Closing of the register’s data sheet and cancellation of entries

In a previous post published in Legal Today we already said that “Spaniards are more permeable to coercive measures than to the value of civic and responsible behavior for society”.

In any country we find, among others, measures limiting speed, imposing bookkeeping, or forcing the vaccination of pets.

But leaving philosophical matters aside, it is time to return to the issue that is the title of these lines. The clos of the registry sheet and the cancellation of registry entries.

We still find many businessmen surprised when they discover the closing of the registry of their company. They do not understand its effects. Because they confuse, the closing of the registry sheet with the cancellation of entries.

With the present article, we will try to differentiate one figure of the other, and its consequences for the companies’ managers. We will see: The causes behind the closing of the registry sheet, its reopening and its consequences. And we will also deal with the concept of “cancellation of the registration sheet” and the liability of liquidators after the cancellation.

Unfortunately, this quiz has a limited amount of entries it can recieve and has already reached that limit.

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Causes for the Closing of the Registry Sheet

As we were saying, the closing of the registry sheet was dealt with by ILP Abogados in the above mentioned article, published by Legal Today. For more details, please visit the link above.

In short, it is a penalty resolved ex officio, either by the Commercial Registry or by the Tax Agency. For failure to file annual accounts, in the first case, or for tax debts in the second.

Closing of the Registration Sheet by the Mercantile Registry

If after one year from the closing of the accounting year, the Annual Accounts are not deposited, the RM closes the registration sheet. (Art. 378 of the RRM).

The publication of the financial statements is an annual obligation. The Annual Accounts are public information, and the directors sign in them the true and fair view of the company they manage. Any market operator can thus obtain accounting information from a potential client or supplier. Therefore, failure to proceed with this deposit, or to publish the accounts, is penalized with the closing of the sheet.

The closing of the registry sheet implies that no social agreement will have access to the sheet. Change of registered office, change of name, capital increase, directors’ remuneration modification… and, therefore, these will not be effective against third parties. This is the well-known principle of negative publicity, art 21 CCOM: “The acts subject to registration will only be enforceable against third parties in good faith from the moment of their publication in the BOE”.

There are 4 exceptions to this prohibition of registration:

• The termination or resignation of Administrators, Managers, General Managers or Liquidators.
• The revocation or resignation of powers of attorney.
• The dissolution of the company and the appointment of liquidators.
• Those ordered by Judicial or Administrative Authority.

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Director´s Liability for failing to deposit the Annual Accounts (or Financial Statements)

The duties of the administrators in relation to the Annual Accounts are established, among others, in article 34 CCom. The administrative body must prepare the Accounts within the three months following the closing of the fiscal year. The General Meeting must approve them in the three months following the formulation. From this moment, administrators have one month to deposit them in the Mercantile Registry.

Closing of the Registration Sheet by the State Tax Agency

The Tax Authorities may close the registration sheet for the reasons listed in Art. 119 of the Corporate Income Tax Law.

Art. 119 LIS establishes that the AEAT may issue a provisional cancellation agreement in the Index of Entities (Census of companies):

1. When the entity’s tax debts with the State Treasury are declared in default.
2. When the entity has not filed the IS tax return for 3 consecutive tax periods.

This cancellation in the census of companies will be notified to the RM, which will proceed to the closing of the registry sheet. (In accordance with the provisions of art. 119.2 LIS).

Consequences of the Closing of the Registry Sheet

We have already mentioned the impossibility of registering agreements that require registration in order to be effective against third parties. The above-mentioned principle of negative publicity.

In addition, the LSC and the LGT impose the following sanctions:

• From €1,200 to €60,000 by the Institute of Accounting and Auditing. Art. 283 LSC.
• Penalty of €600 for failure to keep or maintain accounting records. Art. 200 LGT
• Possible fine of 200€ for failure to file corporate income tax on time. 198 LGT

The provisional cancellation agreement does not imply exemption from tax obligations (Art. 193 LSI). The AEAT communicates the cancellation to the Commercial Registry, so that it closes the registration page, but the debts generated remain with all their consequences.

In addition, the closing of the registration sheet, for the reasons established in Article 193 LSI, is cause for revocation of the CIF (VAT number); Article 147.1.a of the General Regulations of the Tax Agency. That is to say, the company will not be able to operate commercially. It will not be able to invoice for its services or merchandise, neither third parties can invoice them for theirs.

The non presentation of the accounts implies that the manager has not acted with the due diligence of an orderly businessman (article 225 LSC). Both the company and its partners, or a third party, can claim damages caused by the director.

In addition, in the case of insolvency proceedings, the failure to file the accounts is grounds for presumption of guilt (art. 165 LC).

What has our Jurisprudence been resolving with respect to the liability of administrators for failure to deposit the accounts? The Supreme Court points out that the lack of deposit of accounts does not sufficiently prove the liability of creditors for damage caused to the creditor. But it also says that it does constitute an indication of liability.

To this effect, we bring two recent sentences, of Provincial Courts, which expressly refer to the Supreme Court’s jurisprudence:

Sentence of the Provincial Court of PONTEVEDRA 241/2017 of 25 MAY.

(…)”being  a well known jurisprudential doctrine that the lack of presentation of the accounts operates a presumption against the defendant administrators, which they will have to counteract with an evidentiary activity that convinces about the non-existence of the imbalance”(…).

Judgment of the Provincial Court of MADRID 411/2018 of July 13, 2018

(…) The 1st Chamber of the Supreme Court (in its judgments of April 26 and June 20, 2005) has pointed out that the reproach of the failure to file the annual accounts with the Commercial Registry could only support the individual action of liability if it were causally connected with the damage claimed to have been suffered by the plaintiff. However, the failure to comply with a corporate obligation, such as that of depositing the accounts, could not be, by itself, a determining factor of the liability of the director when it had not been demostrated, as in the present case, that a causal relationship could be established between the failure to comply with the obligations of accounting deposit and the damage for which it is being claimed (the non-payment of debts contracted by the company). (…)

Reopening

Finally, it should be noted that the registry sheet may be reopened:

If it was closed by the RM: “In order to reopen the registry sheet and to be able to register the documents presented, it will be necessary to deposit the last three accounting years”, this according to Resolution 23/11/2016 of the General Directorate Registries and Notary’s Office.

If it was closed by the Tax Authorities: The debtor must update its payment and request a new registration with the AEAT. Once the AEAT has registered the debtor in the Companies Index, the registry sheet will be reopened.

Cancellation of Registration Entries

The cancellation of registry entries implies the elimination of the different decisions adopted by the company, which are subject to registration. For example, a capital increase that, after being appealed by one of its partners, is judicially declared null and void. The decision to incorporate a company is the cause of the opening of the registration sheet and its first registration.

The clear example of cancellation of registry entries is that of an orderly liquidation, or bankruptcy of a company. Depending on whether it proceeds in accordance with Article 371 et seq. of the LSC or with the procedure established in the LC.

The end of the process in either case is the cancellation of all the registry entries. The cancellation of all its entries, since the incorporation of the company. The extinction of the company.

That is to say, the cancellation does not imply a lack of  effectiveness of the corporate decisions before third parties. The cancellation has its roots in the “disappearance” of the social decisions, in the case of liquidation, the extinction.

Consequences of the Cancellation of the Registration Records

As we say, the consequence of the cancellation is the disappearance of the corporate agreement. In the case of liquidations, the cancellation implies, “the disappearance of the company”.

But in spite of the fact that the company has been cancelled, it is still susceptible to claims, which can be formulated before the liquidator. This is how our SC has resolved it, and we bring for all SC’s resolutions, the SCS’ 1991/2017:

(…) although formally the cancellation of the registry entries relating to the company entails its extinction, it cannot be denied it certain legal personality with respect to claims arising from supervening liabilities. These claims presuppose that some liquidation operation is still pending. It is true that the current Capital Companies Law, in its article 399, provides for the joint and several liability of the former partners with respect to unpaid corporate debts up to the limit of their respective liquidation quotas, in the event of supervening liabilities. In many cases, in order to enforce this liability, it will not be necessary to take action against the company. However, claims such as the present one, without prejudice to the fact that they may end up being directed against the partners to enforce joint and several liability up to the limit of their respective liquidation quotas, may require a judicial recognition of the credit, for which it is convenient to direct the claim against the company. In these cases, in which the claim is based on the fact that the claimed credit should have been part of the liquidation, and that therefore the liquidation is not definitive, not only  we should not deny the possibility that the claim can be directed against the company, but we also should not require the prior cancellation of the cancellation and the formal reopening of the liquidation. In this way, the creditors should not be deprived of the possibility of directly addressing themselves against the company, under the representation of its liquidator (…)

That is, even though the company has been liquidated, it may still be liable for outstanding obligations. The company, in the person of its liquidator, is entitled to be a party to these possible claims.

We hope that this article has been of interest to you, and that the difference between the two figures is made clear.

If this article has been of interest, we also suggest you to read the following article published on our website: Consolidated Annual Accounts.