Many companies in difficulty keep operating without noticing that the law imposes a duty to react on their directors. If it is not met, the risk stops being the company's and becomes personal. The rule is in articles 363, 365 and 367 of the Spanish Companies Act (Ley de Sociedades de Capital).
The ground for dissolution
Article 363.1.e establishes as a ground for dissolution losses that reduce net equity to less than half of the share capital. The rule excepts cases where capital is increased or reduced enough and where insolvency proceedings need not be requested. Net equity is measured from the accounts, so up-to-date bookkeeping is the first control tool.
The duty to react
Under article 365.1, directors must call the general meeting within two months from when they knew of the ground for dissolution, or could have known, so that it adopts the appropriate resolution. If the meeting is not held or reaches no resolution, they must ask the court for dissolution. Article 365.3 provides an exception where insolvency has been requested or negotiations with creditors have been notified.
Joint liability
If they fail to comply, article 367.1 makes them jointly liable for the company obligations arising after the ground for dissolution. Article 367.2 adds an important presumption: unless proven otherwise, the claimed obligations are presumed to be later. The director must show that they were earlier, which makes it necessary to keep documents.
This liability coexists with the action under article 236, which presumes fault when the act is contrary to the law or the statutes, and which is not excluded because the meeting adopted the resolution. Liability actions become time-barred after four years under article 241 bis.
What to do in practice
- Review net equity against half of the capital at each quarter end.
- Document the call to the meeting and the resolution adopted.
- Assess with an adviser a capital increase, a reduction or an insolvency filing.
Acting in time usually costs less than defending yourself after a creditor claim. If the company doubts whether the ground exists, the prudent course is to close the accounts quickly and put the analysis in writing, because that document will be the best proof of diligence.
This article is general information on Spanish law and not personalised advice. Contact us to discuss your case.
Carlos Babot Horcajadas
Lawyer admitted in Málaga, no. 10.971. Partner at Babot Aranguren Abogados. More about the author.