On 14 March last, the Council of Ministers of Spain approved Royal Decree 463/2020, which declared the state of alert for the management of the health crisis situation caused by COVID-19, which included, among other measures, limitations to the freedom of movement of people, with the effects that this implies for citizens, workers and companies. Specifically, in the area of the Administration of Justice, the suspension of procedural terms and deadlines was provided for, with the sole exceptions necessary to guarantee the rights recognized to all persons in Article 24 of the Constitution.

On 28 April, a new Royal Decree-Law 16/2020 on procedural and organizational measures to deal with COVID-19 in the area of the Administration of Justice was approved.

Within Chapter II, two rules are established that seek to temporarily and exceptionally mitigate the consequences that the application of the general rules on the dissolution of capital companies and on the declaration of bankruptcy would have in the current situation, in such a way as to allow companies to gain time to be able to restructure their debt, obtain liquidity and offset losses, either through the recovery of their ordinary activity or through access to credit or public aid.

This extends the suspension of the duty to apply for a declaration of insolvency until 31 December 2020 and provides that for the purposes of the legal cause for dissolution due to losses, those of the current financial year are not to be taken into account. In short, the aim is to prevent the scenario after the COVID-19 crisis has been overcome from leading to declarations of bankruptcy or the opening of the liquidation phase for companies that could be viable under general market conditions, with the consequent destruction of the productive fabric and jobs.

We will focus on Article 18.1, which reads as follows:

  1. For the sole purpose of determining the concurrence of the cause for dissolution provided for in article 363.1 e) of the revised text of the Law on Corporations, approved by Royal Legislative Decree 1/2010, of 2 July, the losses of the current financial year 2020 shall not be taken into consideration. If the result for the 2021 financial year shows losses that reduce the net assets to less than half the share capital, the directors must hold a meeting or any shareholder may request a meeting within two months of the end of the financial year in accordance with Article 365 of the aforementioned law, in order to proceed with the dissolution of the company, unless the capital is increased or reduced to a sufficient extent.

Therefore, if the losses of the financial year 2020 mean that in 2021 the net equity of a company is less than half of the share capital, they will not have to meet the two-month deadline for calling a general meeting and requesting the dissolution of the company, but rather throughout the year it will be possible to try to resolve the cause of dissolution by increasing or reducing the share capital, shareholder contributions, etc… to balance the net equity of the company.

It is important to add that article 367 LSC will not be applied in this respect, so the administrators will not be jointly liable for the company’s debts if the legal cause for dissolution has occurred during 14 March 2020 until the end of the state of alert.

The Coronavirus crisis is causing businesses to face huge challenges and, in this context, reliable and up-to-date information is essential. At AUXADI, we are experts in providing accounts, tax compliance and international payroll management to our clients. If you would like us to expand on the above information, please do not hesitate in getting in touch with us.

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Daniel García
Senior Manager Real Estate

All information contained in this publication is up to date on 2020. This content has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this chart without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this content, and, to the extent permitted by law, AUXADI does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this chart or for any decision based on it.