Creditors seeking to collect judicial debts from Spanish companies often neglect an effective enforcement measure: the seizure (or attachment) of shares. The attachment of a debtor’s shares can be claimed in Spain with an enforcement action. (See Litigation in Spain.) When the judge issues the enforcement order, the judicial officer orders the seizure of the shares by means of a separate decree.
Seizure of Shares
The seizure of the shares of a limited corporation is regulated in Spain by Article 623 of the Spanish Civil Procedure Law. When a creditor seeks seizure of shares, the court of execution notifies the managing director of the company to provide information concerning any possible restrictions on the transferability of the seized shares or other statutory or contractual provisions relating to the shares.
The managing director must inform the shareholders of the seizure of the shares and note the seizure in the shareholders’ register maintained by the company. In accordance with Article 104 et seq. of the Spanish Companies Law, the shareholders’ register of a limited company contains the identity of the founding shareholders and all subsequent share transfers and subscriptions, including seizures by creditors.
The executing creditor should ensure that the court instructs the managing director to provide the corresponding copy of the Shareholders’ Register as proof of the entry of the seizure notice.
If more than 50% of the shares in a limited company are seized, the execution creditor can, in addition to seizing the shares, request the Court to appoint a new company manager that will replace the then-current one.
Auction of Seized Shares
The seizure of the shares is regulated in Article 635 of the Spanish Civil Law, which in turn, refers to the statutory and the legal provisions governing the sale of shares in a company, particularly regarding existing preemption rights.
If the statutes of association of the limited company do not provide any guidance, then the seizure will not be carried out by the court of execution but instead by a notary or a licensed commercial agent. The corresponding regulations can be found in Articles 72 to 74 of the Spanish Notary Law, where the notarial auction procedure is regulated.
The notary notifies the holders of the shares to be seized of the initiation of the notary public auction procedure and appoints an expert to determine the auction value of the shares. The Notary Law expressly provides that bids below the expert-determined auction value are not allowed.
The forced auction will be published in the Spanish Official Gazette (“BOE”) and, if necessary, in other places at least 24 hours in advance of the auction. The forced auction procedure is carried out electronically on the Online State Auction site for at least 20 days. (I suggest reading Electronic Auction for additional background.) In order to be allowed to participate in the electronic compulsory auction, a deposit of 5% of the auction value must be paid. The enforcement creditor is released from this requirement.
At the end of the electronic compulsory auction, the notary is informed by the Online State Auction of the bids submitted. The notary first informs the company, which in turn, in accordance with Article 109 of the Spanish Companies Law, informs the other shareholders of the auction and the highest bid, within a period of 5 days, so that the shareholders can exercise their right of preemption, unless otherwise provided for in the company’s articles of association. If the shareholders do not assert their claims within a period of 1 month, the notary will record the acceptance of the bid in favor of the bidder who made the highest bid. If no bid was submitted, the notary will close the auction process.
The debtor is then forced to sign a purchase contract with the offered purchase price in favor of the winning bidder. This is performed before the notary conducting the forced auction. If the debtor does not do so, the debtor’s consent will be declared by court order.
Creditors should be aware of this process and ensure their legal counsel knows how to guide them through this forced auction process as quickly and efficiently as possible.