01 April 2020

Corporate measures for Spanish companies. Impact of COVID-19 and measures restricting foreign investment in order to protect certain strategic sectors.

On 18 March 2020, Royal Decree-Law 8/2020, 17 March 2020, regulating urgent extraordinary measures to deal with the economic and social impact of the COVID-19 (“RDL 8/2020”) entered into force. RDL 8/2020 regulates certain corporate measures regarding the functioning of Spanish companies (sociedades de capital) for the purposes of COVID-19. In addition, RDL 8/2020 suspended the liberalisation regime for certain foreign direct investments in Spain, specifically those that are carried out in strategic sectors, in order to avoid transactions related to the acquisition of Spanish companies (sociedades de capital) by foreign investors due to the decrease in their value as a consequence of the impact of the global crisis triggered by the COVID-19.

Royal Decree-Law 11/2020, 31 March 2020, related to the adoption of additional urgent measures in the social and economic field to deal with COVID-19 (“RDL 11/2020”) has amended RDL 8/2020. The amendments relate to the development of corporate measures related to the functioning of Spanish companies (sociedades de capital), as well as the speeding up of the procedure for processing and resolving requests for prior authorisation of certain foreign direct investments in Spain, which main characteristics are summarized below:

1. Additional corporate measures regarding the functioning of Spanish companies

a) Telematic holding of meetings of governing bodies and adoption of resolutions

RDL 8/2020 sets out that, during the state of alert and without prejudice to the lack of statutory provisions, the meetings of the companies’ governing bodies, as well as the meetings of any committees that might have been created by the company’s board of directors, may be held by videoconference, provided that the identity and, bilateral or plurilateral connection in real time with image and sound of the remote attendees is granted.

RDL 11/2020 expands the means for the telematic holding of the meetings, including telephone conferences, provided that all the members have the necessary means, the respective secretary confirms their identity and states this fact in the minutes. These minutes shall be immediately sent to each of the attendees by e-mail.

b) Preparation and audit of annual accounts, ordinary or abbreviated, individual or consolidated

RDL 8/2020 suspended the period for the preparation of the annual accounts, ordinary or abbreviated, individual or consolidated, as well as the management report (if legally required) and other compulsory documents under Spanish law. This term has been extended for three months after the end of the state of alert.
In addition, RDL 8/2020 set out that in the event that the annual accounts of the previous year had already been drawn up when the state of alert was declared, the deadline for the accounting verification of the referred accounts would be extended for two months after the end of the state of alert in the event that the audit is mandatory. 

RDL 11/2020 clarifies that the preparation of the annual accounts by the governing body or the management body of a legal entity during the state of alert will be valid, being also able to carry out the accounting verification, irrespective of whether the audit is mandatory or voluntary, within the legal period or by invoking the referred extension.

c) Proposals for the allocation of the results

In relation to the proposals for the allocation of the results, RDL 11/2020 approves article 40.6 bis, which foresees that companies which having prepared its annual accounts, convene an ordinary general shareholders’ meeting after the entry into force of RDL 8/2020, could replace the proposal for the allocation of the results included in the report, provided that:

• the governing body justifies the replacement of the proposal for the allocation of the results on the basis of the situation caused by COVID-19; and

• such replacement is supported by a letter from the auditor stating that it would not have changed its audit opinion if he had known the new proposal when it was signed.

Regarding companies which have convened the ordinary general shareholders’ meeting, its governing body could decide to withdraw the proposal for the allocation of the results from the agenda in order to submit a new proposal for the approval of a general meeting to be held within the legal period established for the holding of ordinary general shareholders’ meetings. In relation to the new proposal, the requirements in order to justify the issuance of the auditor's statement above must be fulfilled. The certificate of the governing body prepared in order to deposit the accounts shall be limited, where appropriate, to the approval of the annual accounts. An additional certificate regarding the approval of the proposed allocation of the results shall subsequently be filed with the Commercial Registry.

d) Extraordinary measures applicable to listed companies

In the event that listed companies apply any of the measures set out in the referred article 40.6 bis, the new proposal, its justification by the governing body and the auditor's statement shall be published, as soon as they are approved, on the company's website as supplementary information to the annual accounts and on the website of the CNMV as other relevant information or, where appropriate, as privileged information.

2. Restrictions on Foreign Investments in Spain

a) Scope

The fourth final provision of RDL 8/2020 has amended Law 19/2003, dated 4 July 2003, regarding the legal regime on capital movements and economic transactions with foreign countries (“Law 19/2003”).

Such amendment implied a new article 7.bis which regulates the liberalisation regime for certain foreign direct investments in Spain, specifically those that are carried out in sectors that affect public order, public safety and public health (i.e. among others, infrastructure, technology, energy supply, raw materials or food safety, sectors with access to sensitive information or media). In this regard, prior authorisation is required in order to obtain full validity for such investments.

In addition, RDL 8/2020 sets out that foreign direct investments in Spain are all the investments carried out by residents of countries outside the European Union and the European Free Trade Association to the extent that the investor holds at least 10% of the share capital of the Spanish company, or if as a consequence of any transaction, legal act or business, the investor effectively participates in the management or control of such company.

In this regard, the third final provision of RDL 11/2020 has extended the subjective scope of the authorisation requirement to, additionally, include investments made by investors resident in the European Union and the European Free Trade Association in the event that such investors are controlled by entities which are resident outside this territory. In this regard, it shall be considered that an entity controls an investor in the event that it, directly or indirectly, owns or controls more than 25% of the share capital or voting rights of the investor, or if, by any means, it exercises direct or indirect control over the investor. 

b) Procedure for the processing and granting of the authorisations

In relation to any investment transactions that fulfil the requirements established in the fourth final provision of RDL 8/2020, according to the amendments established by the third final provision of RDL 11/2020, the foreign investor shall send its administrative authorisation request to the General Director of Commercial Policy and Foreign Investment, in accordance with the procedure set out in Royal Decree 664/1999, 23 April 1999, regarding foreign investments and the Order dated 28 May 2001 related to the procedures applicable to foreign investment declarations and their liquidation, as well as the procedures for the submission of annual reports and authorisation files. Within 6 months from the receipt of the application by the General Directorate for Trade and Investment, the Council of Ministers shall decide on the granting of the authorisation, following a proposal from the Minister of Economy and Finance, and, where appropriate, jointly with the head of the department competent by matter and following a report from the Foreign Investment Board.

In this regard, in order to speed up the procedure for processing and resolving requests related to the referred authorisation, the second transitory provision of RDL 11/2020 sets out the following:

i. investments made for an amount less than Euro 1 million, on a provisional basis and until the minimum amount is established by regulations, do not require any prior authorisation; and

ii. the following transactions are subject to a simplified authorisation procedure:

• ongoing transactions: those transactions in which there is evidence, by any means recognised by law, of the existence of an agreement between the parties or a binding offer in which the price was fixed, determined or determinable, prior to the entry into force of the RDL 8/2020; and

• transactions of reduced amount: those transactions with an amount equal to or greater than Euro 1 million and less than Euro 5 million, until the entry into force of the implementing regulations.

To the extent that the relevant transaction complies with the referred provisions, the investor must send the administrative authorisation application to the head of the General Directorate for International Trade and Investment, who will apply ex officio the simplified procedure established in article 96 of Law 39/2015, dated 1 October 2015, on the Common Administrative Procedure for Public Administrations. Within 30 days from the day after the interested party is notified that the procedure will be simplified, the head of the General Directorate for International Trade and Investment will decide on the basis of a prior report from the Foreign Investment Board.

c) Other considerations / timing

Paragraph 6 of article 7.bis of Law 19/2003, which established that the suspension of the liberalisation regime for certain foreign direct investments in Spain would remain in force until the Council of Ministers decided to remove this aspect has been deleted. Therefore, the measures provided in RDL 11/2020 shall remain in force until 1 month after the end of the declaration of the state of alert. Notwithstanding the above, these new measures could be extended by the Government by virtue of a Royal Decree-Law.

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