What is meant by negligent performance of the directorship?

Table of Contents

1.      Introduction.

2.      What is negligence in the directors’ scope of action?

3.      Can the company exonerate directors from negligence liability?

4.      Conclusion

1.      Introduction.

We have been analyzing the various responsibilities that can be attributed to the administrative body of the company. Let’s remember that, the main difference between individual action and social action of responsibility lies in the affected assets. In the first case, it is a partner’s or a third party, and in the second case it is the company’s.

Both actions have several requirements in common, which we should mention before analyzing negligence. They are as follows:

• A behavior of the managers, active or passive. Therefore, including omission.
• This behavior must be attributable to the directors as they are. That is, they must carry it out in the performance of their duties.
• Anti-legal behavior or conduct. That is, in violation of the law, statutes (gross negligence, willful misconduct) or with manifest negligence. We will focus on it in this article.
• The conduct must produce a damage.
• This damage must be direct against a specific asset, whatever it may be.
• There must be a causal link between the conduct in the exercise of the administrator’s functions and the direct damage.

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

2.      What is negligence in the directors’ scope of action?

We have analyzed the condition of direct damage, and its production in the individual and corporate liability action. It is now time to focus on the conduct and its condition of negligence.

Therefore, both jurisprudence and doctrine define negligence in the actions of directors. They consider negligence the failure to comply with the above-mentioned diligence without malice. That is to say, the exercise of his functions of manager omitting the expected diligence of an orderly businessman.  Also breaking the rules of good faith. Therefore, all conduct that the directors carry out not complying with this diligence will be negligent. And it will bring the exigency of responsibility to this body.

• Examples of negligence.

This omission of due diligence is clearly reflected in several jurisprudential examples. In this regard, we have found resolutions holding managers liable based on negligence for various reasons:

• The manager fails to comply with a sectorial regulation, being an inherent duty of diligence its fulfillment. The company in question was obliged to guarantee the buyer the amounts advanced for the acquisition of the property. This, by virtue of a sectorial regulation. The SC considers that logically, this responsibility is attributable to the company, which could then repeat it against the directors. However, it adds that, there is a clear breach of the due diligence of the administrators. A clear negligence, in the conduct of the directors in the damage produced. From which derived a direct damage to the third party, existing a causality relation. And, therefore, responsibility.
• Failure to call a meeting to increase the share capital. Having anticipated the necessary contributions, the administrative body does not proceed to call the Shareholders Board Meeting. This justified the existence of negligence of the administrative body, attributing them the responsibility for the damages caused to third parties.

3.      Can the company exonerate directors from negligence liability?

In this area we would, of course, be talking  about the corporate action of responsibility against the directors and its possible enforcement. Not the individual one, which affects third parties.

In this regard, the question we ask ourselves is the following: Is it legitimate for the company to establish in the bylaws that the directors cannot be charged with negligence? In sum, in situations where they do not perform their duties with due diligence.

The answer is clearly yes. The liability of the director for negligence within the social scope is subject to the autonomy of the will of the parties. Therefore, it is only logical that the company decides to exempt the directors from this possible liability. Therefore, the company will be totally free to have such a clause in its own bylaws.

4.      Conclusion

The directors’ due diligence has enormous relevance to their functions. The constant fulfillment of this duty will exempt the directors from falling into possible negligence. And with it, having to respond personally for damages for which, in principle, only the company should respond. Therefore, the constant diligence of the administrative body is extremely relevant.

If this article has been of interest, we also suggest you to read the following article published on our website: When does the prescription period of Directors´ liability elapse?