Pledge of shares
A) Constitution
The constitution of pledge over shares proceeds in accordance with the provisions of common law. Consequently, the essential requirements of the pledge agreement are the following:
– That is constituted to ensure compliance with a principal obligation.
– That the pledged property belongs in property to the pledger.
– That the pledger has the free disposal of their assets or, failing that, that they are legally authorized to do so.
– That the creditor be placed in possession of the thing or to a third party by mutual agreement.
– That the date certifies in a public document. This is a requirement of effectiveness of the pledge against third parties, so that compliance will depend on its full consideration as a real right.
However, the general rules outlined above, relating to the requirements for the constitution of the pledge, must be specified according to the manner in which the pledged shares are represented:
I. Represented by printed and delivered titles.
• To the carrier. There are no peculiarities for the aforementioned system, so the general rules that require the possession of the titles and the proof in a public document of the pledge are applied so that it is enforceable against third parties.
For the purpose of legitimizing the pledgee against the company, the latter must accredit the latter the constitution of the pledge through the corresponding public document.
• Nominative. The Capital Companies Act states that when the share is registered, the pledge may be constituted by endorsement, accompanied by the clause “security in guarantee” or equivalent.
II. Represented by titles not printed and delivered
The pledge of shares represented by titles that are not printed and delivered is perfectly possible. However, the LSC does not indicate the formal specialties of its constitution that, in any case, derive from the inexistence of titles, which prevents the corresponding possession displacement.
In general, the majority doctrine and business practice proceeds to the constitution of the pledge in this case by formalizing it in a public document, followed, as some authors recommend, a notification to society of such a constitution, by analogical application of what is established in the common law for the assignment of credits.
The need for notification is clearly justified in the nominative shares, for the purposes of the registration of the pledge in the register of nominative shares -required for the legitimacy of the pledgee against the company- being, however, more debatable in the case of bearer shares.
It is also common in practice to formalize the pledge through the ad hoc issuance of provisional safeguards representative of the shares that are pledged, and that, at the time of the granting of the pledge public document, they are delivered by the pledgor to the pledgee, thus place to the possessory displacement of the pledge through the displacement of these provisional titles.
Regarding the legitimacy, once the pledge is constituted in the situation of non-existence of definitive titles, the law recognizes the right of the pledgee to obtain from the company a certificate accrediting the registration of its right in the register of nominative shares.
III. Recorded in mind
The constitution of a pledge on this type of shares presents some particularities on the regime established in general.
– It requires the previous registration in favor of the pledger, in the corresponding accounting record, of the ownership of the shares that are going to be pledged.
– You need the registration of the pledge in the representative account.
B) Applicable rules
The examination of the legal regime applicable to the pledge of shares must take into account a double aspect: the external aspect, which examines the relations between society and the holders of rights over the action; and the internal aspect, which examines the relationships between these owners, that is, between the owner of the action and the pledgee creditor.
I. External relations
a) The pledgee of the action is the one who has the status of partner and to whom corresponds the exercise of all the rights proper to such condition. However, the statutes may establish modifications to this last point, attributing to the pledgee the creditor one or more of the rights of the partner, without, for these purposes, it may be considered an obstacle to attribute to the pledgee any of the rights considered by the law as minimums of the partner
The administrative doctrine does not allow the bylaws to be sent as regards the exercise of the rights (external relations with society) to what the title of the pledge determines at any time.
Consequently, in the absence of a specific statutory provision, the exercise of the full rights of the partner corresponds to the pledger, among which are political rights and economic rights.
If, on the other hand, there is a statutory clause related to the rights of the pledgee, it must be to the content of such clauses.
As concrete cases we have:
• The statutory attribution of the right to vote to the pledgee is perfectly possible and can be an effective instrument of the so-called “voting unions”, when they are accompanied by a pledge of the syndicated shares in guarantee of compliance with the obligations assumed in the constituent agreements of such union.
• In cases of capital increase, there is normally a decrease in the collateral in which the pledge consists, given the usual decrease in the equity value that the pledged shares experience due to this increase.
b) On the other hand, the pledgee creditor is obliged to provide the owner of the pledged shares with the exercise of the corresponding shareholder rights in accordance with the above. This activity does not necessarily have to involve the presentation of such titles to society, since they may not even exist, or the required collaboration may consist of another type of activity.
C) Pledge of shares not released
This situation presents the following specialties:
a) The liability of the disbursement of the passive dividends against the company is exclusively the owner of the pledged shares.
b) In the event of default by the owner of the obligation described, the legal standard offers the pledgee a double option in order that such breach may not prejudice his pledge:
– That the pledgee fulfills this obligation with the consequent right of repetition against the owner. It is defended by some doctrine that in this case there would be an extension of the credit guaranteed by the pledge that would also guarantee said right of repetition;
– That the pledgee proceeds to the realization of the pledge.
D) Execution of the pledge of unlisted shares
The pledgee, when its credit has not been paid in a timely manner, may dispose of the pledge before a notary through a public auction.
The Civil Code does not establish the requirements to which the public auction must be subject before a notary. This gap must be solved by analogical means, applying the normative regulatory set of the executive, judicial and extrajudicial processes.
From these rules it turns out that, for the TS, the notarial auctions, as in fact any procedure for the execution of guarantees, must agree with two legal principles:
a) The non-plundering of the pledgor debtor, who has the right to the valuation of the guarantee is objective.
b) The non-erosion of the creditor, who requires speed in all actions, so that their initial damage to property is effectively restored.
Both principles are reflected in the need to:
1. Create a fictitious market, which is the auction, from which an objective value will be obtained, based on the initial appraisal price.
2. Create it quickly, to protect the creditor. But not so quickly that abuse is incurred, because then the protection of one unbalances the balance and becomes deprotection for the other.
3. Give it enough publicity, which must be objectively sufficient and subjectively sound. For the TS, the publication in the newspaper Marca does not seem the most appropriate mechanism because, in spite of its national diffusion, it is exclusively dedicated to sports information.