Director’s Liabilities during the State of Alarm

The publication of Royal Decree-Law 8/2020 follows the declaration of the state of alarm in Spain with the purpose to alleviate the economic and social effects of COVID-19. Below we address a comparison of the modifications regarding the liability of company directors and their obligations to dissolve the company in insolvency situations. These amendments will be applicable until the state of alarm ends.

Legal Causes for Dissolution and Situation of Insolvency

Article 363 of the Spanish Companies Act establishes that there is cause for dissolution, amid others, in cases where:

  • The company has ceased the exercise of activity defined in its corporate purpose
  • The company has completed its purpose, or it has become impossible to carry out it
  • The functioning of corporate bodies becomes impossible
  • The losses have reduced the equity of the company to below half of its share capital.

On the other hand, Article 2.2. of the Insolvency Law (Law 23/2003, IL) defines the status of insolvency as that in which the debtor is not able to meet its obligations regularly.

Included Modifications

Legal Causes for Dissolution and insolvency
Spanish Companies Act Royal Decree-Law 8/2020
If there is a legal or statutory cause for dissolution, the directors must call a general meeting within a period of two months. There they will decide either to adopt a dissolution agreement or to file for insolvency (Art 365 SCA). These two months are suspended, relieving directors of the duty to call a general meeting until the end of the state of alarm, independently of whether the legal or statutory cause for dissolution occurred before or during the state of alert. (Art. 40.1).
Insolvency Law Royal Decree-Law 8/2020
The directors must file for insolvency within a period of two months, from the date on which they discovered (or should have discovered) the state of insolvency (art.5 BL). Suspension of this period, exempting company directors in a situation of insolvency of the obligation to file for it (art. 43.1).
Joint Liability of Directors
Spanish Companies Act Royal Decree-Law 8/2020
The joint liability of company directors for company debts applies when they have not fulfilled their obligation to call a general meeting within the established allotted periods (art.376 SCA) when there is a legal or statutory cause for dissolution or when the company finds itself in a situation of insolvency. If the legal or statutory cause for the dissolution of the company has occurred during the state of alarm, the directors will not have to respond to the company debts during this period. (art. 40.12).

Royal Decree-Law 8/2020 ultimately amends certain obligations and exempts directors from liability for the company’s debts in particular cases.

Saphira Mouzayek

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This article is not considered legal advice

Insolvency Law

Mariscal & Abogados specialises in providing legal counsel and assistance to both creditors and debtors on insolvency and bankruptcy proceedings in Spain. If you have a query, do not hesitate to Contact us.