Proxies and Directors in Fact: Are they the same?

Introduction

The terms de facto director of a company and general proxy are sometimes confused and used synonymously.

Although in some cases the same person operates as general proxy and de facto administrator, they are not conceptually the same. Let’s see a little more in detail the differences between these two figures.

What is a de facto director?

The Supreme Court has ruled on numerous occasions to define the concept of de facto director. This is mainly due to one reason: to equate the liability of the de facto director with that of a de jure director.

The figure of the de facto director becomes relevant when insolvent front men are appointed. The de facto director controls the company without having a formal position (de facto director).The figurehead appears as a director but the reality is that he does not exercise any function.  The aim is to exonerate the de facto directors from liability by transferring it to the figurehead.

To avoid this, section 236 of the LSC currently extends the liability of directors to de facto directors. It is therefore important for the Supreme Court to clearly define what is meant by this term.

The case law of the SC defining this concept is consolidated: STS 59/2007 and STS 816/2006, among others. Thus, it is understood as someone who, without having been formally appointed, exercises the functions of a de jure director.

The case law, in this case of several Provincial Courts, has established the essential notes that a de facto director must have. These are:

1. Effective intervention in the administration of the company.
2. That this intervention be independent and autonomous from any body of the company.
3. That the intervention in the administration be constant and continuous.

Si te ha interesado este artículo no dudes en leer:

Necessary requirements to exercise the individual action of responsability against the Directors.

What happens in cases where there are both de facto and de jure directors?

It is not unusual for both types of director to coexist in the same company, especially when the aim is to avoid responsibility. In these cases, the general rule is that the de jure director must respond.

What is a proxy/representative?

A representative is a person appointed by the company (directors) to act on behalf of the company. The company’s governing body appoints the representative through a proxy. She or he is empowered to act on behalf of the company only for the functions contained in this proxy. The period during which he may exercise the office is also contained in this proxy. Normally, the proxy does not set a time limit and lasts until it is revoked. Aditionally, even if the director who has appointed him ceases, the representative will continue to hold office.

To be fully effective, the proxy must be recorded in a public deed and registered in the Mercantile Registry. The revocation of the power of attorney must follow the same procedure.

As a unilateral act, the representative does not need to accept its position. It is sufficient for him to tacitly accept it when using the powers granted to him.

As for responsibility, the proxy/representative is accountable to the body that appointed him or her, the mangement body. Therefore, he does not report to the AGM. If he merely complies with the orders of the proxy/representative (directors), he is exonerated from any liability.  He is also not subject to the liability regime imposed on directors by the Corporatons Act.  Thus, they will only be liable for the contractual and non-contractual liability set forth in the CC (articles 1726 and 1902, respectively).

Conclusions

As can be concluded from the above, the directors cannot be equated with the proxies/representatives. Both their appointment and their liability regime are clearly differentiated. This has been confirmed by the Supreme Court in several of its rulings (STS 261/2007 or STS 55/2008).

If you liked this article you can consult the following one for more information:

Can liability action and director’s liability action be joined in the same lawsuit?