As a follow-up to our previous article on the legal and tax implications of a demerger transactionOn this occasion, we will analyse the different phases involved in this type of operation.
The procedure for carrying out a demerger is regulated in Articles 73 to 80 of Law 3/2009 of 3 April on structural modifications of commercial companies. This The procedure can be divided into different phases:
1 - Preparatory phase of the demerger process
(a) Drawing up a draft terms of division
The draft terms of division is the document to be drawn up by the directors of all the participating companies proposing to the general meeting of the latter the approval of the demerger operation and, in which provides, in addition to the partners, to the other sectors that may be affected (i.e. workers of the companies involved, etc.) clear and truthful information about the operation to be carried out.
It is therefore the key part of this operation since it contains the agreements that will regulate the delivery of the assets and liabilities and the corresponding consideration to the beneficiary companies.
To this end, it is important to take into consideration that the draft division will shall contain a minimum of information which is established by law (Article 74 LME in conjunction with Article 31 LME). This minimum content must include, in addition to the content laid down for the draft terms of merger, the following:
- The designation of the assets and liabilities of the split-off company to be transferred and their distribution in the event that there is more than one receiving company. In cases of total division, if an asset item has not been attributed to any of the receiving companies in the plan and it is not possible to decide on the distribution, it will be distributed among all the receiving companies in proportion to the assets attributed to each of them. Where the same indeterminacy arises, not in respect of an asset item, but in respect of a liability (a debt), all the Qualifying Companies are jointly and severally liable for it (Art. 75 LME).
- The distribution among the shareholders of the company being divided of the shares or holdings to which they are entitled in the capital of the receiving companiesand the criterion on which this distribution is based (which is only applicable in the case of a total or partial spin-off, since in the case of a spin-off the company being spun off is the sole recipient). If there are several beneficiary companies, the shareholders of the company being spun off will be entitled to shares or holdings in all the beneficiary companies, and only with the individual consent of those affected may this rule be altered to allocate shares or holdings in only one of them (Art. 76 LME). This rule has its raison d'être in those cases in which the demerger is motivated by the wish of certain shareholders not to remain in the same company with each other.
The the draft terms of division must be published on the websites of the participating companies in the demerger or, if they did not have a website, a copy of the draft terms of division must be deposited in the Commercial Register.l in which the company is registered.
The draft division will have a valid for six monthsIf six months elapse without the General Meeting of the participating companies approving it, it shall cease to have effect.
b) Directors' report
The directors of the participating companies must draw up a report explaining the legal and economic aspects of the draft terms of division, with particular reference to:
- Whether the reports on the non-cash contributions have been issued when the companies benefiting from the spin-off are public limited companies or limited joint-stock companies.
- Whether these reports have been or will be filed with the Commercial Registry.
In addition, the administrators must inform the general meeting of the participating companies of any material change in their assets or liabilities from the date on which the draft terms of division are drawn up until the date of the general meeting which decides on the division (Art. 79 LME).
c) Independent expert report
When the demerger involves public limited companies or partnerships limited by shares on the draft terms of division must be submitted to an independent expert's reportdesignated by the Commercial Register.
The experts' report must state, in any case, whether or not the type of exchange of shares or holdings in the company being spun off is justified; the methods or criteria used and their suitability; and that the assets contributed by the company being spun off are at least equal to the capital of the newly created beneficiary company or to the increase in capital in the beneficiary company (art. 34.3 LMESM). The report must also contain a valuation of the non-cash assets transferred to each company.
In drawing up this report, the experts may gather any information they deem appropriate.
(d) Spin-off balance sheet
The general meetings of the participating companies shall approve a balance sheet closed later than the first day of the third month following the date of the draft terms of division.
However, the approved annual balance sheet may be used as the division balance sheet, provided that it was closed within the six months preceding the date of the draft terms of division.
2 - Decision-making phase of the demerger process
a) Calling of General Meetings
The notice of the General Meeting shall be published with at least, one month in advance, being prerequisite is the filing of the draft terms of division, except in the case of approval at a general meeting..
The notices of the general meetings of the participating companies must include the legally required minimum information on the draft terms of division; and must state the date of publication of the following documents on the company's website or, if the company does not have a website, the right of all shareholders, bondholders, holders of special rights and employees' representatives to examine copies of these documents at the registered office and to have them delivered or sent to them free of charge. The documents to be made available to the shareholders include, in particular: the demerger plan; the reports of the directors of each of the companies on the plan; the report(s) of the independent experts on the plan, when legally required; the annual accounts and management reports for the last three financial years of the companies involved in the demerger, with the auditors' report, if required; the balance sheet of the demerger, where different from the last annual balance sheet, accompanied, where appropriate, by the auditors' report; the current memorandum and articles of association; the draft articles of association of the new company or the full text of the articles of association of the recipient company, including any amendments to be made; the identity of the directors of the companies involved and of those who are to be proposed following the operation.
b) Adoption of the resolution at the General Meeting
Approval of the demerger by the General Meetings of the participating companies from compliance with legal requirements of their own social form.
(c) Publication of the division agreement
The demerger agreement must be published in the BORME and in one of the daily newspapers with wide circulation in the provinces in which each of the participating companies has its registered office..The notice shall contain the right of shareholders and creditors to obtain the full text of the resolution adopted and the balance sheet of the division.
Publication of the agreement shall not be required where the agreement has been communicated individually to all shareholders and interested third parties.
c) Guardianship of creditors
Creditors of the participating companies whose claims arose before the date of publication of the draft terms of division and are not duly secured, may oppose the division within one month of the date of the last announcement of the demerger. of the demerger agreement.
Once the opposition has been lodged, the division may not proceed until the creditor has been provided with security satisfactory to the creditor or has been notified of the provision of a joint and several guarantee in favour of the company by a credit institution.
3 - Executory phase of the division process
a) Conversion of the agreement into a public deed
After the expiry of the month in which creditors must lodge an objection, if no objection has been lodged or no sufficient security has been provided, the companies shall shall make the demerger agreement public.
b) Entry in the Commercial Register
After the demerger resolution has been converted into a public deed, the deed of division shall be registered in the Commercial Register.
In this regard, it is important to take into consideration that the division shall take effect as soon as it is entered in the Commercial Register. To this effect, the Supreme Court's ruling of 21 May 2012 has established that the spin-off will be deemed to have taken place from the date on which the filing entry was made in the Commercial Register.
(c) Challenging the division
Once the division has been registered, it may only be contested on the grounds of non-compliance with the legal requirements and provided that the action to contest it is brought within three months of the date on which the division became enforceable against the party claiming its nullity..
