What is the paralysis of corporate bodies?
Pursuant to Article 363.1(d) of the Spanish Companies Act (Ley de Sociedades de Capital), “the paralysis of the corporate bodies in such a manner as to render their functioning impossible” constitutes a statutory ground for dissolution. In such cases, the company is under a legal obligation to dissolve.
However, paralysis of the corporate bodies can only be deemed a ground for dissolution where it is permanent and insurmountable; that is, where it definitively prevents the normal functioning of the company. Occasional incidents or temporary issues are not sufficient—there must be persistent obstacles that render the reactivation of said bodies unfeasible or extremely difficult, thereby triggering a structural collapse of the company’s functioning.
Order 201/2025 of Commercial Court No. 6 of Madrid, dated 28 April
The dispute arose from a situation of corporate paralysis involving two shareholder blocks holding identical 50% stakes each. This deadlock led to several failed attempts to convene and hold general meetings, as well as to appoint a chair and secretary, ultimately resulting in withdrawal from such efforts. The parties also sought to resolve the impasse through a shareholders’ agreement whereby one block would purchase the other’s stake. Although executed, this agreement was never fulfilled. There is also evidence of cross-claims and even a criminal complaint between shareholders.
In light of the impasse, one of the blocks initiated voluntary jurisdiction proceedings seeking the judicial dissolution of the company due to the paralysis of its governing bodies.
The issue at hand was that the company’s Articles of Association contained an arbitration clause. Specifically, the final provision of the founding deed stated that: “any dispute arising between shareholders, or between shareholders and the company, in connection with corporate relations, and without prejudice to the procedural rules that may be legally preferential, shall be resolved through arbitration in accordance with the applicable legal provisions.”
In reliance on this statutory arbitration clause, the respondent party filed a jurisdictional objection (declinatoria), which was contested by the claimant. The central question was whether the dissolution of a company is an arbitrable matter or, conversely, whether it constitutes an issue of mandatory corporate public policy beyond the parties’ disposal.
Reasoning of the Commercial Court
The Court upheld the jurisdictional objection on the following grounds:
i. It identified the existence of a “classic deadlock within the company’s decision-making body […] reflecting an irreconcilable confrontation which has given rise to various claims [and] a criminal complaint for breach of the shareholders’ agreement”;
ii. Citing Order 16/2019 of the Madrid Court of Appeal (Section 28), dated 1 February, it endorsed the favourable resolution of the debate surrounding the arbitrability of corporate disputes. It concluded that such case law is entirely applicable to the matter at hand, such that “the claimants’ reliance on the existence of a statutory ground for dissolution […] falls squarely within the scope of matters capable of submission to arbitration under the Articles of Association; all the more so as there is no dispute between the parties […] and the matter does not concern corporate public policy.”
Conclusions
This decision reinforces the position that the existence of a statutory ground for dissolution based on the paralysis of corporate bodies may indeed be submitted to arbitration, without fear that the matter might be considered non-arbitrable or contrary to public policy.
