Corporate administrator responsibility with expired position

The administrator with an expired position is responsible for company debts if, after the position expires, he continues as a de facto administrator

Regarding the responsibility of administrators in cases of harmful administration in which de facto and legal administrators coexist – it is proven that the formal appointment had in order to evade the responsibility of who really had control and management of the company under the cover of the power of attorney-, the jurisprudence (relevant to the Supreme Court Judgment of December 4, 2012) had been appreciating that it should respond of the damages derived from said harmful administration (for example, breach of tax obligations) the administrator of law, that is, he formally designated as such.

This position, maintained for years by a part of the jurisprudence, has not been accepted by the Sentence, nº 273/2016, of July 8, 2016 of the Sect. 28th of the Provincial Court of Madrid in a case with characteristics similar to the one announced -existence of a de facto administration in charge of a company.

In the aforementioned litigation, the company administrator opposes the liability claim filed by a company creditor (claiming the damages caused by having allowed the disappearance by way of fact of the entity managed by the defendant, preventing the collection of the social debt) alleging her dismissal from the position of administrator and, therefore, the inadmissibility of responding to subsequent social events (subsequent judicial sentences). The Court maintains that this information is not decisive, since the defendant is accused of having remained in office exercising the de facto administration of the entity.

In this sense, the Court indicated that the responsibility incumbent on the corporate administrator, whose appointment has expired or who has ceased for any reason as legal administrator, continues to be required if the latter maintains the status of de facto administrator.

The Court establishes that for the appreciation of the administration in fact it is necessary that there are indications that allow us to deduce that, despite the fact that the administrator in question does not hold the status of formal administrator or by law, it persists in the performance, even de facto, of the power of direction and management inherent to the function of administrator.

As we can see, permanence, after a formal termination, in the exercise of functions that imply an effective and constant control of the progress of the company, means attributing to the administrator sued for the status of administrator in fact and, therefore, the same responsibilities apply to the administrator by law.

For this purpose, special reference should be made to the Sentence of March 11, 2010 of the Supreme Court in which, based on other jurisprudential precedents, defines certain actions that can be taken into account to be able to deduce if the performance of the position has persisted.

For example, carrying out the pertinent actions for the intervention of the company in legal proceedings open against it, as was the case in the case in which the defendant made the decisions necessary for the legal defense of the company in the preceding lawsuit (personal appearance and decision to file an appeal).

Likewise, in its judgment the Court made a series of points of interest:

• The concurrence of a de facto administrator responsible for harmful administration of the company is especially clear when the formal appointment of a new administrator is missing and there is clear evidence that the person who had been performing the position is the one who materially continues to make the decisions.

• This imputation of liability operates equally in cases in which the liability action brought is individual (art. 241 LSC) and in those in which liability action is exercised for corporate debts (art. 367 LSC ).

In short, as a result of the ruling of the aforementioned Provincial Court, it can be interpreted that the administrator with an expired or dismissed position is responsible for company debts if, after the position has expired, , continues to exercise de facto the functions inherent to all corporate administrators (management, management and control of the company).

12/09/2016