Directors’ Duties in Spain

>> Liabilities and Penalties in Spain

Exercise your responsibilities carefully as the penalties for failure to do so can be severe.

You may be held liable by the company and any creditors of the company for any damage caused by your act or omissions against the law or bylaws of the company, or as a result of breach of any other duties as a director inherent to your position.

The liability of directors cannot be restricted or limited. Under no circumstances will the fact that the harmful action or resolution adopted was authorised or ratified by the General Meeting of Shareholders constitute exoneration from liability.

All members of the governing body adopting the detrimental decision or performing the respective act shall answer jointly and severally, unless they prove that having taken no part in its adoption or implementation, they were unaware of its existence or, if aware, took all reasonable measures to prevent the damage or at least voice their objection thereto.

Special care should be highlighted in the following two cases in which personal liability  can arise for directors:

  • Insolvency liability: particular care needs to be taken if the company is in financial difficulties or in a situation where it should be applying to enter a formal insolvency procedure (concurso de acreedores). In simple terms, if a director allows a company to continue to trade where it is not in a position to pay its debts as they fall due, civil (and potentially criminal) liabilities can arise by making it mandatory for insolvent companies to file for voluntary insolvency within two months from the date upon which

they become aware (or should have become aware) of the insolvency. This may result in the director being held personally liable for debts of the company and the Insolvency Act allows for preventive seizure of the personal assets of a director in certain cases in which the insolvency is likely to be declared “fraudulent” (the seizure of assets not only belonging to the existing directors but also to persons having held the position of directors up to two years before if found guilty).

  • Capital impairment: when carried forward losses reduce the company’s net equity to a figure equal to less than half the amount of its share capital, directors must propose to the shareholders to implement the relevant measures to cure the impairment situation.
  • Directors are liable for damages arising from their actions or omissions against the law, the bylaws of the company or for those done without the due diligence required for a director. Therefore, to find a director liable, it is required that the following are found: (i) action or omission, (ii) damage (iii) gross negligence or wilful misconduct (iv) cause and effect relationship (v) evidence of the above.

Criminal liability

When an infringement is carried out by the company and is qualified as a criminal offense, then the liability for such criminal offense will  be in principle of the directors.

Certain infringements of the Spanish 15/1999 Data Protection Act may qualify as criminal offences, carrying up to seven years of prison and/or to twenty-four months of penalty (the daily penalty being fixable in a range of €2 to €400) for offenders.

Either the breach of duty itself, or the imposition of one of the sanctions described above, may lead to disciplinary action being taken against you and/or limitations upon you being able to continue in your role

Corporate Companies Act establishes two kinds of actions based on directors’ liability:

  1. Corporate action (“acción social”): an action brought by the company through its shareholders which shall be approved by a general shareholders’ meeting. The approval of the corporate action by the shareholders implies the automatic cessation of the directors involved.
  2. Individual action (“acción individual”): an action in tort brought by any shareholder (if the corporate action is not approved), creditors or other damaged third party.

The statute of limitation for these actions is 4 years counting from the date on which it could have been brought.

Furthermore, directors may also be liable for criminal offences as stated in the Spanish Criminal Code in case they commit any of the criminal offences included therein (eg falsification of annual accounts or corporate documents or the imposition of abusive resolutions for his or her own profit). If the director is found guilty, he or she may be punished with imprisonment and/or a fine.

Limitation of liability

The directors and the company may enter into private agreements by which the director may be compensated for any liability which has arisen from their duties as director. This is provided that the director has not committed any misconduct or unlawful act. However this is no common practice in Spain, D&O insurance being preferable.

Delegation of authorities

Your duties can be delegated to another board member or other individual by way of a power of attorney, however non-delegable duties under Spanish law or the company’s by-laws may not be delegated. Delegation of your duties does not affect your liability as a director.

Directors and officers (“D&O”) insurance

Most policies cover alleged wrongful acts that have taken place prior to or during the policy period, having a single aggregate limit of liability that applies for all claims that fall within the terms of the policy.

Latest version updated 10th April 2018

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