Overview of shareholders claims against M&A transactions in Spain
The Spanish legislation regulates four actions that shareholders can file in connection with M&A transactions. We will analyse each of them as well as the type of transaction in which they might be exercised and the requirements for these actions to be successful:
- Action for breach of contract.
The most common claims in shareholder-initiated litigation arising from M&A transactions are those generally based on breach of contract. These claims apply to both listed and private companies.
The action is usually a claim for damages arising mainly from a breach of representation and warranties of a sale and purchase agreement, or from disputes regarding price-adjustment clauses, although it could relate to other contractual breaches. To succeed, claimants must prove the breach, that is, the damage suffered, and the cause-and-effect relationship between the breach and the damage.
There are two types of claims depending on the transaction:
- Share deal, the contracting parties, the buyer and the shareholders as sellers, can claim against the counterparty for breach of contract;
- Asset deal, the contracting parties, the buyer and the company as seller, can claim against the counterparty based on a breach of contract.
Therefore, the loss is suffered by the contractual party (a buyer, a shareholder or the company, as the case may be), being the damaged party the one with legal standing to file an action for breach of contract.
- Individual Corporate Liability Actions.
Shareholders and creditors individually damaged by directors’ actions or omissions, that is, when the damage is not caused to the company itself, may seek compensation from the responsible directors by filing individual corporate liability actions. Hence, the purpose of the individual liability action is that the liable directors directly compensate the shareholders or creditors (as the case may be) for any damage caused.
As with the action for breach of contract, these claims apply to both listed and private companies, and to succeed claimants must prove that:
- directors acted wilfully or negligently contrary to the law, the company’s articles of association or the legal duties arising from their position;
- they suffered actual damage and that there is a casual link between the director’s wilful or negligent behaviour and the damage suffered.
These claims might be filed by shareholders on the following transactions: mergers, tender offers or asset deals.
- Social Corporate Liability Actions.
This action pursues the same goal as the previous one, that is, having the responsible directors compensate for the damage caused. However, unlike the individual liability action, this action can be filed by the company (by means of an agreement passed by general shareholders’ meeting), by shareholders (holding a minimum percentage of the share capital) and by creditors against the liable directors where the loss is suffered by the company itself and arises from mergers, tender offers or asset deals.
Likewise, as with the individual liability action, the social corporate liability action applies to both listed and private companies, and in order to prosper claimants must prove that:
- directors acted wilfully or negligently contrary to the law, the company’s articles of association or the legal duties deriving from their position;
- the Company suffered actual damage and that there is a cause-and-effect relationship between the wilful or negligent behaviour of the director and the damage suffered.
- Actions based on the Capital Markets Act.
The last action related to M&A transactions arises mainly in the context of tenders and initial public offerings. In case of misrepresentation or inaccurate information in the prospectus or in the periodic information to be disclosed by issuing companies, shareholders may bring claims against the company, the directors or other personnel legally liable for the accuracy of the prospectus, pursuant to sections 38 and 124 of the Capital Markets Act.
These actions can be filed only against companies subject to the capital market regulations, and in order to succeed shareholders must prove the cause-and-effect relationship between the damage and the false information or omissions.
Most of the post-closing disputes may be avoided by thorough due diligence, proper disclosure of risks by the parties, and by careful and pragmatical negotiation and crafting of the definitive agreements. Doing so would help the parties to pre-assess and pre-address in the agreements, the risks that may lead to post-closing disputes, thereby leading to actual ‘closing’ of the transaction on closing.
The information contained in this note should not be considered in itself as specific advice on the subject under discussion, but only as a first approximation to the subject matter, and it is therefore advisable that the recipients of this note obtain professional advice on their particular case before adopting specific measures or actions.
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