When Is the purchaser protected where essential assets are sold without shareholder approval?
The recent Supreme Court Judgment No. 881/2026 of 9 June clarifies the legal consequences for a purchaser where a company’s directors dispose of essential assets without obtaining the prior approval of the general meeting of shareholders.
The Supreme Court confirms that the authorisation required under Article 160(f) of the Spanish Companies Act (Ley de Sociedades de Capital) (“LSC”) remains mandatory from the company’s internal governance perspective. However, the absence of such authorisation does not automatically render the transaction void as against a third-party purchaser acting in good faith, particularly given that an external purchaser will, in most cases, be unable to ascertain whether the assets being sold qualify as essential assets. Whether the purchaser lacks good faith will depend on the specific circumstances of the case.
In reaching that conclusion, the Court draws a comparison with Article 234 LSC, pursuant to which the directors’ powers of representation extend to all acts falling within the company’s corporate purpose. Third parties acting in good faith and without gross negligence remain protected even where the company’s articles of association, as filed with the Mercantile Registry, indicate that the relevant act falls outside the company’s corporate purpose.
The judgment enhances legal certainty for companies, their directors and those dealing with them by defining the circumstances in which the company’s internal allocation of powers prevails and those in which the security of commercial transactions must take precedence.
The case: sale of 38 properties without shareholders’ approval
The dispute arose following the sale of thirty-eight properties by one company to another whose sole director had been a shareholder in the selling company five years earlier. One of the shareholders sought to have the sale declared void on the grounds that the director had disposed of essential assets without obtaining the prior approval of the general meeting, contrary to Article 160(f) LSC.
Although, in the notarial deed of sale, the director declared that the properties did not constitute essential assets, the proceedings established that they represented the company’s only income-producing assets. Following the sale, the company was left entirely without productive assets and was no longer capable of continuing its business operations.
Article 160(f) LSC: requirements for the disposal of essential assets
Article 160(f) confers upon the general meeting exclusive authority to approve the acquisition, disposal or contribution of essential assets. Its purpose is clear: to reserve to the shareholders those decisions capable of fundamentally affecting the company’s assets or even its continued existence.
However, the provision did not resolve a fundamental issue: where directors dispose of essential assets without the required approval, is the transaction automatically void? This question had given rise to differing interpretations. The Supreme Court has now provided a clear interpretative approach.
The Supreme Court’s approach to the validity of disposals of essential assets
The Court adopts an interpretation that safeguards the security of commercial dealings.
It holds that Article 160(f) governs only the internal allocation of powers between the general meeting and the board of directors (or, where applicable, the sole director), but does not restrict the directors’ powers of representation vis-à-vis third parties, which continue to be governed by Article 234 LSC. Accordingly, the absence of shareholder approval does not, of itself, render the sale ineffective or void.
Whilst the transaction may constitute a breach of the company’s internal governance rules and may expose the directors to liability, such breach does not automatically invalidate a contract entered into with a third party.
The purchaser’s good faith: when protection is afforded
The decisive issue is therefore whether the purchaser acted in good faith.
In the present case, the claimant shareholder argued that the purchasing company was fully aware of the seller’s circumstances because its director had previously been a shareholder of the selling company. The Supreme Court rejected that argument, holding that this fact alone was insufficient to rebut the presumption of good faith. Having been a shareholder several years earlier does not justify an inference that the purchaser knew the company’s financial position at the time of the sale. In the absence of further evidence establishing bad faith or gross negligence, the purchaser is entitled to protection.
The judgment therefore reiterates that parties acquiring assets from a company are not required to verify compliance with all of the company’s internal corporate procedures, provided they act in good faith.
Shareholder approval remains mandatory
The answer is unequivocally yes. The judgment does not deprive Article 160(f) of its practical effect; rather, it clearly defines the scope of its legal consequences. Approval by the general meeting remains mandatory, and failure to obtain it may expose the directors to significant liability towards the company and its shareholders.
What the Supreme Court seeks to avoid is allowing an internal corporate breach automatically to prejudice a third party who legitimately relied upon the directors’ representative authority. In doing so, the Court strikes a balance between two equally protected interests: the shareholders’ right to oversee strategic corporate decisions and the legal certainty required by commercial transactions.
Practical implications for directors and purchasers
The principles established by the Supreme Court offer several important practical lessons.
- First, directors are reminded of the importance of identifying transactions involving essential assets and ensuring that they are submitted for shareholder approval in advance.
- Secondly, the judgment highlights the importance of properly documenting such transactions, including express evidence of the shareholders’ resolution wherever approval is required.
- The Court also clarifies that whether an asset qualifies as an essential asset is not determined solely by quantitative criteria. Although the LSC establishes a rebuttable presumption where the value of the transaction exceeds 25% of the value of the company’s assets according to the latest approved balance sheet, that presumption is not exhaustive. Regard must also be had to the role the asset performs within the company’s business and to the practical consequences of its disposal. In the present case, the sale deprived the company of all productive assets and made it impossible for it to continue trading.
- Finally, the judgment provides reassurance to parties acquiring assets from companies, who may rely upon the directors’ authority unless there are clear indications of bad faith or gross negligence.
Conclusion: disposals of essential assets and legal certainty
Supreme Court Judgment No. 881/2026 confirms that the disposal of essential assets without the approval of the general meeting does not automatically render the transaction void as against third parties acting in good faith. The breach concerns the company’s internal sphere of governance and may give rise to liability on the part of the directors, but it does not automatically deprive the transaction of legal effect where the counterparty contracted legitimately.
The judgment serves as a reminder that Spanish company law protects not only the interests of shareholders and the company itself, but also the legitimate expectations of those dealing with the company. Maintaining an appropriate balance between internal corporate control and legal certainty requires companies to exercise particular care when making decisions affecting their essential assets.
Accordingly, where a proposed transaction may involve the transfer of strategic assets or jeopardise the continuity of the company’s business, careful corporate planning and appropriate legal advice remain the best means of preventing disputes and ensuring the legal certainty of the transaction.
Need advice? Visit our practice area on the protection afforded to purchasers in the acquisition of essential assets where shareholder approval has not been obtained.
