{"id":1092,"date":"2026-10-02T10:15:00","date_gmt":"2026-10-02T08:15:00","guid":{"rendered":"https:\/\/www.controlaudit.es\/?p=1092"},"modified":"2026-10-14T09:39:53","modified_gmt":"2026-10-14T07:39:53","slug":"auditor-report-capital-increase-debt-conversion","status":"publish","type":"post","link":"https:\/\/www.controlaudit.es\/en\/blog\/auditor-report-capital-increase-debt-conversion\/","title":{"rendered":"Capital increase by offsetting receivables: the auditor’s report under art. 301 LSC"},"content":{"rendered":"
In brief<\/b>In a capital increase by offsetting claims against the company, art. 301 of the Spanish Companies Act (LSC) always requires a directors’ report on the claims. In a public limited company (sociedad an\u00f3nima, SA) it also requires a certificate from the statutory auditor confirming that, having checked the accounting records, the information given by the directors is accurate. If the SA has no auditor, one is appointed by the Companies Register at the directors’ request.<\/div>\n

Converting shareholder loans or debts owed to creditors into capital strengthens equity without any new cash coming in. It is common in family businesses financed for years with shareholder loans and in restructurings. The transaction has its own requirements under the Spanish Companies Act (LSC), and in an SA the auditor’s involvement is mandatory even if the company is not required to have its accounts audited. To find out when a company is required to have its annual accounts audited, see our guide to mandatory audit in 2026<\/a>.<\/p>\n

What capitalising debt means<\/h2>\n

In a capital increase by offsetting claims, the creditor contributes neither cash nor assets. It contributes the claim it holds against the company, which is extinguished in exchange for new shares. The accounting effect is twofold: liabilities decrease and equity increases in the same transaction.<\/p>\n

That is why the transaction is usually considered when equity has deteriorated. If losses reduce equity to below half of the share capital, the company falls into a ground for dissolution, unless it increases or reduces its capital sufficiently and provided that it is not required to file for insolvency proceedings (concurso de acreedores) (art. 363.1.e LSC). Capitalising debt is one of the ways to restore that balance, although not the only one, and it should be analysed together with the viability of the business.<\/p>\n

As for the accounting treatment, art. 33 of the Resolution of 05\/03\/2019 of the Spanish Institute of Accounting and Auditing (ICAC), the national audit oversight authority, establishes that the increase in equity is recognised at the fair value of the debt cancelled, and the difference from its carrying amount is recognised as a finance gain or loss. The ICAC has applied this in query 1 of BOICAC 127.<\/p>\n

Requirements for an SA and an SL<\/h2>\n\n\n\n\n\n\n\n\n\n\n
Requirement (art. 301 LSC)<\/th>\nPrivate limited company (SL)<\/th>\nPublic limited company (SA)<\/th>\n<\/tr>\n<\/thead>\n
Quality of the claims<\/td>\nFully liquid and due and payable<\/td>\nAt least 25% liquid, matured and due and payable; the remainder maturing within no more than five years<\/td>\n<\/tr>\n
Report of the management body<\/td>\nMandatory<\/td>\nMandatory<\/td>\n<\/tr>\n
Statutory auditor’s certificate<\/td>\nNot required by art. 301<\/td>\nMandatory<\/td>\n<\/tr>\n
Made available to shareholders<\/td>\nDirectors’ report, from the notice of meeting<\/td>\nReport and certificate, from the notice of meeting<\/td>\n<\/tr>\n
Statement in the notice of meeting<\/td>\nRight to examine the report and to request that it be delivered or sent free of charge<\/td>\nRight to examine the report and certificate and to request that they be delivered or sent free of charge<\/td>\n<\/tr>\n
Attached to the public deed executing the increase<\/td>\nDirectors’ report<\/td>\nReport and certificate<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

The directors’ report must describe the nature and characteristics of the claims, the identity of the contributors, the number of shares to be created or issued and the amount of the increase. It must also state expressly that the information on the claims agrees with the company’s accounting records (art. 301.2 LSC).<\/p>\n

What the auditor certifies<\/h2>\n

In an SA, the company’s statutory auditor certifies that, having checked the company’s accounting records, the information provided by the directors on the claims to be offset is accurate (art. 301.3 LSC). In practice, the work focuses on checking, among other things:<\/p>\n