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The protection of the minority shareholder with regard to the distribution of dividends.

Anyone who has ever worked with limited liability companies has come across the problem of defending minority shareholders against abuse by the majority of the share capital. One of the most important of these problems concerns the decision on the distribution of company profits, where there is an eternal conflict between the minority shareholder, who is not normally a member of the company's administrative body and has no contractual relationship with the company in which he or she is a shareholder, and the majority shareholder, who is a member of the administrative body and receives the resulting remuneration in his or her capacity as such or under any other remuneration concept.

It is also well known that in the event of a decision adopted by the majority of the General Meeting not to distribute dividends, the shareholder has the right to exercise the right of withdrawal under the terms of the Capital Companies Act, which entails the loss of his shareholding, or the possibility of challenging the resolution in order to obtain the corresponding declaration of nullity of the challenged resolution.

The Judgment of the Civil Division of the Supreme Court of 11 January 2023 goes a step further in the defence of minority shareholders against abuses by the majority and endorses the judgment of the Provincial Court of A Coruña where, in addition to upholding the action challenging the resolutions whereby it had been decided to apply the company's profits exclusively to the entity's voluntary reserves, it sentenced the company to distribute at least 75% of the company's profits, on the basis that the resolutions being challenged were abusive given that, although the resolutions did not cause any harm to the company, they did not cause any damage to the company, condemns the company to distribute at least 75% of the company's profits, on the basis that the resolutions being challenged were abusive given that, although these resolutions did not cause any damage to the company, they had been adopted exclusively for the benefit of the majority shareholder and to the detriment of the minority shareholder.

The special feature of the judgment, therefore, lies precisely in the Supreme Court's endorsement of the condemnation of the company to make a certain distribution of dividends, which could be understood as an impersonation by the court of the will of the General Shareholders' Meeting. However, the Supreme Court disregards the argument of the possible supplanting of the General Meeting, accepting the argument given in the Provincial Court Judgment, where, in view of the circumstances of that particular company and its background, in the specific case it constituted an abuse of the majority to allocate more than 25% of the profits achieved in the years under study to voluntary reserves, giving priority to the effective judicial protection of the minority shareholder, which would be negatively affected if the court's ruling were limited to upholding the challenge and annulling the resolution, as it would depend on the shareholders' meeting, controlled by the majority shareholder, to legitimately satisfy the rights of the minority shareholder recognised by the ruling.

The Supreme Court's ruling therefore opens up the possibility for shareholders who disagree with a company resolution on the distribution of profits for the year not only to challenge the company resolution in order to have it declared ineffective, but also to force the company to distribute a percentage of the dividends.

However, it should be noted that the court decision adopted is not free of controversy, and although in the specific case to be elucidated it is based on the company's history, it will be of doubtful general application.

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