted by the general meeting, provided that they have the status of a member before the adoption of the agreement.

However, if the agreement were contrary to public order, not even this 1% would be necessary; any percentage would be sufficient, even if the status of partner was not at the time of the adoption of the agreement.

In this regard, the Supreme Court has outlined the configuration of the abuse of right as a cause for challenging a social agreement in two recent judgments of February 14 and 15, 2018.

In both resolutions, the Supreme Court reiterates the previously established criterion that established, that although in the corporate law on the matter of the impugnation of agreements did not expressly mention abuse of rights or abuse of power, it did not constitute “an insurmountable obstacle to annulment of the social agreements in such cases, since under article 7 of the Civil Code, they are contrary to the law “. In this way, he came to say that in our legal system there was support for challenging social agreements based on the abuse of rights.

However, in the aforementioned resolutions we are told that there are some cases of abuse of rights, especially when they affect intra-company conflicts, in which the conduct is expressly envisaged as a cause of contestation, and it is not possible to resort to the regime of article 7.2 of the Civil Code, but to the specific precept of the corporate regulations. This occurs, for example, when the social interest is harmed for the benefit of one or more partners or third parties (article 2014.1 TRLSC), or with the current article 204.1 paragraph 2 of the TRLSC that regulates a specific form of agreement that can be challenged by abuse of the majority .

In another aspect, together with these assumptions, there are others, in which the conduct can not be redirected or the social interest injurious agreement, – because the agreement does not harm the social interest properly-, nor any other specific precept of the regulations corporate In these cases, it is possible, however, that the contested agreement meets the requirements of the abuse of the right provided for in Article 7 of the Civil Code When this happens, our jurisprudence holds that a corporate agreement resulting from an abuse of right, is an agreement contrary to the legal system, and therefore can not be protected by law. Hence, our High Court says that under the expression, “contrary to the law” contained in article 204.1 TSLSC, all agreements that are contrary to the legal system are included, not only those that contravene any provision of the corporate law, but also others such as those adopted in fraud of law (article 6.4 of the Civil Code), in bad faith (article 7.1 of the Civil Code) or with abuse of the right (article 7.2 of the Civil Code). And it concludes its reasoning stating that the consequences of a corporate agreement that incurs an abuse of right will be its nullity.

The Supreme Court, sitting on the previous doctrine, resolved both appeals based on this figure: (i) in the judgment of February 15, 2018 revoked the judgment of the Provincial Court that had assessed the expiration of the action, under the previous regulations, considering that the social agreement constituting an abuse of right was not a void agreement, but voidable, and returned the proceedings to the Hearing to decide on the merits of the matter; and (ii) in the judgment of February 14, 2018, confirmed that of the Provincial Court admitting the legitimacy of the claimant, as a third party, to challenge the capital increase agreement and declaring the nullity of the agreement adopted in abuse of right to prevent him from could take control of the company by exercising the purchase option.

At Navarro Llima Abogados, we have a team of lawyers specialized in company law, willing to offer you the corporate advice you need in order to guarantee the rights that correspond to you as a business partner.

Inés Usón González

Lawyer