It happens all too often that a client wants to claim a debt, when he realizes that the debtor has “disappeared from the map”. It is common for debtors to abandon their firms (usually SLs) and think that this will save their personal assets, frustrating their creditors.

The Law offers us a possibility with which this office has already had several favorable rulings. There is the possibility of individual liability action by company directors for company debts, which is provided for in Article 367 of the Law on Corporations (hereinafter LSC) for not dissolving the company, with the cause for dissolution provided for in Article 363 LSC

Art. Article 367 of the LSC provides that “Administrators who do not comply with the obligation to call a general meeting within two months to adopt a resolution of dissolution shall be jointly liable for the obligations of the company subsequent to the occurrence of the legal cause for dissolution, as well as the directors who do not request the judicial dissolution or, if applicable, the bankruptcy of the company, within a period of two months from the date scheduled for the meeting, when the meeting has not been constituted, or from the day of the meeting, when the resolution would have been contrary to the dissolution”.

Articles 238 and 241 of the LSC regulate the individual and corporate actions of the administrators.

Art. 241 LSC provides for an individual action of liability of the administrators by the shareholders and third parties, which aims at restoring the individual assets of the shareholder or third party (in this case the creditor, whose legitimacy is recognized by the Supreme Court’s rulings 21/09/99, 30/01/01, 30/03/01 and 28/10/02, among others) who has been damaged by a culpable act and omission of an administrator of a capital company.

Case law has established as specific elements of liability for the active or passive conduct of the director, among others, the de facto disappearance of the company, without using the appropriate legal channels, since this party is unable to pay all or part of its claim. In this respect, the judgments of the SC of 4/11/91, 22/04/94, 19/04/01 and 5/11/03

“The Supreme Court ruling of 30/12/02 states that “by virtue of the action of individual liability (articles 133.1 and 135 LSA), the administrators of the company will respond to the creditors of the company for the damage caused by acts contrary to the Law, or to the Articles of Association, or by those carried out without the diligence with which they should carry out their duties, which is measured in an objective manner in accordance with the standard, or pattern of behaviour, of which an orderly businessman should observe”.

The elements of this liability, as is traditional in civil liability, are three: concurrence of damage, fault or negligence and the causal relationship between the two; included among others, in the Supreme Court Rulings of 21/05/85 and 25/11/02.

These elements are as follows:

1. Damage: Whoever suffers the damage in the case of individual action is the holder of the injured interest, which can be the partners or third parties, including within these both the creditors injured by the acts of the administrators, and other persons, since the concept of “third party” within this article, must be understood in contrast to that of partner.

2. Act detrimental to the directors in the exercise of their office: Includes both positive action and omission, provided that there is a duty to act. The typical case is that the omission is a breach of Art. 367 LSC, which imposes on the administrator the obligation to call a general meeting to adopt the resolution of dissolution within two months of the occurrence of the cause for dissolution (duty to act).

3. The administrator’s act must be unlawful: the unlawfulness of the act may result:

– Failure to comply with legal or statutory provisions, or

– Of the simple fault in their actions due to lack of the general diligence with which they should carry out their duties.

In the usual case of companies that abandon themselves to their own fate, this unlawfulness derives from simple negligence for omission of their duties and for acts carried out without the diligence of an orderly businessman (Art. 225.1 LSC).

In the case of fault or negligence in the actions of directors, any type of fault is sufficient (Articles 1089 and 1902 of the Civil Code, applicable in this area as expressing the general principles of our system). Negligence in this area is defined by the regulatory concepts contained in Article 225.1 of the LSC, according to which the diligence required of the director is that of “an orderly businessman”.

4. Causal relationship between the administrator’s unlawful act and the direct damage suffered by the partner or third party: The production of the damage to the third party’s assets must be a direct consequence of the act attributed to the administrators.

In the case that this action has given rise to, it has been considered that there is a relationship of causality in the injury suffered by the actors with the “direct” character required by Art. 367 LSC in cases of lack of notice of a meeting to adopt a decision to carry out the company’s liquidation, which although it does not necessarily determine any patrimonial damage for the company itself, it does definitively spoil the creditor’s right to make his credit effective in accordance with the principle of universal patrimonial responsibility enshrined in Art. 1911 of the Civil Code.

The Supreme Court ruling of 30/12/02 states that “by virtue of the individual liability action (articles 133.1 and 135 LSA), the company administrators will be liable to the company creditors for the damage they cause by acts contrary to the Law, or to the Articles of Association, or by those carried out without the diligence with which they must perform their duties, which are objectively measured in accordance with the standard, or pattern of behaviour, of which an orderly businessman must observe (article 127 of the Law on Corporations).

This is a compensation action that assists third parties for the acts of the directors that directly harm their interests. The jurisprudence (sentences of 21/09/99, 30/03/01, 10/11/01, among others) configures it as a compensatory action for which third parties are legitimated (and among them the social creditors) that demands a conduct or attitude – done, acts or omissions – of the directors contrary to the law or the Articles of Association, or lacking the diligence of an orderly businessman – simple negligence being enough -, which gives rise to a damage, so that the injured shareholder has to prove (judgments of 21/09/1999, 30/03 and 27/07/01; 25/02/02) that the act was performed in the capacity of a director and that there is a causal link between the acts or omissions of the director and the damage caused to the plaintiff (judgments of 17/07, 26/10 and 19/11/01 and 14/11/02)’.

However, in addition to this liability due to fault, the current LSC includes other cases of joint and several liability of directors for corporate debts in cases of breach of the obligation to dissolve the company (Art. 367 LSC). All these actions are different in nature, requirements and effects, and nothing prevents a company creditor from choosing one or the other or even from accumulating them.

As pointed out by the Supreme Court in its ruling of 22 December 1999, the liability of directors, which is established in article 367 LSC, contains a special regime compared to the content of articles 236 and 241 of the same legal text; a special regime based on the aim pursued by the legislator of preventing companies in dissolution proceedings from continuing to operate in the commercial trade due to the failure of the directors to fulfil their obligation to promote the resolution of dissolution.

The legal mechanism for the application of these precepts consists of several elements:

Firstly, the establishment of causes for the dissolution of the company, which require the agreement of the General Meeting, such as the cessation of the activity or activities that constitute the corporate purpose, the manifest impossibility of achieving the corporate purpose, the paralysis of the corporate bodies in such a way that it is impossible for them to function, losses that reduce the net worth to an amount less than half of the share capital

Second – The admission of judicial dissolution when the Board does not agree or does not remove the case.

Third – The establishment of different obligations for the directors to achieve the dissolution of the company in the cases foreseen:

– To call a General Meeting within two months to adopt the resolution of dissolution

– apply for judicial dissolution when the agreement is contrary to the dissolution or cannot be achieved

Fourthly, the imposition of a strict penalty consisting of joint and several liability for the company’s debts, when the directors fail to comply with the above-mentioned duties.

The Supreme Court attributes to this responsibility the character of a penalty, and therefore, for it to arise, only the existence of the cause for dissolution and the non-compliance with the legal obligations of the administrators is required (Supreme Court rulings of 12/11/99, 22/12/99, 29/04/99 and 18/07/02).

In short, there are many judgments that are condemning the administrators of companies with debts that simply abandon them to their fate.

(Martín de la Herrán)