16 Oct Shareholder Disputes in Spain: Understand the Problem to Resolve It

Shareholder disputes in Spain are far more common than is generally thought, and they are not exclusive to companies in crisis, but also arise in businesses that are performing well, generating revenue and growing.

The vast majority of cases involve companies set up between family members, friends or professional colleagues, on the basis of trust and without considering what would happen if that trust were broken.

When disagreement sets in, the absence of clear rules and personal grudges turn a simple difference over management into a legal, financial and, very often, personal problem that can bring the company’s activity to a standstill, erode its value and put the shareholders’ own assets at risk.

That is why the way it is handled, and the moment at which it is handled, are decisive.

The causes of these disputes vary widely, but in practice a number of patterns tend to recur: unequal involvement in the business; the distribution of profits and remuneration; differing strategic visions; lack of information; changes in personal circumstances, etc.

None of these reasons is, in itself, a problem. The problem arises when there is no agreed mechanism for resolving them.

Our advice begins before the dispute

The best way to resolve a shareholder dispute is to have anticipated it.

That is why our advice begins before it arises. The best preventive tool is the shareholders’ agreement, which makes it possible to regulate, according to the parties and their interests, those matters that the law and the articles of association will not be able to resolve when friction arises, as we will explain in next week’s article, where we look at the most common problems and how shareholders’ agreements anticipate or resolve them.

When the dispute already exists

Once the dispute has arisen, our first task is to hear the full story:

• How was the company set up?
• How has the relationship between the shareholders evolved?
• What has changed?
• Where does it stand today?

Alongside this, we carry out an analysis of the corporate documentation relevant to resolving the dispute. Some documents will need to be reviewed in every dispute, such as the articles of association or the minute books recording the decisions taken, while others will only be required depending on the type of dispute we are dealing with.

One example would be a dispute concerning the possible diversion of funds by a shareholder to personal or parallel businesses, for which the accounting records will be needed.

This allows us to identify the client’s real interests, which may range from simply exiting the company or recovering the initial investment to more strategic objectives such as:

• Regaining control of the company’s management.
• Removing a director who is acting against the company’s interests.
• Ensuring the continuity of the business.

Understanding the real objective of both parties

In a shareholder dispute, there will often have been a breakdown in a relationship of trust, with the result that each party’s true interest or objective is frequently hidden or clouded by resentment and grudges.

For us, however, it is essential to clearly define the objective of the client (and of the other side), as this allows us to design the right strategy and avoid taking steps that, while legally viable, do not bring the client any closer to what they actually need, not to mention the backlog in the Spanish courts that we discussed in this other article.

For this reason, we always try to resolve the dispute before going to court, starting with negotiations with everyone involved.

Our aim is to reach an agreement that goes beyond a mere declaration of intent:

• We document it (whether through a settlement agreement, a sale and purchase of shares or an exit protocol).
• We negotiate it with the other party.
• We see it through to completion (including registry filings and any tax obligations arising from the transaction).

When negotiation fails

When negotiation fails, litigation is the remaining route, and we pursue it with the same determination. We have extensive experience in corporate and commercial litigation: challenges to corporate resolutions and applications for their interim suspension; liability actions against directors; exercise of the right of withdrawal and claims for the value of the shares, and even court-ordered dissolution of the company where deadlock in its governing bodies prevents it from functioning.

Our experience

At Navarro Llima Abogados, based in Zaragoza, we approach shareholder disputes in Spain with comprehensive advice: from drafting the shareholders’ agreement and the articles of association when the company is incorporated, to negotiation, the exit of a shareholder or, where necessary, court proceedings.

We do not simply analyse the problem. We stand by our clients throughout the entire process until they achieve their objective, whether that is an exit agreement, the recovery of their investment or the defence of their rights as shareholders, combining legal rigour, negotiating skill and courtroom experience.