Can the company’s Articles of Association grant a pledgee the right to exercise shareholder rights?

The Resolution of the Spanish Directorate-General for Legal Certainty and Public Faith (Dirección General de Seguridad Jurídica y Fe Pública, or “DGSJFP”) dated 28 April 2026 addresses the possibility of granting a pledgee, through a company’s Articles of Association, the right to exercise the shareholder rights attached to pledged shares, as well as the limits of such an arrangement.

Background to the resolution

In this case, the sole shareholder of a Spanish private limited liability company resolved to amend the Articles of Association to provide that shareholder rights would “vest in” the pledgee in the event of a breach of the obligation secured by the pledgor.

The relevant provision of the Articles of Association established that this arrangement would take effect once the breach had been notified by a notary to the pledgor and the company, provided that judicial enforcement proceedings in respect of the pledge had been admitted or, in the case of notarial enforcement, that evidence of formal service of notice on the debtor had been provided.

The Commercial Registry refused to register the public deed formalising the resolutions on the following grounds:

• Granting economic rights to the pledgee would distort the nature of a pledge as a mere security interest and would therefore breach the fundamental requirement that any transfer of economic value must have sufficient legal cause (see Articles 1261 and 1274 et seq. of the Spanish Civil Code).
  
• Since the Spanish Civil Code provides that the debtor remains the owner of the pledged asset until enforcement, granting the pledgee any economic returns or other benefits associated with ownership would (i) lack legal justification, (ii) allow the pledgee to retain its claim in full without deducting the returns received and, consequently, (iii) result in unjust enrichment of the pledgee.
  
• The Articles of Association may provide that, in certain circumstances, the pledgee is “entitled” to receive dividends and other economic rights attached to the shares, without prejudging the actual ownership or entitlement to the assets or amounts received (see Article 1162 of the Spanish Civil Code). Accordingly, a distinction must be drawn between the exercise of shareholder rights, as provided for in Article 132.1 of the Spanish Companies Act (Ley de Sociedades de Capital, or “LSC”), and entitlement to the economic returns.

Grounds put forward by the company in support of the validity of the provision in the articles of association

The company requested a substitute registrar’s assessment, which upheld the initial refusal to register, and subsequently appealed to the DGSJFP on the following grounds:

• A pledge over shares is, in most cases, antichretic in nature, meaning that the pledge extends to any assets or rights accruing to the holder of the shares.
  
• The allocation of the economic fruits of the shares to the pledgee is fully valid, given the antichretic nature of the pledge and the possibility of establishing provisions in the Articles of Association that differ from the general rule laid down in Article 132.1 LSC, as expressly permitted by that provision.
  
• In line with several previous resolutions of the DGSJFP, the registrar’s assessment must be limited to the contents of the document submitted for registration. The registrar may not “prejudge the existence of an unlawful cause or the absence of cause”, nor “speculate as to the parties’ intentions where there is no clear and manifest evidence” of such circumstances.
  
• Consequently, the registrar cannot presume that granting economic rights to the pledgee necessarily entails the definitive acquisition of those rights without their value being applied towards repayment of the secured debt, since such an arrangement may serve different purposes and admit different legal structures.
  
• The company therefore argued that the registrar could not refuse registration on the assumption that the provision in the Articles of Association would necessarily result in unjust enrichment of the pledgee.

Position of the Directorate-General for Legal Certainty and Public Faith

The DGSJFP upheld the company’s appeal and, consequently, overturned the registrar’s decision on the following grounds:

• Article 132.1 LSC provides that, where shares are pledged, the exercise of shareholder rights generally remains with their owner, unless the Articles of Association provide otherwise. Article 28 LSC, in turn, recognises the principle of freedom of contract, allowing shareholders to include in the Articles of Association such provisions and conditions as they consider appropriate, provided that they do not contravene the law or the fundamental principles governing the relevant type of company.
  
• As stated by the DGSJFP in the Resolution, “shareholder status is not altered by the pledge of shares, without prejudice to the possibility that the exercise of the rights inherent in such status may correspond to the pledgee for as long as the pledge remains in force and within the scope established by the relevant provision of the Articles of Association”.
  
• Although the provision in the Articles of Association could have been drafted more precisely by referring to the “exercise of shareholder rights”, rather than stating that such rights would “vest in the pledgee”, this does not justify refusing registration. The provision concerns the exercise of shareholder rights and, under no circumstances, the acquisition of shareholder status itself, which would require the transfer of the shares.

Conclusions

The Resolution confirms that a company’s Articles of Association may grant a pledgee the right to exercise shareholder rights, in accordance with Article 132.1 LSC and subject to the limitations established in Article 28 LSC.

Furthermore, the DGSJFP reiterates that provisions of the Articles of Association must be interpreted in accordance with the rules governing the interpretation of contracts. Accordingly, such provisions should not be construed as having a meaning contrary to law unless that meaning clearly follows from their content.

I agree with this approach, as an excessively literal interpretation of a provision of the Articles of Association by the Commercial Registry, without considering the provision as a whole and its intended purpose, may lead to the rejection of provisions which, despite not being drafted with the utmost precision, are fully compliant with the law.

Article published in Economist & Jurist