SPAIN Law and Practice Contributed by: Ignacio Sanjurjo, Ignacio Echenagusia, Alejandro Espín and Román Cantín, Deloitte Abogados y Asesores Tributarios, S.L.U.
agers (depending on their role and involvement) may be granted veto rights over specific matters.
Management is typically required to keep the PE fund fully informed of any material matter affecting the company’s business, assets, financials, tax posi - tion, etc. 9.2 Shareholder Liability As a general rule, shareholders’ liability is limited to the amount of share capital contributed to the com - pany. Under exceptional circumstances, shareholders may be held personally liable through the so-called corporate veil doctrine, when the shareholders have fraudulently benefitted from the incorporation or use of an SL company or a group of companies. This doctrine was established by the Spanish Supreme Court in May 1984 to prevent the misuse of a com - pany’s separate legal personality as an instrument of fraud. Its application is exceptional and subject to restrictive interpretation by the courts. In general, it requires the fraudulent use of the company’s legal personality along with the following: • control of several companies by the same person, individual or group; • transactions between related companies; and • a lack of valid economic or legal grounds for such transactions. The typical holding period for a PE fund between investment and divestment generally ranges from four to six years, although this timeframe may vary depending on factors such as the expected return or market momentum. The most common exit routes for PE investors have been auctions and bilateral sales. Dual- or triple-track processes are only attractive to large-cap companies under specific circumstances (depending on market appetite, potential acquirers, etc) as they require sig - nificant cost and time. When properly executed, these processes can significantly increase the chances of successful divestment, maximising the exit valuation. 10. Exits 10.1 Types of Exit
9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights As a general rule, the management team is respon - sible for the day-to-day operations of the company, whereas the PE fund retains control over key strategic matters at both the shareholder and board levels. This control is typically regulated through the SHA by means of mechanisms such as the following. • Reserved matters requiring the PE fund’s consent (veto right), including: (a) decisions at the shareholders’ level – amend - ment of the company’s by-laws, mergers, spin- offs, transformations, liquidations, distribution of dividends, share capital increase/reductions, approval of the annual accounts, appointment of the statutory auditor (if mandatory), disposal of essential assets, agreements with related persons, granting of convertible loans, issu - ance of convertible bonds, etc; and (b) decisions at the board level – granting/revoking general powers of attorney, asset or business acquisitions exceeding certain thresholds or falling outside of the ordinary course of busi - ness, significant decisions over judicial pro - ceedings, obtaining financing over a certain amount, formulation of the annual accounts, appointment of a voluntary auditor, or approval or amendment of the business plan. • Comprehensive reporting obligations to the PE fund. • Drag-along rights, allowing the PE fund to force the rest of the shareholders to transfer their shares under certain conditions. • Call options in favour of the PE fund. • Right of first offer (ROFO) or pre-emptive acquisi - tion rights immediately after the lock-up period. • Lock-up provisions restricting share transfers dur - ing a specific period of time. • Non-competition, exclusivity and continuation cov - enants applicable to management.
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