Law 25/2011, of 1 August 2011, on the reform of the Capital Companies Act and the transposition of Directive 2007/36/EEC introduced a new right hitherto not provided for in the law, which gives shareholders the possibility to withdraw from the company when dividends are not paid out.
In particular, this right is enshrined in the article 348 bis of the Capital Companies Actwhich states in its first paragraph: "....Without prejudice to the provisions of the eleventh additional provision, unless the Articles of Association provide otherwise, after the end of the fifth financial year following registration of the company in the Commercial Register, a shareholder who has lodged a protest in the minutes against the insufficiency of the recognised dividends shall have the right to withdraw if the general meeting does not resolve to distribute as a dividend at least twenty-five per cent of the legally distributable profits made during the previous financial year, provided that profits have been made during the previous three financial years. However, even if the above circumstance occurs, the right of separation shall not arise if the total of the dividends distributed during the last five years equals at least twenty-five percent of the legally distributable profits recorded in that period.".
However, despite its introduction in 2011, this new right has been the subject of continuous doctrinal and jurisprudential debates, and its application has been suspended for several periods.
This right is now back in force, however, it is important to take into consideration certain requirements and aspects when applying this right:
1. Five years after registration of the company in the Commercial Register
The right of separation the shareholder has in the event of a non-dividend distribution does not arise until five years after the company has been registered in the Commercial Register.so it will not be up to the sixth year from registration when it can be exercised and provided that the other conditions set out below are met.
2. Percentage required for the exercise of the right
In order for the right to be exercised, it is necessary for the The General Meeting of the company has resolved to approve a dividend distribution amounting to less than 25% of the profits made during the previous financial year. and are legally distributable.
For this purpose, legally distributable profits shall be understood to be those profits resulting from the offsetting of prior years' losses and the allocation of the corresponding legal and statutory reserves, as well as taxes payable.
However, it is important to take into consideration that the right of separation may not be exercised if in the preceding five years the total amount of dividends distributed has been over the years has been equal to or greater than 25% of the legally distributable profits during that period.
3. Profits in the previous three financial years
Another essential requirement for the application of this right is that the company must have made a profit in the previous three financial years, otherwise, even if the other conditions are met, this right cannot be exercised by the shareholders.
4. Manifestation by the exercising shareholder of his right to protest at the General Meeting.
In order for the right to be exercised, it is essential that the shareholder exercising the right has stated in the minutes his protest against the insufficiency of the dividends to be distributed.
In this respect, the Supreme Court Ruling 663/2020, 10 December 2020 in which it states that: "pThe literal wording of the precept, it is not so much a question of voting in favour of distributing the dividends. (a possibility that may not be on the agenda as such), and to vote against the appropriation of the result for purposes other than the distribution of dividends.".
Thus, the High Court understands that the fact that the shareholder expresses his wish for dividends to be distributed legitimises the exercise of the right of separation.
5. Distribution of profits earned during the previous financial year
A The recent Supreme Court ruling of 25 February 2021 has ruled on the benefits to be taken into consideration for the application of the precept. in the event that, in addition to the annual accounts of the previous financial year, the annual accounts of other previous years are approved at the General Meeting.
In this respect, the Supreme Court, based on a joint interpretation of the provisions of the Capital Companies Act and the General Accounting Plan governing the preparation and approval of the annual accounts of capital companies, considers that the accounts are legally conceived as an annual document (or set of documents) and that they must be audited (approved or rejected) on an annual basis. It also points out that it is an anomaly that the accounts for several financial years are grouped together for examination and censure, even though they may be approved in this way and this does not per se constitute grounds for challenge.
It therefore concludes that the concept of "previous financial year" in Article 348 bis of the Capital Companies Act refers exclusively to the financial year immediately preceding the resolution not to distribute dividends and that, therefore, The right of separation for non-distribution of dividends may only be exercised in relation to the approval of the accounts for the financial year preceding the meeting at which the non-distribution is resolved, without prejudice to the submission for approval at the same meeting of the accounts for several financial years.
6. Time limit for the exercise of the right
The time limit for the partner who has objected to exercise his right of withdrawal is one year. (1) month from the date on which the Annual General Meeting was held.
7. Exceptions to the application of the law
The law establishes a series of specific cases in which this provision does not apply, among others, in the case of listed companies or companies that are in insolvency proceedings.
Notwithstanding the above, the non-distribution of dividends may be due to operational or business reasons that determine the inappropriateness of the dividend distribution.. Therefore, in order to avoid this possibility, which would oblige the company to enforce the partner's right of withdrawal, with the consequent financial and property damage. This may affect both the other shareholders and the company itself, it is important to assess the possibility of including in the Articles of Association the non-application of the shareholder's right of withdrawal due to non-distribution of dividends.
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