Law 6/2023, of 17 March: Issuance of shares with Blockchain in SA

Law 6/2023 introduces a series of legal and technological innovations in companies, modifying, through the Sixth Final Provision, the Capital Companies Act.

In this article, we will focus on the main innovations affecting the Capital Companies Act.

Article 23 of the Capital Companies Act, relating to the articles of association, is amended. The only modification refers to Public Limited Companies, as the articles of association of this type of company must state “whether the shares are represented by means of certificates, or by means of book entries or by systems based on distributed ledger technology”.

Therefore, a new form of share representation is introduced, based on distributed ledger technologies (DLT) and, particularly, through Blockchain technology.

The question now arises as to which public limited companies can issue shares based on distributed ledger technologies, whether only listed companies or any type of public limited company. Article 23 itself does not differentiate between listed or unlisted companies, so it seems that any public limited company could opt for this type of representation, although there are already authors who understand it to be limited only to listed companies, this being, for the moment, the most conservative position.

In any case, whichever way it is, we understand that the provisions of Chapter II of Law 6/2023, relating to negotiable securities, must be observed, as these provisions regulate the representation, issuance and regulation of the entities responsible for carrying out the accounting registration by means of systems based on DLT.

Thus, Article 6 itself determines that the representation of shares based on distributed ledger technologies must guarantee the integrity and immutability of the issues made therein, directly and indirectly identify the holders of rights over the negotiable securities and determine their nature, characteristics and number. Article 7, for its part, requires the issuing entity to prepare a document containing the information necessary for the identification of the entity responsible for the accounting registration or responsible for the administration of the inscription and registration.

Articles 10 and 11, relating to constitution and transfer, require that if they are represented by means of systems based on DLT, they shall be constituted as such by their first registration in said systems, in favour of the issuer or the subscribers of the securities, and their transfer shall take place by means of the transfer recorded in the distributed ledger. Furthermore, this registration shall be enforceable against third parties.

Finally, it is worth noting that the possibility of changing the type of representation of shares already issued to include them in a distributed ledger system is foreseen.

Article 407, relating to the content of the public deed of bond issuance, is amended, requiring it to state “whether they are represented by means of certificates, by means of book entries or by systems based on distributed ledger technology”.

Therefore, the issuance of bonds continued to require the granting of a public deed, but this issuance may use blockchain technology for its representation. This representation must comply with the issuance, transferability and enforceability requirements against third parties that we have seen for shares.

A new chapter VIII bis is introduced in the Capital Companies Act, which includes articles 535 bis to 535 quinques. This chapter regulates for the first time in Spain the figure of listed companies with a special purpose for acquisition (Special Purpose Acquisition Company or SPAC, by its English acronym).

a) Concept
Listed companies with a special purpose for acquisition or SPAC are understood to be any company established to obtain financing through an initial public offering, with the objective of acquiring another company, listed or not, through the acquisition of all or a participation of the same, within a determined period.

b) Name
According to article 535 bis. 3, the company type must include in its name, as any other company, the indication "Sociedad cotizada con Propósito para la Adquisición" (Listed Company with a Special Purpose for Acquisition), or its abbreviation, "SPAC, S.A.", until the acquisition that is approved is formalised.

c) Term
The same article 535 bis establishes the time limit for the acquisition, so that it cannot be indefinite. This term must be stated in the bylaws, setting a maximum of 36 months or, in other words, 3 years. However, this maximum term may be extended by 18 more months, by decision of the General Shareholders' Meeting with the same requirements applicable to a statutory amendment.

Furthermore, this special regime will cease to apply once the acquisition is formalised or the merger is registered.

d) Funds immobilisation
As a guarantee mechanism for investors, who do not know which company will be acquired, the Law establishes the obligation to immobilise funds in an account opened in a credit institution in the name of the listed company with a special purpose for acquisition.

e) Reimbursement mechanisms and value
Article 535 ter regulates the reimbursement mechanisms for shareholders and their valuation. The article itself establishes three mechanisms for this:

• The introduction of a statutory right of withdrawal once the SPAC announces the planned acquisition or merger.
• The issuance of redeemable shares.

In these cases, the reimbursement value of the shares, whether configured as a right of withdrawal or as redeemable shares, will be the proportional part of the effective amount immobilised in the transitional account.

• The capital reduction through the acquisition of its own shares for their cancellation as a reimbursement mechanism. In this case, the reduction must comply with the provisions of articles 338 of the Capital Companies Act and 12 of Royal Decree 1066/2007, of 27 July, on Takeover Bids.

In case of capital reduction:

• The price of the takeover bid will be the amount equivalent to the proportional part of the effective amount immobilised in the account opened by the SPAC.
• The SPAC may approve its delivery in exchange to the shareholders of the acquired company as total or partial consideration of the operation, instead of cancelling the acquired shares.
• According to article 535 quarter, if the company had limited its activities to the share offering and those related to the acquisition or merger, there will be no creditor opposition right.

Law 6/2023 will come into force 20 days after its publication in the BOE, except for certain sections. Where applicable, the amendment to the Capital Companies Act comes into force according to the general rule. This 20-day period will expire on 7 April 2023.