The Supreme Court (SC) has recently issued a decision that significantly redefines the legal landscape regarding directors’ liability for corporate debts in Spain. Instead of adhering to the general and common prescription period of four years, the TS determines that this prescription period will vary depending on the specific nature of the debt in question.
When a company is in a situation of dissolution, Spanish corporate law establishes the obligation for its administrators to take corrective measures within a period of two months, either by calling a general meeting to address the situation or by notifying the Court in the event of impossibility of adopting any of these measures. Failure to comply with this obligation makes the directors jointly and severally liable for the company’s debts, allowing third party creditors to claim not only against the company, but also against the directors themselves, in accordance with Article 367 of the Capital Companies Act (LSC).
Until now, there was an intense debate as to whether the joint and several liability of the administrators prescribed four years after leaving office, according to article 949 of the Code of Commerce, or whether it prescribed in the same period from the time when the liability action “could have been exercised”, according to article 241 bis of the LSC. However, the recent Supreme Court Ruling (STS) 1512/2023 of October 31 breaks with this paradigm by establishing that neither of these two articles is applicable to the liability of Article 367 of the LSC. The statute of limitations is no longer automatically limited to four years, but is adjusted to the framework provided by law for the secured obligation.
This paradigm shift means that actions against directors for corporate debts can be barred in one year if the debt is of non-contractual origin, or extended to five years if the debt arises from a contractual obligation, as in the specific case analyzed by STS 1512/2023.
The Supreme Court’s justification for this new criterion is based, in the first place, on the consideration that, in the case of debts incurred during the dissolution of the company, the law intends to place the administrator in the position of personal guarantor of the debts. This coherent reasoning reflects the non-purely corporate nature of this liability, as had already been established in previous rulings.
Secondly, the judgment concludes that the precepts previously applied to determine the statute of limitations are not appropriate for liability for corporate debts. Article 241 bis of the LSC only applies to corporate and individual liability actions, while Article 949 of the Commercial Code would no longer be applicable to capital companies.
As a result, the Supreme Court’s ruling introduces a new scenario in which the viability or statute of limitations of a liability action for corporate debts will depend on a threefold legal analysis: the nature of the debt claimed, the applicable statute of limitations period and the dies a quo.
Ultimately, this groundbreaking Supreme Court decision will have important practical implications for both directors liable for claims and third-party creditors considering liability actions for corporate debts. By abandoning the standard four-year time limit, the ruling adopts a more flexible approach, linking the limitation period to the specific nature of the debts involved.
This legal transformation recognizes the position of directors as personal guarantors during critical situations of dissolution, equating them to guarantors. At the same time, by discarding the applicability of certain previous articles, the judgment highlights the need for a more detailed analysis to determine the statute of limitations, considering the nature of the debt, the corresponding term and the time of commencement.
Ultimately, the Supreme Court’s ruling establishes an important precedent for the balance between the protection of directors and the defense of the rights of third-party creditors in cases of liability for corporate debts in the Spanish corporate context.
B Law & Tax International Tax & Legal Advisors.
“In B LAW&TAX we specialize in international tax advisory services for both companies and individuals. If you would like to obtain further information, we would be delighted to assist you at 917817194 or at [email protected]”