Liability of Company Directors in Spain
By Cristina de Canals, Grup Vilar Riba
One of the main reasons for foreign companies deciding to set up a Spanish subsidiary is because it allows for clear separation of the assets of the mother company from those of the subsidiary. However, most of the directors of Spanish subsidiaries are not aware of what is involved in their position and the legal consequences of misconduct, which can be very serious for them and for their assets.
Directors’ Liability: Requirements
Directors’ liability, with regards to commercial law, means that they are liable for damages caused by wilful intent or negligence against the law, by-laws, or by breach of management duties. This means that it is not enough to comply with the “just formal” obligations that go with the management role. Directors should behave in a diligent and loyal way and must comply with the legal requirements which affect different business areas: commercial, contract, tax, criminal, employment, environmental, data protection, etc.
Consequences of Directors’ Misconduct
Directors should be aware of the fact that they could be condemned to pay, with their own personal present and future assets, for the damage their misconduct has caused. Furthermore, if the conduct is envisaged in the Spanish Penal Code, they could even be sentenced to prison.
How to Avoid Directors’ Liability
In the case of multiple directors (i.e., a board of directors) the law considers all of them jointly and severally liable. However, those directors who can prove that they did not intervene in the decision, expressly opposed it, or tried to avoid the damage, can avoid liability. Therefore, it is essential to record all this in the minutes of the board meetings in order to show evidence.
“De facto” Directors are Liable as Well
Yes, not only the formally appointed directors are liable, but also the “de facto” directors. A “de facto” director is any individual who actually manages the company, even if he/she is not formally appointed as director or performs under another position (e.g., through a power of attorney).
Who Can Claim for Directors’ Liability?
Companies’ creditors and any shareholder can do it individually when considering that a director’s management has directly harmed their interests. Also, the company itself, with previous agreement of the general shareholders meeting, can also claim against directors for the damages their misconduct has caused to the company.
Cristina de CanalsGGI member firm
Grup Vilar Riba
Advisory, Auditing & Accounting, Corporate Finance, Fiduciary and Estate Planning, Law Firm Services, Tax
Barcelona, Puigcerdà, Vic, Spain
T: +34 93 883 32 12
Grup Vilar Riba is a multidisciplinary firm that provides legal services, tax and accounting services, auditing services, and commercial consultancy services. The firm, has over 130 employees, distributed in three offices in Spain: Barcelona, Vic, and Puigcerdà.
Cristina de Canals is Senior Lawyer at Grup Vilar Riba, specialising in corporate law, international transactions, and corporate operations.
Published: Litigation & Dispute Resolution Newsletter, No. 12, Spring 2020 l Photo: basiczto - stock.adobe.com