Extension of the suspension of the cause for dissolution due to losses until 2026

A new extension to the exceptional regime relating to the legal grounds for dissolution due to losses was published in the Spanish State Gazette (BOE) of 24 December under the Fourth Additional Provision, once again addressing the interpretation and application of Article 363.1.e) of the Consolidated Text of the Spanish Law on Capital Companies (LSC).

In practical terms, this extension means that losses from the 2020 and 2021 financial years will not be considered when determining whether there are grounds for dissolution due to financial imbalance, until the end of the financial year beginning in 2026.

Legal scope of loss exclusion

According to Article 363.1.e) of the Law on Capital Companies, legal grounds for dissolution exist when the net equity falls to less than half of the share capital due to losses, unless it is increased or reduced to a sufficient extent.

The new provision specifies that, for these purposes only, losses from the 2020 and 2021 financial years will not be considered until the end of the financial year beginning in 2026. Therefore, this is a limited exclusion that does not remove the losses from the financial statements; instead, it does prevent these losses from automatically triggering the legal grounds for dissolution.

From an accounting and corporate perspective, this measure forms part of the approach adopted in response to the pandemic, preventing past extraordinary economic circumstances from continuing to have structural legal effects on companies that have, in many cases, recovered their activity and operational capacity.

Suspension limits and directors’ liabilities

Nevertheless, the extension should not be interpreted as a general relaxation of the liability regime for directors, nor as an indefinite exemption from the obligation to respond to situations of financial imbalance.

The rule is clear in establishing that, if the decision is made to exclude losses corresponding to the 2020 and 2021 financial years, and results for the 2022, 2023, 2024, 2025 or 2026 financial years generate losses that reduce net equity to less than half of the share capital, this will be considered grounds for dissolution.

In such a case, the directors must:

-Convene a General Meeting within two months of the end of the financial year to agree on the dissolution, in accordance with Article 365 of the LSC.

-Adopt sufficient measures to rebalance the company’s financial position (e.g. increase or reduce capital).

It should also be noted that any member may convene the General Meeting if the directors fail to act, with the resulting liability implications.

Practical implications for preparing the annual accounts

From a financial reporting perspective, this extension requires careful consideration of the going concern principle and accurate description of the financial position in the notes to the financial statements.

Although certain losses are not taken into account for corporate purposes, they still exist for accounting purposes. It is therefore advisable to explicitly comment on these losses, together with a clear explanation of the applicable legal framework and the company’s planned measures to restore financial equilibrium.

Furthermore, legal exclusion should under no circumstances be confused with an automatic improvement in the company’s actual solvency. Therefore, it is essential to distinguish between legal viability and the company’s actual economic and financial situation, a distinction which often gives rise to doubts in practice.

An extension with a clearly transitional purpose

The extension to 2026 confirms the temporary and exceptional nature of the measure. Once again, legislators seem to be opting to maintain a certain balance between protecting businesses and preserving the principles of minimum capitalisation, corporate discipline, and creditor protection.

Unless further extensions are granted, the financial year beginning in 2026 will mark the definitive return to the standard regime for calculating losses for dissolution purposes. This makes it particularly important for the financial management of companies to anticipate scenarios and plan the necessary restructuring measures well in advance to restore financial equilibrium.