Spain: Enforcing Responsibility among Directors and Managers

Spain: Enforcing Responsibility among Directors and Managers

Responsibility of directors and managers of business partnerships is no doubt one of the most attention-grabbing judicial issues. A good case in point is the multitude of books and articles published on this matter, let alone vast legislation in lesser courts all the way up to the Supreme Court as far as this topic is concerned.  

This is an issue that’s always all the rage, given the responsibility of directors and managers when executing their functions. This is all by itself a major focus of concern because it demands far more efforts in crisis situations like the one both the nation and the whole world are going through right now, not to mention a number of successive legislative reforms that have been passed in a bid to enforce this responsibility. Therefore, the different sectors have always tried to somehow shun or ward off the tough burden of responsibility that gravitates on directors and managers of business partnerships.

A formula that has been and continues to be widely used when it comes to damage control in terms of those people who act as directors or managers of partnerships is the appointment of juridical societies or legal entities to execute those functions. These managing societies should tap people as mere representatives who don’t have to carry the heavy burden of responsibility as managers or directors.

Based on the current regimen, a partner or creditor who might wind up damaged by the functioning of managing societies, could seldom make a direct claim before the representative of that managing society. The latter –not the representative- is the one that deals directly with the legal entity. Common wisdom has construed that since the legal entity is the manager, that’s the one that must take on responsibility of what has been done by its representative.

However, the recent Partial Reform Bill of the Capital Partnership Act, officially published on Feb. 25, 2011 and currently under debate in the Spanish Parliament, introduces a sea change in the writing of that guideline. In fact, a new provision or article (212) has been introduced to regulate for the first time the Spanish legal order. Once it’s signed into law, this piece of legislation will regulate the regimen of the manager as a legal entity.

This article stipulates that the representative of the managing legal entity will be submitted to the same functions and will share the same burden of responsibility during the execution of his functions with the managing society.

The practical consequences derived from the introduction of this new provision affect both managing societies and their representatives that will be sharing their responsibility when dealing with people staking claims for damages caused to them. This mean the plaintiff will be entitled to stake the claim before either the managing society or its representative for all the damages they were bound to endure as a result of mismanagement or reckless disregard on the part of the manager or the director.

These normative amendments clear all doubts and doctrinal discussions around this particular issue. From now onward and whenever any bill or amendment wins passage, creditors and other people will count on just another mechanism to demand responsibility. This addition beefs up their positions and enthralls just another protective action for the sake of their own interests.

ALBERTO EMPARANZA SOBEJANO
Ph D in Mercantile Law and a consultant with CIALT Asesores Legales y Tributarios
MARTA TENA NUÑEZ.
Lawyer with CIALT Asesores Legales y Tributarios