The responsibility of administrators of insolvent companies in Spain
The responsibility of administrators of insolvent companies in Spain
The economic crisis has increased the number of small and very small businesses disappearing day after day from the market and leaving an enormous variety of unpaid credits, without the legal dissolution established and without announcing a creditor's meeting. Frequently, the firm headquarters are closed and the administrator (usually also partner of the firm) disappears. In these cases, the judicial sentences admitting the debts with interest and expenses become impossible to enforce as there are no assets. Sometimes administrators act in bad faith, but in occasions their conduct is a simple fact of ignorance of the responsible management of the company. They stop paying their economic and legal consultants and leave the company.
It is therefore of great interest to know the legal ways to state the responsibility of these administrators in Spain.
The Law of the Public Limited Companies (also applicable to Limited Corporations) anticipates a legal action for damages (art. 135 LSA) in order to fight the damages caused by administrators to partners or creditors of the company.
This damage is normally caused by some actions or omissions in conflict to the laws or the articles of association or, in general, by all those performances carried out without the diligence of an "organized businessman".
In this case we must first of all prove the relationship between the behaviour of the administrator and the damage produced.
But there is a more interesting legal action ruled by art. 262.5 of the Public Limited Company Law and art. 105.5 of the Private Limited Company Law. In this case it will not be necessary to prove the administrator's guilt or the cause-effect relationship between the unpaid debt and the administrator's performance. Both Laws (Public and Private Limited Companies) consider the event of the dissolution of the company. If the Administrator does not get the dissolution arranged when there is a legal cause, he will be considered responsible for not wounding up the company as established by the law. Spanish jurisprudence states the responsibility in these cases.
Likewise, due to the non-payment of the company consultants, it is not unusual that the company stops presenting the annual accounts at the Mercantile Registry. As the annual accounts are not presented the register of the company is closed. The law even considers fines in these cases. Obviously, the lock of presentation of the accounts damages the company and the related people involved.
The disappearance of the company just like that from the mercantile life causes the fraud of the creditors' rights who were deprived of a legal process of dissolution and liquidation of the company.
The final conclusion is that, in case that the dissolution is not carried out (art. 262.5 Public Limited Company Law and art. 105 Private Limited Company) the Administrator is hold responsible of the company debts with his own personal assets:
- If he doesn't call the General Meeting in case of dissolution or
- If the General Meeting did not reach an agreement and the administrator did not ask for it to the Judge.
The causes of dissolution for Private Limited Companies are the following ones:
- Completion of the company object or the impossibility of carrying through the target of the company or the standstill of the organs of the company so that it can not operate any more.
- Lack of activity during three consecutive years.
- Losses that reduce the countable patrimony to less than a half of the share capital.
- Reduction of the share capital to less of the legal minimum.
- Causes considered in the articles of the association.
- Bankruptcy, when stated by the judge
For Public Limited Companies, the causes are almost the same.
Regarding the new Spanish creditor legislation, administrators are given the option to start the creditor's meeting or ask for the liquidation of the company. This legislation includes the possibility of starting the bankruptcy guilty. If a company can not fulfill its commitments, the administrators must apply for the creditor's meeting within two months after learning about the insolvency. That is why it is said there was "dolo" or serious fault from the administrator of the company that entails the sentence of the administrators in relation with the part of credits unpaid.
The creditor's meeting Law includes some cases where the responsibility of the administrators is presumed.
Therefore, there are many legal ways to persecute the administrator if he did not act as a "tidy businessman" but if the administrator has hidden his own patrimony with fraudulent businesses as a separation of property with his wife or sales to his closer relatives? Then, the answer is the Criminal Code that encloses the offenses called "punishable insolvencies". This matter should be base of a subsequent article, about criminal law.
My conclusion is that in Spain there are enough legal mechanisms to persecute these behaviours and protect creditors' rights.
The Marina Alta, Costa Blanca, Spain Tarazona, Spain The Truth Behind The Overseas Property Spain From Colordarcy Investment Where is the pain in Spain? A break apartment rental in Spain's breathtaking region the Costa Brava Spirits In Spain To 2014 How to Choose a Property in Spain Adventures in Spain Attractive National Parks in Spain Bullfighting Ban in Spain Viva Barcelona! The 7 Wonders of Barcelona, Spain Do not put up with pain in Spain when you need to send a parcel Amazing Destin Ations In Spain