22 Feb Corporate directors, duties, responsibilities and assumptions of non-compliance.

In this post we are going to talk about one of the most important figures related to the world of the company. It is about the directors of the capital companies. We can define them as if they were figures in charge of acting in the name and representation of society, managing the common operation of this.

Their work is of paramount importance and is necessary for society to develop the corporate purpose established in its bylaws. Regarding the way of organizing society, the Corporate Capital Law (hereinafter, “LSC”) provides us with different options from a single, severally or joint administrator to the Board of Directors.

One of the aspects that the most recent legislation and ruling cases is trying to improve is that related to good governance and companies administration. That is why the latest amendments to the Law on Capital Companies and the Criminal Code are aimed at defining their duties on the one hand and on the other to guarantee actions or remedies against cases of mismanagement, both in the commercial and criminal spheres.

What are the duties of the administrators of the capital companies?

It is evident that directors, in as much as they hold executive power in society, have a certain discretion when it comes to acting. But if they do not want to be led to claims by partners, creditors, etc. he has to abide by the duties set out in the LSC.

We find here a first large group of duties, specifically we speak of those expressly included in the LSC; we talk about:

(i) the general duty of diligence,

(ii) act with due diligence,

(iii) the duty of loyalty, and

(iv) the duty to avoid situations of conflict of interest with related persons (family members, companies owned by the administrator, etc.).

Secondly, we find the obligations emanating from a source different from the law itself, such as those that have been expressly included in the statutes by the parties and also those that may have been included in social pacts.

Will any breach of duties result in liability on the part of the administrators?

The answer is negative. To find within the assumption of responsibility is necessary a series of requirements included in the LSC itself, specifically

(i) there should be damage to the company itself, partners or third parties,

(ii) there must have been a breach of duty (both actions and omissions),

(iii) causal link between the damage caused and the breach produced and

(iv) the damage has to be quantified economically.

Regime of responsibility of the administrators.

If the above circumstances are met, we can be under the assumptions of personal liability that the LSC expressly provides for the figure of administrators.

It is a severe liability regime, in which a small oversight by managers can lead them to get into a big problem. The LSC, aware of this situation, decided to grant a certain degree of “flexibility” in this section, including a series of assumptions that may give rise to exemption from liability as long as the requirements contained in the law itself are expressly complied with.

In principle, as long as they act diligently and respecting their duties and obligations, the administrators will NOT respond for acts or debts of the company. However, this situation can be turned against you if you have not acted correctly, civil and even criminal consequences may occur, with a significant risk to your personal assets.

Hence, the importance of administrations knowing their functions and obligations in accordance with the Law, the Articles of Association or bylaws, as the case may be, those derived from Partner Agreements.

The responsibility in the commercial sphere includes a triple perspective, since they respond in front of their culpable or fraudulent actions in front of:

-the society itself,

-the partners,

-the creditors.

As a result, the 3 are entitled to file so-called liability actions against social managers.

But we cannot forget the criminal plane either. Recently the corporate crime has been repealed but the crime of unfair administration has been reformed, which is applicable to social administrators and which persecutes those who administering other assets that cause economic damage in the same exceeding their powers.

In Navarro Llima Abogados, we have a team of lawyers specialized in commercial law, willing to offer the corporate advice they need to be able to shield themselves from situations such as those discussed in this article.

Javier Navarro & Héctor González

Lawyers