Professor Jesús Alfaro Águila-Real’s blog refers to the activation of the exceptional article 373 of the Restated Text of the Spanish Capital Stock Companies Act.
Royal Decree 868/2024, issued on August 27, 2024, focuses on the Central Market of Palma de Mallorca (Mercapalma), a critical hub for distributing fresh products in the Balearic Islands. This decree was issued under Article 373 of the Spanish Capital Companies Act (LSC), which allows the government to intervene in specific corporate situations when necessary for national economic or social interest.
Article 373 of the LSC permits the government, at the request of shareholders representing at least one-fifth of the share capital or the company’s workforce, to decree the continuation of a public limited company if deemed beneficial for the national economy or social interest. This provision serves as a tool to prevent the dissolution of key companies by allowing the government to determine the manner in which the company should continue to exist and the compensation shareholders should receive if their rights are expropriated.
The article aims to ensure the survival of companies that are crucial to the economy or social stability, allowing their survival under state supervision and regulation, thus overriding the general autonomy of public limited companies.
Mercapalma, established in 1968, evolved from a mixed-ownership company to a wholly public entity by 2012. Initially, Mercapalma was created by the state-owned company Mercasa, alongside private and municipal participation. Over time, various legal reforms and changes in its shareholder structure have transformed Mercapalma into a fully public entity, with the Palma de Mallorca City Council holding the majority stake and Mercasa the minority.
The Royal Decree was issued as Mercapalma, according to its statutes, is on the verge of dissolution, as its operational term was set at 50 years from its inception, expiring in June 2024. However, given Mercapalma’s essential role in food distribution in the Balearic Islands and Mercasa’s request, the government intervened to prevent its dissolution.
Mercasa, as a minority shareholder holding 45.21% of the capital, requested the government to modify Mercapalma’s statutes to remove the time limit on its existence, arguing that the company’s continuity is vital for local and national economic stability. This request, supported by various technical and legal reports, highlights the importance of Mercapalma in the fresh food supply chain, not only in the Balearic Islands but also within the national network of markets managed by Mercasa.
The government, after evaluating the situation, concluded that dissolving Mercapalma could pose a significant risk to the food supply in the region, affecting economic and social stability. Therefore, it decided to apply Article 373 LSC to extend the company’s life indefinitely, ensuring its continued operation under the new legal framework.
The application of Article 373 LSC in this case underscores the importance of balancing corporate autonomy with higher economic and social interests. Government intervention, while potentially seen as a restriction on business freedom, is justified in this context due to the critical nature of Mercapalma’s activities. Such measures are exceptional and reserved for situations where the company’s dissolution could have widespread adverse effects.
Royal Decree 868/2024, through its application of Article 373 LSC, reflects the government’s preventive approach, acting to avoid a dissolution that could compromise the food supply in an island region heavily dependent on these markets. This decree not only preserves shareholders’ rights but also ensures economic stability and the continuity of the essential public service provided by Mercapalma.
Royal Decree 868/2024, supported by Article 373 of the LSC, represents a crucial government intervention in the economy to ensure Mercapalma’s continuity, thereby safeguarding the food supply in the Balearic Islands. This decree aligns with the government’s strategy to protect strategic sectors, ensuring that companies vital to the economy and society continue to operate under state supervision in exceptional circumstances. This analysis highlights the importance of maintaining a balance between business autonomy and the need for state intervention in critical situations within the framework of Spanish commercial law.