Civil Law

Royal Decree-Law 5/2023 of 28 June modifies the civil cassation appeal, as well as other procedural rules. It came into force at the end of July this year, although the law provides for a transitional regime. Among other measures, the law includes a new regulation of the civil cassation appeal, including that provided for in the Draft Law on Procedural Efficiency Measures for the PublicJustice Service, and other amendments to the Civil Procedure Act.

Structure of the new cassation appeal

Art 477.1: Judgments subjects to appeal in cassation:

• Judgments that put an end to the second instance issued by the provincial courts.
• Decisions and sentences handed down on appeal in proceedings on the recognition and enforcement of foreign judgments, when the right to appeal is recognized in the corresponding treaty, convention or regulation of the European Union.
  
  Art 477.2 Requirements:
• To have an interest on the case.
• Civil judicial protection of fundamental rights.
  
  The possibility of accessing the cassation appeal if the amount of the case was greater than €600,000 is eliminated.
  Who will decide on the appeal? It will correspond to the First Section of the Supreme Court. This is unless the appeals are against decisions of the civil courts seated in the Autonomous Community.
  
  Procedure:
  It shall be brought before the court which delivered the decision within 20 days. The court that receives it decides whether or not to accept the appeal.
  
• If it accepts it, the appeal is deemed to have been lodged.
• If the requirements are not met, an order dismissing the appeal is issued.
  Novelty in the procedure: The parties will not participate in the admissibility or inadmissibility part of the appeal.

Format:

• An appeal shall be divided into grounds of appeal.
  o Different offences may not be combined in the same different offences may not be joined in the same ground of appeal.
• Each ground of appeal shall begin with a heading, which shall contain the precise wording of the rule infringed and a summary of the infringement committed rule infringed and a summary of the infringement committed.
  o The grounds of each plea shall be set out in the grounds of appeal, without departing from the essential content of the heading.
• The maximum length of the appeal shall not exceed 25 pages.

Bankruptcy law

Barcelona Commercial Court no. 2 has issued judgment no. 26/2023, approving the CELSA Group’s Restructuring Plan. This is a highly relevant judgement, as it discusses the conflict of interests arising from the control of the Group between the shareholders and the financial creditors, most of whom are investment funds dedicated to the purchase of debt assets.

The restructuring plan has gone through several stages, building relevant doctrine on the new dynamics of pre-bankruptcy restructuring after the reform approved by Law 16/2022 of 5 September. The judicial approval of the Restructuring Plan extends its effects to the dissident classes of creditors, on the understanding that the legal conditions for this are given:

• The amount of the debt is much higher than the value of the company.
• With the creditors' proposal, the viability of the Celsa Group is assured, qualifying it as the only viable alternative in the medium term.

This result has been made possible following the reform of the TRLC to transpose Directive 2019/1023 on restructuring and insolvency. The new regime, which replaces the old refinancing agreements and out-of-court payment agreements with Restructuring Plans, is designed to enable companies to anticipate an insolvency situation and restructure their debt with creditors. Among the measures, the Spanish legislator has given legal status to the possible imposition of a debt-toequity conversion despite the opposition of the shareholders of the company concerned.

The judgment contains certain aspects that will be useful for the future elaboration of Restructuring Plans:

• The judge uses the term “joint and several” to refer to the sacrifice made by all classes of creditors.
• For the judge, it is perfectly lawful for market operators to take investment decisions based on interests other than those of the company's good purpose, although in this case those interests coincided with those of maintaining the viability and solvency of the group, since the alternative would lead CELSA into insolvency.
• The Restructuring Plan can go ahead without the approval of the shareholders. In this ruling, it is argued that the new wording of the TRLC deliberately leaves the debtor and the shareholder on the sidelines: through a teleological interpretation of articles 627 et seq. of the TRLC, the speed of the procedure and the best interests of the company, the shareholders and the market must take precedence. The shareholders will tend to hinder
  the application of a Plan that could alter their representation in the share capital, as is the case here. For this reason, the Judge recalls that the interests of the company's viability outweigh those of the shareholders.
• The importance of accompanying the Restructuring Plan with a financial report on the valuation of the company is highlighted because if the debt exceeds the value of the capital, the TRLC allows creditors to keep the company, leaving the shareholders out of the money.

Corporate Law

The new regulation, published in the Official State Gazette (BOE hereinafter) on July 12 and which entered into force on September 19th, creates the registry, which will be electronic, central, and unique throughout the national territory. The Central Registry of Real Estate Titles (hereinafter, “RCTIR”) is created, and its operating regulations are approved.

In the first place, the beneficial owner is understood to be:

• Natural person or persons who directly or indirectly control more than 25% of the capital or voting rights of a company.
• In the absence of such beneficial owner, such control is deemed to be exercised by the director(s).

A series of additional information requirements are established, thus increasing certain data that must be shared with the administration, specifically the e-mail address of all those considered to be beneficial owners.

Objectives:

Its objective is to collect and publicize information on beneficial ownership of all Spanish legal persons and non-legal entities or structures (such as trusts) that have the seat of their effective management or their main activity in Spain, or that are managed or administered by natural or legal persons resident or established in Spain or that, not being managed or administered from Spain or another European Union (EU) State, nor registered by another EU State, intend to establish business relations, carry out occasional operations or acquire real estate in Spain.

Information to be included in the register:

Name, surname, date of birth, identification document (Passport or DNI), country of issue of the identification document, country of residence, nationality, criteria that consider that person as the real owner and e-mail.

Penalties:

The sanction in case of non-compliance will be the closure of the registration sheet and financial penalties are foreseen which have not yet been determined.

On 21 February 2023, was published the Act 2/2023, regulating the protection of persons who report infringements and the fight against corruption, hereinafter, (“The Spanish Whistleblowing Act”). The Act will come into force on 13th march 2023, this Act responds to the obligation imposed on the Spanish legislator to transpose the Directive 2019/1937 of the European Parliament and of the Council of 23 October 2019 on the protection of persons reporting breaches of Union law.

Data Protection

Users’ right not to receive unsolicited commercial calls

The Spanish Data Protection Agency (AEPD) has issued a circular clarifying some parts of the content of the General Telecommunications Law. First of all, the law, in accordance with the protection of personal data and privacy, prohibits commercial communications that have not been authorised by the user, generating great controversy as companies have continued to send commercial communications. The AEPD has stated that this law has a period of one year to enter into force from the time it is published in the Official State Journal.

This new regulation implies a substantial change with respect to the legal regime applicable under the derogated General Telecommunications Law, article 48.1.b. of which recognised the right of end users “to oppose receiving unwanted calls for commercial communication purposes that are made by means of systems other than those established in the previous letter and to be informed of this right”, giving priority to the right of end users not to receive such calls and the consequent obligation of those responsible not to make them, unless they can prove the existence of any of the exceptions contemplated in the law.

Real Estate

Law 12/2023 of 24 May on the right to housing

The new Housing Law in Spain establishes significant changes in the real estate sector, such as the obligation of the landlord to pay brokerage fees, the creation of a database of rental contracts, and the possibility of declaring “stressed residential market areas”. It also introduces tax incentives for landlords who rent out their properties and establishes penalties for unoccupied properties.

Definition of large tenant
A definition of large tenant is established, and it is considered as such a person (natural or legal) owner of more than ten urban properties for residential use or owner of a built surface area of more than 1,500 m2 for residential use. This excludes garages and storage rooms. The definition may be modified by the Autonomous Region and replaced by “owner of more than five properties”, when so motivated by the competent administration.

Database of rental contracts
A database of housing rental contracts will be created. This register will be formed with information from bond registers, property registers and other sources of information at state, regional or local level, which will allow the administration to have even more information on rentals and payments.

Limits on rent
The competent administrations will be able to declare housing “stressed residential market areas”, those areas where there is a particular risk of insufficient housing supply. The duration of this declaration will be 3 years and may be extended annually. The declaration of a “stressed residential market area” will require the preparation of a justification report, indicating that one of the following circumstances exists: (i) the average mortgage or rent burden in the family unit plus supplies of the households in that area, exceeds 30% of incomings, (ii) the purchase or rental price of housing in the area has experienced in the last 5 years a percentage of growth of at least 3% more than the CPI (Consumer Price Index) of the autonomous region.

A penalty for owners of empty properties
The different administrations, by cross-referencing their data, will be able to check the use and destination of properties throughout their territorial scope. This collection of information is specially aimed at analyzing unoccupied properties. Local councils may impose a penalty of up to 50% of the IBI (Property tax) quota on residential properties that are permanently unoccupied. Properties will be considered permanently unoccupied if they remain unoccupied, continuously and without justified cause, for a period of more than two years, and belong to owners of, four or more properties destinated for residential use, in addition to any other additional requirements that may be included in the municipal by-laws. The penalty that local councils may impose may be up to 100% when the period of inoccupation exceeds three years. They may even increase this penalty by a further 50% in the case of properties belonging to owners of two or more residential properties that are unoccupied in the same town.

Income tax incentives
The following tax benefits are granted to property owners who may be included in any of these
situations:

• Deduction of 90% of the net rental income. This bonus applies to owners of properties in stressed areas who reduce the rental price by more than 5%.
• Deduction of 70% of the net rental income. This bonus applies to owners who meet the following conditions:
  o Housing located in a stressed residential market area, which is rented for the first time and the tenant is between 18 and 35 years of age.
  o The tenant must be a public administration or non-profit organization and the property is destinated for social renting with a monthly rent lower than that established in the rental subsidy program.
• Deduction of 60% of the net rental income. This applies when the home has been subject to renovation, and this has been completed in the two years prior to the conclusion of the contract.
• Deduction of 50% of the net rental income in other cases.

Business Law and M&A

Royal Decree-Law 5/2023

The “Royal Decree-Law 5/2023 of 28 June” sets out in its first book a completely new regime for structural modifications of commercial companies, both internal and cross-border, intra- and extraEuropean (i.e. outside the European Economic Area). This Royal Decree - Law not only complies with the transposition into Spanish law of the so-called Mobility Directive, but also repeals Law 3/2009 of 3 April and integrates the entire legal regime of structural modifications, both internal and cross-border, into a new regulation. The new regulation will enter into force one month after its publication in the Official State Journal, on July 29th, 2023, although a transitional regime is
established for operations in progress before its entry into force, so that Law 3/2009 will apply to structural modifications whose projects have been approved by the companies involved before July 29th, 2023.

The new law has a structure that differs significantly from the previous standard. For example, it
contains:

• Common provisions applicable to all structural modifications (whether internal or crossborder).
• Specific rules for each type of internal modification.
• General rules for cross-border structural changes for both intra-European and extraEuropean changes.

Main new developments:
Protection mechanisms:

With regards to the protection of creditors, one of the new features is the elimination of the traditional right of opposition. Instead, it is replaced by a system of appropriate safeguards. This new regime is based on the company's offer of guarantees in the draft, without making such an offer mandatory. Additionally, when an independent expert’s report is present, it allows for an independent expert to provide an opinion on the adequacy of any security offered. However, it is not mandatory for the expert to give such an opinion. Furthermore, a procedure is established for creditors to exercise their right to obtain adequate security.

The time limit for exercising this right is one month for internal transactions, and three months for cross-border transactions. The counting of this time limit starts from the publication of the draft terms, rather than from the publication of the merger resolution, as it was previously.
In mergers and split-offs, the possibility of opposing the merger based on discrepancies in the exchange ratio is eliminated. Instead, shareholders who do not vote in favor have the option to seek cash compensation through a court application. This change means that the previous article 38.II of Law 3/2009, which allowed for an expert to be involved in determining such compensation when specified in the bylaws or the resolution of the shareholders’ meeting, is no longer applicable.

The new regulation consolidates various scenarios that previously granted the right of separation or similar mechanisms. It also includes the right for dissenting shareholders in such cases to sell their shares or holdings in exchange for appropriate compensation. If there is an independent expert’s report available, it must provide an opinion on the adequacy of the compensation.

It’s important to note that a disagreement with the offered compensation does not allow to contest the amendment itself. Instead, it enables the dissenting shareholder to request additional cash payment through legal means.
The employees, as is the case for creditors and shareholders, have granted the right to submit comments on the draft structural amendment, which must be taken into account by the board to submit comments on the draft structural amendment.

Main procedural developments
The general structure of the procedure is conserved, the documents required to carry out the operation are extended, with effects on the timing of the operations.

Project:

• All structural modification operations, including transformation, will need the preparation of a structural modification project.
• The project needs to be accompanied by certificates that verify the company’s compliance with its tax and Social Security obligations.
• The explicit mention is made regarding the board's ability to amend the structural modification project.

Preparatory Advertising:
Unless in the case of structural modifications adopted by unanimous universal meeting, moreover the project, an information notice must be published on the website or filed at the Commercial Trade Registry. This notice must be addressed to shareholders, creditors, and employee representatives (or employees if they do not exist) to inform them about the possibility of providing feedback to the company regarding the proposed operation. These observations can be submitted up to 5 business days prior to the general meeting.

Administrators’ report:
The report of the administrators will include two sections, one for the shareholders and another for the employees. These sections can be presented as a single report or separately, depending on the addressee. However, if the shareholders of the participating companies agree, their section of the report may not be issued. The employees’ section of the report will provide an explanation of the implications for labor relations, significant changes in employment terms and conditions, and any impact on the location of business premises, including how these changes affect the company’s subsidiaries.

Independent expert’s report:
Is a crucial component that should encompass the expert’s assessment of the suitability of the cash compensation provided to shareholders. Additionally, upon the directors’ request, the report may also include an evaluation of any guarantees offered to creditors.
As usual, is mandatory for all structural modification operations to ensure transparency and fairness.
However, specific exceptions may be applicable in certain circumstances, allowing for flexibility in the requirement.