21.07.2020
Director´s Liability for failing to deposit the Annual Accounts (or Financial Statements)
A relevant number of rulings have declared that a breach of the duty to deposit Annual Accounts (Financial Statements) in the Commercial Registry is a legal cause of dissolution of companies. This makes the directors liable for the company's debts. The recent Supreme Court Ruling 202/2020 of 28 May 2020 provides a different thesis.
Introduction
The duties of the directors in relation to the annual accounts are stipulated, among others, in article 34 CCom. The management body must draw up the accounts within three months of the end of the financial year. The General Meeting must approve them within three months of their formulation. The directors then have one month to file them in the Commercial Register.
Unfortunately, this quiz has a limited amount of entries it can recieve and has already reached that limit.
The purpose of the deposit of the Annual Accounts at the Commercial Registry: Publicity
With the deposit, third parties are provided with information on the company’s asset and accounting situation. The accounts must reflect the true picture of the company’s assets, financial situation and results. Consequently, the lack of formulation, approval and deposit deprives third parties of access to relevant information about a company.
What are the consequences of the omission of the deposit duty by the administrators?
On the one hand, the closing of the registry sheet. This will occur if one year after the end of the financial year the duly approved Annual Accounts have not been deposited. This closure entails the impossibility of registering commercial documents while the non-compliance persists. The exceptions established in article 282.2 Corporations Act are applicable to the above.
Failure to comply with this duty also entails the imposition of penalties. These penalties range from 1,200 to 60,000 euros. However, it will also depend on the annual turnover of the company or group, as the case may be. If this is higher than 6,000,000 euros, the limit of the fine will be increased to 300,000 euros per year of delay.
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Consolidated Annual Accounts
The liability of the directors for non-compliance with the duty to promote the dissolution of the company
As we mentioned at the beginning, the jurisprudence has considered the failure to comply with this duty as a manifestation of lack of diligence. It considers that this negligence would entail personal and joint liability of the directors. A liability for the damages caused by the breach that could even lead to the payment of social debts.
We are referring to sentences such as number 241/2017, of 25 May 2017, of the Provincial Court of Pontevedra. It establishes that this breach is a presumption that the company is in cause of dissolution. The burden of proving that the company is not in this situation is shifted to the directors.
Supreme Court Ruling 202/2020 of May 28th 2020
The Supreme Court clearly states that the regulations do not foresee the breach of this obligation as a legal ground for dissolution. Therefore, it does not determine the obligation of the directors to respond to the social debts. Nor does it presume that the company will be paralyzed or unable to fulfil its corporate purpose.
The ruling states that the lack of deposit accounts, deprives third parties of knowledge of social accounting. It also states that this failure may cause doubts about the existence of losses in the company. However, these grounds alone do not constitute evidence that the company is in the process of being dissolved.
In order for directors to respond under Article 367 Corporations Act, certain requirements must be present:
- Concurrence of any of the causes for the dissolution of the company provided for in article 260.1 Corporations Act. In particular, in numbers 3, 4, 5 and 7
- Failure by the directors to call the General Meeting to adopt the dissolution resolution.
- Passing of wo months since the occurrence of the cause for dissolution.
- Liability of the director for passive behavior.
- No justifiable reason for the omission.
In order to do so, it must be proven that the cause for dissolution was indeed present. Furthermore, in order for the directors to be held liable for the company’s debts, there must be a causal relationship. Non-compliance must be the origin of the damage suffered by the plaintiff.
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