Mergers and spin-offs: Right of opposition from creditors

The Law on Structural Modifications of Commercial Companies establishes mechanisms to prevent creditors from seeing their collection rights compromised before commercial merger or spin-off operations.

Certain loans are duly guaranteed, the most typical example being the mortgage guarantee that ensures, at least a priori, the creditor’s right to collect. However, not all enjoy similar guarantees. The so-called right of opposition of creditors is especially focused on this type of credit, as an additional defense tool.

In this article we will define and explain the creditor’s right of opposition that operates as a collection guarantee element.

Compulsory communication to creditors

The company subject to merger or division must notify all creditors of said decision. This obligation is a guarantee so that those affected can gather sufficient information to allow assessing future guarantees of collection of their credits, and in turn that allows the last instance to urge the right of opposition.

The forms of publication are valued in the Law on structural modifications of commercial companies, expressly in article 43. According to which, the merger agreement must be published in one of the largest newspapers dissemination in the province where the domicile of the affected company is located. The publication requirement may be replaced by written communication to all creditors.

In any case, the communication or publication must explain the fundamental rights of creditors, including: obtaining the text of the merger agreement approved at the general meeting, the balance of the merger, and the exercise of the right of opposition.

The merger may not take place until a period of one month has elapsed from the date of publication or notification.

Requirements of the right of opposition

According to article 44 of the Law on Structural Modifications of Commercial Companies, the creditors of each merged company may oppose the merger of said companies when the following requirements are met:< /p>

That the credit is prior to the merger.

Specifically, the loan must have originated on a date prior to the publication of the merger project on the company’s website or in the Mercantile Registry.

That the credit is valid.

Loans that are already overdue are excluded.

That the credit collection is not guaranteed.

The right of opposition may only be made by creditors who see their right to collection compromised. It will be difficult to estimate the exercise of this right if the creditor has guaranteed collection of the loan by means of a mortgage or similar guarantee. The law does not specify which guarantees should be considered sufficient and which not, so we must attend to the specific case.

Exercise the right of opposition

Creditors may exercise their right to oppose the company merger agreement within one month from the date the agreement was published, or from the date the communication was sent of the agreement.

When a creditor holds a credit that meets the previously stated requirements, they may exercise the right to oppose the merger. And in such a case, the merger may not display effects, according to article 44, as long as the debtor company does not offer payment guarantees.

Article 44 of the Law on Structural Modifications of Commercial Companies expressly includes for the debtor entity the possibility of providing a joint and several guarantee in favor of the creditor by a bank duly authorized. Said deposit must obviously cover the amount of the credit.

If the company continues with the established plan despite the exercise of the right of opposition, completing the merger of the company, the creditor may request that the exercise be noted in the Mercantile Registry of the right of opposition outside the registration of the merger. Said note will be canceled 6 months after registration unless it is proven that the creditor has filed a lawsuit before the courts.

Effects of exercising the right of opposition

In the face of the exercise of the right of opposition by a creditor, fulfilling all the requirements for that purpose, and when the credit is not duly guaranteed, the administrators should refrain from registering the merger agreement. At least until the credit is duly guaranteed.

However, the General Directorate of Registries and Notaries, in their Resolutions of May 9, 2014 or October 15, 2014, already determined that the merger or spin-off will deploy their effects if the administrators agree to the registration of the merger or spin-off agreement.

With this decision, the General Directorate transfers the conflict to the judicial sphere, which will be in charge of ruling on it when the creditor agrees to file a claim before the commercial courts. Without the exercise of the right of opposition operating as an automatic veto for the merger or spin-off to take effect from the date of registration of the agreement.

This is how the General Directorate explains it in the aforementioned Decision of October 15, 2014:

“In the absence of an agreement or provision of a guarantee by a credit institution, the conflict generated between the creditors and the companies involved in the merger or spin-off will have its proper response in its own field, the judicial one, without prejudice to the full effectiveness of the merger achieved through its registration in the Mercantile Registry (article 46.1 of Law 3/2009)”< /p>

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