The liability of company directors for failure to comply with their obligations in a timely manner is a key issue in corporate law. In cases where the company is in a dissolution cause, the failure or delay of the administrator in its obligations may result in a joint and several liability for corporate debts. In this article, we will address the implications of such liability in cases of untimely compliance and the legal risks that administrators may face in Malaga and Benalmadena.

Director’s Liability for Debts in Cases of Dissolution

The Spanish legal system imposes on the directors the obligation to call a general meeting to resolve the dissolution of the company or to remove the cause that has generated its dissolution. According to the Capital Companies Law, if the company incurs in a cause for dissolution, the administrator must act within a certain period of time (usually two months) in order to avoid the increase of liabilities for corporate debts.

Late Compliance and its Impact on Liability

The extemporaneous fulfillment of this obligation does not exempt the administrator from his liability for the debts arising in the period between the cause of dissolution and the moment in which he finally complies. This was reaffirmed in the Resolution of the Provincial Court of Madrid (21-6-24, EDJ 673740) and by the recent Resolution of the General Directorate of Registries and Notaries (RM 10/24 October 2024). Both decisions emphasize that late compliance does not annul the liability of the administrator against the debts of the company in a dissolution situation, even if the dissolution has been agreed outside the legal term. The Provincial Court of Madrid considered that, by failing to comply with the filing of the annual accounts, there was a presumption of insolvency that generated a cause for dissolution. In view of the failure to comply with his obligations on time, the administrator was held jointly and severally liable for the debts arising during that period.

What is Delinquent Performance in the Administrator’s Liability for Debts?

Compliance with the obligation to call a meeting to dissolve the company or to overcome the cause for dissolution is considered to be extemporaneous when it is carried out outside the established legal period. This non-compliance is particularly serious, since it allows the company’s debts to increase without a clear measure on the part of the administrator to limit liabilities. The Capital Companies Law clearly establishes the deadline to call for dissolution and does not only fulfill the purpose of marking a formality, but intends to protect the creditors and avoid the worsening of the insolvency situation.

Case Law and Key Precedents: The Madrid Provincial Court Case

In the case decided by the Provincial Court of Madrid (21-6-24), the defendant administrator had failed to comply with his obligation to promote the dissolution of the company in a timely manner, despite the fact that the company was in a situation of prolonged insolvency. As the annual accounts had not been filed since the incorporation of the company, the Court considered that the company was already in a situation of dissolution, which made the administrator liable for all the debts incurred during that period. This ruling has an important impact, as it reversed the initial acquittal and established the liability of the administrator, which reinforces the importance of timely compliance with their obligations.

Importance of the Legal Deadline for Administrators

The case law of the Supreme Court (SC 16-12-04, EDJ 225023) has been forceful in pointing out that if the liability of the administrator could be extinguished by late compliance, the legal deadlines for dissolution would be meaningless. The administrators could simply comply whenever they wanted, which would significantly increase the risk for creditors.

Legal Consequences of Untimely Noncompliance

When a director fails to comply with his obligation to call for the dissolution of the company in due time, the creditors can sue him to assume joint and several liability for the company’s debts. This means that the administrator will be liable with his personal assets for the debts incurred by the dissolving company. This type of liability may represent a high risk for the administrators, who must make strategic decisions in due time and form to protect their assets and avoid legal problems.

Exceptions and Particularities to Consider in Málaga and Benalmádena

It is relevant to highlight that, although the untimely default of the administrator places him in a situation of risk, there are nuances that can be considered in each specific case. In Malaga and Benalmadena, as in the rest of Spain, the courts review each case individually to determine whether the administrator acted with intent to cause damage or whether there are mitigating factors that may reduce his liability. Some of the aspects that may qualify the liability are:

• Lack of intent to defraud: If the noncompliance was not intentional.
• Unforeseen circumstances: Exceptional situations that may justify failure to comply on time.
• Prompt corrective action: When the manager demonstrates that he/she has taken action to resolve the situation as soon as possible.

What Can an Administrator Do to Protect Itself from Liability for Untimely Compliance?

To avoid liability for debts in default situations, managers should adopt preventive measures, including:

• Regular monitoring of accounts: Keeping annual accounts up to date and submitting financial statements in a timely manner is essential to identify grounds for dissolution.
• Calling a general meeting in a timely manner: The administrator’s liability is reduced when he/she meets the stipulated deadline.
• Continuous legal advice: Having the support of a law firm specialized in commercial law can make the difference. At Tecem Abogados, with offices in Málaga and Benalmádena, we offer comprehensive advice to manage the legal risks that may affect administrators.

The liability of directors for untimely failure to fulfill their obligations in the event of dissolution is a considerable risk. Late compliance does not exempt them from their joint and several liability for the debts of the company, especially in situations of prolonged dissolution. In Tecem Abogados, in Malaga and Benalmadena, we have a team of experts in corporate and commercial law, trained to provide the best advice to the administrators and protect their legal interests.