NO company director is safe from being personally liable for debts accrued by the company he or she runs.
This is despite the (almost) universal rule that a limited liability company does precisely that: limit the liability of the individuals who set it up.
Spanish law, tweaked by a series of Supreme Court rulings, has established two types of company director responsibilities:
1. Indirect: when company losses reduce the company’s net equity to below 50% of the share capital and the director, despite there being creditors, does not file for insolvency (unless it could be reasonably proved, according to the Supreme Court, that such application would have not made an overall difference).
2. Direct: when a solvent company does not pay its creditors without there being a valid reason. This is typical of selfishly run entities where directors and/or shareholders prioritize their own salaries, dividends or loan repayments, or they simply “dip in” the company account, well before honouring invoices from trusting suppliers or meeting obligations towards clients. This conduct can in fact be classed as fraud, if the right elements concur.
On the whole though, the Supreme Court respects the omnipresent principle that limited liability of company members should be respected.
In particular when ‘…it is not possible to prove individual responsibility of directors for any company debt’, limiting such responsibility to scenarios of fraud, malice or negligence when such conclusions are reached after reasoned argumentation.
In a nutshell, the widespread belief that a director can simply ‘close down a company and open another’ is not just morally wrong, but legally wrong too.
So beware, entrepreneur!
Contact Antonio Flores at email@example.com or call 952861890