Director Liability under Article 367 of the Spanish Companies Act (LSC): Key Legal Points

Limits on the Liability of a Newly Appointed Director under Article 367 of the LSC

One of the main concerns for those who take on a position on a company’s board of directors is understanding the legal responsibilities that come with the appointment, especially those that may affect their personal assets. Among directors’ liabilities, the current Spanish Companies Act (Ley de Sociedades de Capital, LSC), in Article 367, establishes the joint and several liability of directors in cases where the orderly dissolution of the company is not initiated when the legally established grounds are met, such as those set out in Article 363.1(e). These grounds include situations such as losses that reduce net equity below half of the share capital, unless the share capital is increased or reduced accordingly, or insolvency proceedings are filed for. In such cases, the company’s creditors may bring joint and several claims against directors who fail to comply.

The recent Supreme Court ruling

The First Chamber of the Supreme Court, in Judgment No. 601/2019 of November 8, 2019, sheds light on how this liability should be interpreted. The case concerns a director who was appointed when the company was already in a dissolution situation due to losses, without the previous director having promoted the dissolution or liquidation. The question was whether the new director is liable for debts incurred between the moment the grounds for dissolution arose and the date of their appointment.

The judgment establishes that the new director has a two-month period to initiate dissolution proceedings or file for insolvency, and will be jointly and severally liable for company debts incurred after their appointment if they fail to meet this obligation. However, they are not held liable for debts that predate their appointment or those incurred after they step down.

Debts before and after the appointment

The Supreme Court concludes that the director’s liability is limited to debts arising during the period in which they hold office and while the company remains in a dissolution situation. Therefore, a newly appointed director is exempt from liability for debts incurred prior to their appointment and for debts generated after their resignation or removal.

Conclusion

If a director acts diligently by initiating dissolution proceedings or filing for insolvency upon confirming the company’s equity imbalance, their liability will be limited. This includes being released from debts incurred before their appointment and avoiding liability for debts incurred afterward, provided they comply with their legal obligations.