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Posted: February 26th, 2022

ASSIGNMENT 1. COMMERCIAL LAW AND CORPORATIONS II

ASSIGNMENT 1. COMMERCIAL LAW AND CORPORATIONS II
Mr. Sánchez, a Spanish national and Madrid resident, has had a furniture manufacturing business
(the “Business”) for the past years.
In January 2014 he incorporated a Spanish company (Nomoretaxes, S.A., the “Company”) with
his family (wife and 2 children). Each of the parents (Mr. Sánchez and his wife) fully paid in cash
30% of the Company’s share capital; Susana, the eldest daughter, fully paid in 15% of the
Company’s share capital by contributing the plot of land on which the furniture factory is located
(the “Plot of Land”), and Juan, the youngest son, fully paid in kind 25% of the Company’s share
capital by contributing 50% of the quotas (participaciones) that he held in the Spanish entity Juan
in a Million, S.L., when the Company was incorporated. Juan currently owns the other 50% of
Juan in a Million, S.L.
The Company’s share capital is 100,000€. The Company is registered before the Commercial
Registry of Madrid. Mr. Sánchez, Juan and Mr. Sánchez’ wife have been appointed directors of
the Company.
In February 2014 Mr. Sánchez entered into a Business Sale and Purchase Agreement with the
Company by virtue of which (i) he transferred the Business to the Company and (ii) the Company
undertook to pay Mr. Sánchez an aggregate price of 2,000,000€ payable in 2 annual installments.
The Company finally paid the aggregate price in November 2016.
The Company entered into a Wood Supply Agreement with Woody, S.L. in December 2016 for
the provision of wood on a regular basis.
In addition, Juan in a Million, S.L. entered into a Loan Agreement with Rob-A Bank N.A. (the
“Bank”) in early 2017 for working capital purposes. In order to guarantee Juan in a Million, S.L.’s
obligations vis-à-vis the Bank under the Loan Agreement, the Company granted a pledge over its
quotas in Juan in a Million, S.L.
Recently the Company has not been doing very well and unfortunately has not been able to pay
all its creditors, among them, Woody, S.L. Therefore, Woody, S.L. is suing both the Company and
the Sánchez family for the due and unpaid amounts payable under the Wood Supply Agreement,
alleging that the Company should be held jointly and severally liable with its shareholders, and
therefore Mr. Sánchez and his family should be held jointly and severally liable for the Company’s
due amounts.
In turn, Juan in a Million, S.L., the Company and the Sánchez family are being sued by the Bank
due to Juan in a Million, S.L.’s default of its payment obligations under the Loan Agreement. The
Bank alleges that the Company and the Sánchez family fully own and control Juan in a Million,
S.L, therefore, they must be held liable for Juan in a Million, S.L. debt’s
In light of the latter, Mr. Sánchez reached out to Fabric, S.L. to invite it to invest in the Company.
Fabric, S.L. is a company dedicated to the production of fabric and tapestry business. The CEO
of Fabric, S.L. conveyed to Mr. Sánchez that (i) due to liquidity issues, Fabric, S.L. did not have
cash to pay for the shares in the Company, but, if the Company granted Fabric, S.L. a loan to
acquire the shares in the Company it would be willing to pay high interest to the Company during
the next two years and (ii) in the alternative, Fabric, S.L. would be willing to contribute part of it
tapestry business, which he believed would definitely be able to create synergies with the
Business. In turn, Mr. Sánchez, knowing that the Fabric, S.L. had liquidity problems, tried to
secure a loan to acquire the tapestry business in his personal capacity, so that he could, among
others resell fabric to the Company and “refloat” the business.
In light of the above, Mr. Sánchez’ youngest son, Juan, very frightened by Woody, S.L. law suit
requests the Company and his sister and parents to give him back the Juan in a Million, S.L.
quotas -or an equivalent amount in cash- he paid into the Company upon its incorporation in
return for his shares, and if they fail to do so, he will sue them.
Moreover, Susana is interested in entering into a loan agreement with the House Bank, N.A., to
which she has offered as security a mortgage over the Plot of Land and a pledge over her shares
in the Company and the number of quotas in Juan in a Million, S.L. that she says correspond to
her pro rata her participation in the Company.
Last week, Mr. Sánchez approached you as his attorney, and requested you to prepare an e-mail
analyzing the following from a corporate law perspective: (i) the risks the Company, Juan in a
Million, S.L. he and his family might be facing; (ii) if Susana can offer the security package detailed
above to House Bank, N.A.; (iii) if he could acquire the relevant business from Fabric, S.L. and
(iv) from a legal perspective, what would be preferable for the Company, either to grant the loan
to Fabric, S.L. or to have Fabric, S.L. contribute the tapestry business.
* * *
Groups: 2 pers.
Due date: 27 February 2022.
Max. extension: 1,300 words. Please write down the word count
Format: font Arial, size 10, 1.5 line spacing

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