16.05.2020
Company Dissolution: Directors’ Duties and Liabilities
Dissolving a company is not a question of time. There must be a legal provision for it to happen. We will analyze the director’s duties to initiate a company dissolution process, and liabilities if directors fail to fulfil these duties.
Por
Furió Párraga, Ascensión Company Dissolution: Directors’ Duties and Liabilities
The Directors’ duties and liabilities are legally regulated and they can arise from different circumstances as fraud or negligence. If directors do not fulfill their duties they can be responsible for its consequences – company’s debts – with their personal assets.
Winding up a company is the terrible moment that a businessman does not want to think about. But this is a huge a decision and pretty often a wise one to take.
But the dissolution procedure does not start only because time goes by, it requires to incur in some legal binding situations.
Unfortunately, this quiz has a limited amount of entries it can recieve and has already reached that limit.
Legal Grounds for Dissolution
The Corporate Enterprises Act (the Act) provides the grounds for company’s dissolution. All directors are legally subject to these rules that include a series of duties to initiate the company dissolution process.
Directors’ duty to initiate the dissolution process
If directors fail to fulfil the duty to initiate the dissolution process, they will be automatically responsible of that unfulfillment. According to case law, it is not necessary to prove directors’ negligence or damages as consequence of that negligence. Supreme Court’s January 18th 2017, No. 121/2017:
“It does not require the manifestation of any negligence other than the omission of the duty to promote the liquidation of the company by calling the meeting. Or requesting the Court’s declaration of dissolution procedure or bankruptcy depending on the case”.
Si te ha interesado este artículo no dudes en leer:
Liability of a Debtor (in Spanish Law)
Directors’ Automatic Responsibility
The above-mentioned automatic responsibility is intended to provide trust to commercial transactions. Companies’ shareholders do not have personal responsibilities, that is why the directors may become automatically responsible.
Liabilities of removed/resigned directors
These liabilities are not extensive to directors which positions have been ceased or finalized. Directors are only liable for the time they were in charge of their positions.
Directors´ responsibilities finish as soon as their appointment is finished, regardless of the moment when the dismissal is registered in the Companies Registry.
Inactive Companies
Directors of companies without activity are still in charge of the company, thus they are liable of all their duties as directors.
Bankruptcy situation
Companies’ Directors under insolvency/bankruptcy situation will fulfill their duty of winding up as soon as they file for the Bankruptcy declaration.
Deceased Director
Director’s liabilities do not end with their death. Theses liabilities are inherited; therefore, the liabilities will be part of the hereditary estate.
Directors claims against the Company
The director found responsible of not fulfilling the duty of dissolution can later claim damages to the Company. However, this claim’s success will depend on the solvency of the company, considering that is under a situation of dissolution.
Liability time limit
Directors’ liabilities prescribe after 4 years, this term starts once the cessation is registered in the Companies Register.
Conclusions
A Director assumes responsibilities inherent to his position as prevented in the law.
The directors may be held responsible (with their own assets) if they do not fulfill their legal obligations.
If this article has been of interest, we also suggest you to read the following article published on our website:
Jurisdictional and administrative procedures in the Bankruptcy Procedure.
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