This provision raises an interesting issue in the context of refinancing operations, as many will have been concluded before it came into force and generally in this type of operation there are limits on the payment of dividends or other benefits in the companies affected until the refinanced debt is completely repaid. Likewise obligations to use funds obtained from the company's operations for specific purposes (which often include early repayment) are very common. Our opinion is that this right is not waivable a priori and in general by way of the articles of association. We do however think waiver of the right is possible for each particular case, by way of agreement a posteriori among the shareholders or between the shareholders and third parties. If payment of dividends is limited and the right to withdraw has not been waived the following situations could arise:

1. The shareholder demanding payment of the dividend and threatening to withdraw from the company has signed the agreement and has secured its performance with a pledge over his shares. In this case we must distinguish various scenarios:

a) The pledge provides that the economic rights of shareholders must be handed over to the financing entity. Given that the dividends would be payable to the financing entity in any event, the shareholder waived his right to receive the dividends and therefore the exercise of his right to withdraw from the company in the event of their not being approved. To accept the contrary would be to allow a clear abuse of rights, given that the shareholder could cause serious damage to the assets of the company by withdrawing from it, and could never obtain the dividends. The same considerations apply in cases in which the pledge provides that the creditor will take the economic rights associated with the shares in the event of breach of the secured obligations.

b)  The pledge does not state who is to have the economic rights. The solution must be the same, as under a pledge the produce of the property given as security is used to pay the interest and capital (articles 1.868 and 1.881 Civil Code).

2. the shareholder demanding payment of the dividend and threatening to withdraw from the company was party to the refinancing agreement, but has not secured it with a pledge of his shares. This is not common, as normally the shareholders will be made parties precisely in order to waive the exercise of certain rights. In the absence of express waiver article 1.258 of the Civil Code may be applicable, which states that contracts are binding not only as regards what is expressly agreed but also "all consequences which, according to their nature, are in accordance with good faith, usage and the law". Hence if a contract has been agreed on, it would be contrary to the most elementary requirements of good faith to carry out acts which, although not prohibited by the wording of the contract, would frustrate its purpose. This has been held by the Supreme Court on numerous occasions (e.g. judgment of the Supreme Court 13.4.2004, ref. RJ 2004/2619).

3. The shareholder demanding payment of the dividend and threatening to withdraw from the company was not party to the refinancing agreement, and has not secured it with a pledge of his shares. In this case the shareholder is not bound by the provisions of the agreement and may not therefore be deemed to have waived either payment of the dividend or his right of withdrawal. The exercise of this right could however be considered an abuse of rights in certain circumstances. This would be the case if, for example, its exercise caused the finance to fall due early, which could in turn cause the company to be insolvent. In this regard it should be recalled that abuse of rights, as set out in article 7.2 of the Civil Code, does not necessarily require an intention to cause damage, which would have to be proved. It includes both abuse in an objective sense (exercise which exceeds the normal limits of the right, causing damage to a third party without the intention to cause damage) and subjective abuse (exercise of the right with the intention to cause damage).                                                  

For futher information, please contact:

Silvio Requena Izard

silvio.requena@AndersenTaxLegal.es

Guillermo Yuste de Ayala

guillermo.yuste@AndersenTaxLegal.es

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