Judgment of the Provincial Court of Palma de Mallorca 783/2023 of November 23, 2023.

The judgment of the Provincial Court of Palma de Mallorca resolves an appeal filed by “López & Artal Development Group, S.L.” and “López & Artal Development, S.L.” against “La Reserva de Son Quint, S.L.” (the “Company”). The purpose of the appeal was to challenge a resolution adopted by the general meeting. In said meeting, the two joint administrators of “López & Artal Development Group, S.L.” (the “Partner”) appeared at the meeting and did not agree on which of them should exercise the voting and attendance rights corresponding to the plaintiff company. In view of this situation, the Chairman decided not to admit the attendance of “López & Artal Development Group, S.L.”.

‍

The first instance judgment dismissed the claims of the plaintiff and ruled that it was the lack of agreement between the two individuals representing the two legal entities of the Partner that led to the declaration of non-attendance at the meeting when both were summoned and present.

‍

The plaintiff, in its appeal, alleges that:

‍

1. Article 126 of the Capital Companies Law (“LSC”) is not and cannot be applicable because such provision refers to and regulates exclusively the cases of co-ownership of shares, that is, when the shares are owned by more than one person. In this case the co-owners must, effectively, designate a single person to exercise the rights of partner.   

   However, in this case, the Company’s shares are owned exclusively by the Shareholder, so that there is no co-ownership.

2. Article 183 LSC is not and cannot be applicable either, since this precept regulates and refers exclusively to the voluntary representation in the general meeting of the limited liability company.

The Provincial Court dismissed the appeal filed by the Partner arguing the following:

‍

• The fact that, in accordance with Articles 210.1 and 185.1.b) of the Mercantile Registry Regulations, each joint and several director has the power to represent the company separately and each one of them to represent the Shareholder, does not mean that all of them can do so simultaneously and concurrently, and even less so if each one of them maintains that it is he and not the others who should be considered as the representative of the Shareholder.

‍

• When dealing with the voluntary representation at the general meeting of the limited liability company, Article 183 LSC states that the representation covers all the shares owned by the partner. This regulation is consistent with Article 126 LSC which requires the co-owners to designate a single person to exercise the partner’s rights in case of co-ownership of shares. And finally, in situations where a legal person is appointed as administrator, Article 212 bis LSC requires that only one natural person be appointed for the permanent exercise of the functions of the position.

‍

• It follows from the three precepts that, even if there are several persons who, in the different situations contemplated, could ab initio be empowered to represent the partner or partners, only one person must be designated by the interested parties themselves for this purpose.

‍

• STS 406/2023, of March 24, provides that the purpose of art. 126 LSC is not “to regulate the regime of such co-ownership, but rather to regulate, in a more limited fashion, the form of exercising the rights that derive from such condition in the aforementioned situations of co-ownership. As the specialized doctrine has highlighted, and we have also highlighted in the judgment of this court 601/2020, of November 12, the basis of art. 126 LSC responds to eminently practical requirements of simplicity and clarity in the exercise of rights, so that any conflicts or complexities in the internal decision-making process within the community (which will depend on the respective applicable legal regime) are developed in its internal relations, and do not emerge in its external relations with the company, with the consequent hindrance that this would entail”.

‍

• As for articles 126, 183.3 and 212 bis.1 LSC, although they do not contemplate the same factual situation, it is possible to apply them by analogy to this case, since there is identity of reason (article 4.1 of the Civil Code), insofar as in situations in which there could be several persons entitled to act before third parties on behalf of a partner, it is established that the interested parties must designate a single person to represent the partner.

‍

• As indicated in the STS 406/2023 of March 24, the practical purpose of such precepts is to prevent internal conflicts and complexities in decision-making within the community from affecting its external relations. In this particular case, there is evidence of a conflict between the representatives of the two joint administrators of the Member, which could negatively affect the operation of the Company in the face of opposing positions, as expressed prior to the meeting.

‍

• The Provincial Court understands that, in this anomalous situation, the decision not to recognize the appearance of the partner did not violate his right of attendance.

‍

• Regarding the alleged non-application of articles 209, 233 and 234 LSC, the Provincial Court argues that such precepts do not address the dysfunctional situation that arises in the event that several joint administrators, in the context of the conflict between them, try in a concurrent and simultaneous manner to attribute to themselves exclusively and in relation to the same act, the representation of the company before a third party, denying the powers of representation of the other administrator; This is a situation in which an anomalous functioning of the administrative body becomes evident, and in which the company is not in a position to express its will, since there is no single interest that can be shared by the shareholders, and it is worth mentioning the cause for dissolution provided for in Article 363.1.d) LSC

‍

For further information on this topic, please contact Jorge Perujo and María Barbed.