Directors' Liability in Spanish Companies: When Personal Assets Are at Risk

# Liability of Company Directors in Spain

The principle of limited liability for shareholders in S.A. (Sociedad Anónima, public limited company) and S.L. (Sociedad Limitada, private limited company) does not extend to directors, who may be held personally liable with their own assets when they engage in certain conduct. The relevant rules are found primarily in the Real Decreto Legislativo 1/2010, of 2 July, approving the consolidated text of the Ley de Sociedades de Capital (LSC) (Spanish Companies Act), in Articles 225 to 241 bis.

Fiduciary Duties of Directors

Duty of Care (Art. 225 LSC)

A director must perform their role with the diligence of an orderly businessperson, acting in an informed manner, with adequate dedication, and adopting the measures necessary for the proper management and oversight of the company. The LSC incorporates the Business Judgment Rule (Art. 226 LSC): good-faith business decisions made with sufficient information and without personal interest are not subject to judicial review.

Duty of Loyalty (Art. 227 LSC)

A director must act in the best interests of the company, placing the corporate interest above their own. Specific duties include:

• Not using company assets for private purposes.
• Not obtaining benefits not provided for in the company's articles of association.
• Not taking advantage of the company's business opportunities.
• Acting independently with respect to related third parties.

Breach of the duty of loyalty gives rise to civil liability and obliges the director to return any benefit obtained (Art. 227.2 LSC).

Liability for Damages (Arts. 236–241 LSC)

Directors are liable to the company, shareholders, and third parties for damages caused by acts or omissions contrary to law or the articles of association, or by acts carried out in breach of the duties inherent in their office. Liability is:

• Joint and several among all members of the board of directors, except those who prove they did not participate in adopting the relevant resolution or expressly opposed it.
• It persists even after the director's removal if the damage was caused during their term of office.

Derivative Action (Art. 238 LSC): Acción social de responsabilidad

This action may be brought by:

1. The company itself (following a resolution of the General Meeting, Art. 238).
2. Shareholders representing at least 5% of the share capital (Art. 239 LSC), if the company fails to bring the action.
3. Company creditors when the company's assets are insufficient to satisfy their claims (Art. 240 LSC).

The limitation period is 4 years from the date the claimant became aware of the relevant facts.

Direct Action (Art. 241 LSC): Acción individual de responsabilidad

Any shareholder or third party may bring this action directly against a director when the director's acts directly harm their interests. No shareholder resolution is required. The damage must be direct to the shareholder's or third party's assets, not indirect damage sustained through harm caused to the company.

Joint and Several Liability for Company Debts (Art. 367 LSC)

This is the most frequently invoked basis of liability by creditors. Directors are jointly and severally liable for company obligations arising after the occurrence of a statutory ground for dissolution, where:

1. A ground for dissolution exists (Art. 363 LSC):

- Reduction of share capital below the statutory minimum.

- Inability to achieve the corporate purpose.

- Deadlock among corporate bodies.

- Other grounds set out in the articles of association.

1. The director fails to convene the General Meeting within 2 months to adopt a resolution for dissolution (or to remedy the cause).

1. The director does not petition for judicial dissolution within 2 months of the date on which the meeting was due to be held, if the meeting does not take place or does not adopt the relevant resolution.

Scope of liability: the Tribunal Supremo (TS) (Spain's Supreme Court) has clarified that directors are liable for all debts arising after the ground for dissolution occurred, not only those incurred while they were in breach of their duty to convene the meeting. The creditor need only prove the existence of a dissolution ground and that the debt arose after it.

Insolvency Liability (Arts. 455–475 TRLC)

In the context of insolvency proceedings (concurso de acreedores), if the insolvency is classified as culpable (due to the director's wilful misconduct or gross negligence), directors may be ordered to:

• Cover the insolvency deficit (the difference between total liabilities and realised assets).
• Be disqualified from managing third-party assets or representing any person for a period of 2 to 15 years.
• Return any assets or rights obtained improperly.

Directors & Officers Liability Insurance (D&O)

Companies may take out a D&O (Directors & Officers) insurance policy to cover the civil liability of their directors and senior managers against third-party claims. This is particularly advisable for companies with significant debt, high levels of shareholder conflict, or exposure to environmental or employment-related liability. The policy does not cover wilful misconduct or administrative fines.

Conclusion

Director liability is an area of frequent litigation, particularly in situations of insolvency or shareholder conflict. The key is to act with due diligence, document decisions taken, and be fully aware of the deadlines for convening the general meeting when a ground for dissolution arises. A director who acts too late may find themselves personally liable for company debts that far exceed their own assets.