Directors will be liable for unlawful actions or omissions which cause damage to the company, provided that there is sufficient causality between the action and/or omission and the damage. Directors are also liable if they do not dissolve or request the insolvency of the company when they should do so. Directors are jointly and severally liable, unless they can prove that they were not aware of the decision or act causing the damage, or that despite being aware of it, they did everything in their power to avoid the damage or expressly opposed such unlawful decision or act. Not only de jure directors but also de facto and shadow directors could be declared liable. The legal representative of a legal person acting as a director of the company will be jointly and severally liable together with the legal person. All the duties and responsibilities characteristic to the office of director are also extended to facto directors and the managers of the company.
There are two main legal claims in relation to a director’s liability for unlawful actions: (i) corporate legal action; and (ii) individual legal action. A corporate legal action is appropriate when damage is suffered by the company, while an individual action is relevant in the event of damage suffered by shareholders or third parties. In both scenarios, the limitation period for bringing liability actions against directors is four years since action could be brought by the damaged party.
Corporate legal action
Corporate legal actions aim to recover damage suffered directly by the company as a consequence of a director’s actions or decisions. Such actions can be brought by the company itself, by the shareholders or by the company’s creditors. Exercise of legal claims by the company needs to be approved at a general meeting. Corporate legal action brought for breach of the duty of loyalty does not need to be approved by the general meeting. The resolution to bring about such a claim can be passed even if it was not stated in the agenda of the meeting. Public limited companies require a simple majority of votes of the attendees at the meeting in favour of the action. However, private limited liability companies require a majority of the attendees’ votes representing at least one third of the share capital. The by-laws cannot increase or modify those requirements.
Exercise of corporate legal action either by individuals or shareholders
The shareholders’ claim is secondary. Shareholders with legal authority to call a general meeting must exercise the liability action when the duty of loyalty is considered to have been infringed. An action can be brought in the following situations:
- if the directors have not called the general meeting required to approve the exercise of the corporate legal action of the company
- if a month has elapsed since the general meeting at which it was agreed to bring the claim and such claim has not yet been filed, or
- if the general meeting has not approved bringing the claim.
Exercise of corporate legal action by creditors
Creditors can bring a corporate legal action if neither the company nor the shareholders bring it and the company’s assets are not sufficient to pay liabilities owed to them.
The statute of limitations for corporate legal actions is four years since the action could have been brought.
Individual legal actions
These actions are personal indemnity actions which aim to re-establish the individual assets of those shareholders or third parties who have suffered direct loss to their assets as a consequence of a director’s act. In the event of illegal behaviour by a director acting as such, shareholders or a third party affected will be able to bring an individual claim against the directors themselves, separate from any claim against the company. Corporate legal claims and individual legal claims may be brought simultaneously. As with corporate legal claims, individual claims must be brought within four years since action could be brought by the damaged party.
Directors are jointly and severally liable for breach of the company’s obligations under tax legislation.
Directors may be personally found to be criminally liable for crimes defined by the Penal Code, including:
- misrepresentation of company information
- harmful abusive agreements
- taking advantage of harmful agreements agreed by fictitious majorities
- denial of rights (i.e. the information right)
- disloyal and/or fraudulent administration, and
- obstructing administrative supervision and inspection.
Liability may also arise in respect of administrative, environmental or other issues.
Liability in case of insolvency
Directors’ liability in case of insolvency is regulated under the Spanish Insolvency Act, which provides special rules for the liability of directors should the insolvency proceeding be declared tortious and the directors deemed responsible for causing or aggravating the insolvency situation. The judgment declaring an insolvency proceeding as tortious will identify the individuals - usually the directors - liable for having caused or aggravated the company’s insolvency.
Among other consequences, such a judgment could provide the following: directors being declared personally and jointly liable for any company debt not fully paid to creditors; directors being disqualified from managing a company for a given number of years; and directors losing any right that they may have against the insolvent company’s estate.
For this purpose, the Insolvency Act sets out a list of acts that can be presumed to have caused or aggravated the insolvency. Latest court decisions have cleared that the liability requires some form of proof of damages and a certain relationship between them and the directors’ acts.