Directors' liability for corporate debts

In accordance with the provisions of article 367 of the Capital Companies Act (LSC), the The directors of the company are jointly and severally liable for the company's debts after the legal cause for dissolution has arisen.if they are subject to compulsory winding-up proceedings, if they are do not convene the general meeting to adopt the resolution of dissolution within two months or, within two months of the date on which the meeting is scheduled to be held, if the meeting has not been convened, or of the day of the meeting if the resolution is against dissolution, they do not apply for judicial winding-up or, if appropriate, for the company to be declared bankrupt.

1. Legal grounds for dissolution

The legal grounds for dissolution are set out in Article 363 of the LSC and are mainly the following:

  • On cessation of the activity or activities that constitute the corporate purpose. In particular, the following shall be deemed to have occurred termination after a period of inactivity of more than one year.

  • On the termination of the undertaking which constitutes its object.

  • Due to the manifest impossibility of achieving the social purpose.

  • For the paralysis of the corporate bodies to such an extent as to make it impossible for them to function.
  • By losses that reduce the net assets to less than half of the share capitalunless it is increased or reduced to a sufficient extent, and provided that it is not appropriate to apply for a declaration of bankruptcy.

  • By reduction of the share capital below the legal minimum, other than as a result of compliance with a law.

  • Because the nominal value of the silent partnership units or non-voting shares exceeds half of the paid-up share capital and the ratio is not restored within two years.

  • For any other cause provided for in the statutes.

2. Deadline for convening the General Meeting

One of the main controversies that arise is the 'dies a quo' of the calculation of the two-month period that the administrator has to call the general meeting to resolve the dissolution.

In the event that the cause of dissolution is due to losses that reduce the net assets to an amount less than half of the share capital, the dies a quo from which that period should start to runaccording to a recent ruling of the Provincial Court of Valencia of 21 May 2021, is the day following the end of the business yearand not on the day following the end of the three-month period (from the end of the financial year) for drawing up annual accounts.

It is also important to note that the aforementioned judgement pronounces on another point to be taken into consideration in order to mitigate or not the liability, and that is that one of the arguments put forward by the defendant as a mitigating factor for liability was the fact that it was a small sole proprietorship. However, the hearing considered that it was precisely the fulfilment of this duty cannot be ignored and should be more stringent in a small, one-person company, which is ultimately easier to control.

3. Joint and several liability and strict liability

The liability for corporate debts referred to in Article 367 LSC is different from the individual liability action. Although in both cases the administrator is usually requested to pay a debt by a creditor, the legal regime of each of the actions is different.

In the case of liability for corporate debts, this is a type of strict liabilitywhere it is not necessary for there to be a causal link or fault on the part of the administrator, but rather that It is sufficient to prove a situation of loss or insolvency for the directors to be liable for the company's debts, regardless of whether or not they were aware of the situation.

 4. Debts after the occurrence of the cause of dissolution

As indicated initially, the liability regime for corporate debts operates with respect to debts occurring after the cause of dissolution. However, the doubt that arises in this respect is what should be understood by "subsequent debt", whether the debt that arises or is contracted after the occurrence of the cause for dissolution or whether, on the contrary, those debts that, although contracted beforehand, have their enforceability postponed to a later time, should also be included within this concept.

In this respect, the Supreme Court has ruled on numerous occasions and has taken as a reference date the date of date on which the obligation arises or is entered into irrespective of the date on which it becomes due.

Finally, it is important to note that case law has determined that directors will not be liable for corporate debts incurred when the company is in a state of dissolution, if they had ceased to hold office before that obligation had been entered intoeven if the company is in a state of dissolution.

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May 10, 2022