The sale of TSB puts Sabadell's duty of passivity in the BBVA takeover bid to the test.

The sale of Sabadell's British subsidiary, TSB, to Santander could open another potential legal battle surrounding BBVA's takeover bid. According to legal sources, there are doubts about whether it falls within the duty of passivity that Sabadell must fulfill, despite the Catalan bank's commitment to act in accordance with the law.

Article 28 of Royal Decree 1066/2007, which regulates the takeover bid regime, establishes this principle of passivity and indicates that the board of directors of the target company must obtain "prior authorization" from the shareholders' meeting before "undertaking any action that may impede the success of the offer."

Last week, CNMV Chairman Carlos San Basilio said he had found no evidence that Sabadell had breached its obligations and considered that, if the sale of TSB goes ahead, it would be sufficient for the board to approve it.

Sabadell has stated that "any transaction would be subject to compliance with all legal obligations." Sources at the bank say that "the duty of passivity stipulates that the sale of assets must be carried out with the express approval of the board."

Divergence between the interests of directors and shareholders

However, sources assure us that the spirit of the duty of passivity is to prevent directors from using their power to block an offer for personal reasons. They say there may be a divergence between the interests of directors and those of shareholders, so the former are required to refrain from any conduct that could disrupt the free decision-making of the latter.

TSB, these sources say, could be considered a "core asset for the takeover bid," so Sabadell's board should refrain from initiating the sale. Board decisions must be based on the bank's best interests, and if the directors fail to act in this way, they "would assume liability arising from the fulfillment of their fiduciary duties," they say.

There are some elements Sabadell will need to fine-tune: the sale price must be within the market price, and the process must not be affected by urgency, which increases the risk of execution. Furthermore, it must ensure that there have been multiple bidders.

BBVA has not yet announced whether it will appeal the government's conditions.

Article 28 also states that, in the call for the meeting, the directors must include a report justifying their actions and expressing the meaning of each of their votes.

Despite its decision to move forward with the takeover bid, BBVA has not yet specified whether it will challenge the government's conditions in court.