Since the entry into force of Royal Decree-Law 5/2023, of 28 June, which introduced a profound reform in the regulation of structural modifications of commercial companies, various resolutions issued by the Directorate-General for Legal Security and Public Faith have provided greater legal clarity.
One of the most significant is the Resolution of 16 December 2024, which clarifies crucial aspects to be considered in mergers, demergers, and corporate transformations.
Case Study: Corporate Merger Without Capital Increase
In the case under analysis, on 12 July 2024, the merger agreements between two companies were formalised before a notary, having been unanimously adopted in a universal general meeting held on 30 June 2024. The particularity of this case was that the absorbed company was wholly owned by the absorbing company.
The merger deed stated that, pursuant to Articles 9 and 53 of Royal Decree-Law 5/2023, there was no requirement for a directors’ report, expert report, or an increase in the share capital of the absorbing company. Additionally, it was declared that the absorbed company had no employees and that the merger would have no impact on employment within the absorbing company.
Decision of the Commercial Registry of Seville
The Commercial Registrar issued a qualification note rejecting registration, arguing that, despite the assertion that the merger would not affect employment, there was no evidence of compliance with the employees’ right to information in relation to the absorbed company.
Under Article 5 of Royal Decree-Law 5/2023, it was required that an explanatory report on the merger be prepared and made available to employees.
Notary’s Arguments Against the Registrar’s Decision
In response, the notary authorising the deed lodged an appeal against the qualification note, arguing that the Registrar’s reasoning relied on two incorrect assertions, either of which warranted the revocation of the note and the acceptance of the appeal:
1. The Alleged Non-Compliance with the Employees’ Right to Information
“The employees’ right to information in a merger is not satisfied merely by stating in the merger deed that the transaction has no impact on employment.”
This assertion directly contradicts the Royal Decree-Law, as it grants employees a right to information that is devoid of any object and contradicts the design of the merger process itself.
Given the above, it is clear that if a merger does not entail any impact on employment, labour relations, or working conditions within the absorbing company, and does not result in any material change in the location of its business operations, then no obligation arises to provide employees with information.
2. The Alleged Irrelevance of the Lack of Business Succession
“Employees must be informed about the merger, even where there is no business succession.”
Requiring information to be provided in the absence of business succession effectively means requiring employees to be informed of potential indirect or hypothetical consequences of the merger—that is, of the business decision to merge itself. However, a merger without business succession may have no employment consequences, just as a business acquiring an asset or establishing a subsidiary may or may not have employment consequences.
In this regard, the Directorate-General has, in previous resolutions, established that the right to information in mergers must be interpreted in conjunction with employment legislation, which provides the true protection of employees’ interests—in particular, with the principle of business succession as enshrined in Article 44 of the Workers’ Statute.
For this reason, the Directorate-General has previously clarified that the registrar’s requirement would not apply where the merger deed expressly states that the absorbed company had no employees.
Decision of the Directorate-General for Legal Security and Public Faith
The Directorate-General upheld the appeal and revoked the registrar’s qualification note, reasoning that:
- The absorbed company had no employees.
- The absorbing company owned 100% of the absorbed company’s share capital.
- It was expressly stated that the merger would have no impact on employment.
This resolution underscores the importance of correctly interpreting and applying the formal and substantive requirements for the registration of structural modifications. It sets a key precedent in corporate law, demonstrating the need for a flexible and reasonable interpretation of each case.
The Directorate-General has also addressed other critical aspects of structural modifications, such as in previous resolutions on shareholders’ rights to exit the company in the event of substantial changes to the corporate purpose.
Expert Legal Guidance for Corporate Transactions
If you are undergoing a merger or any other corporate structural modification and require technical and strategic legal advice, our Corporate Law Department provides specialist legal support, ensuring both legal certainty and efficiency at every stage of the process.
Find attached the PDF of the resolution for further reference.
