What makes a company administrator personally liable

Key rules

• Core duties: You owe the company diligence and loyalty, and you must avoid and report conflicts of interest.
• Who can claim: The company, shareholders and creditors can all claim against you, and fault is presumed if you act against the law or the bylaws.
• Joint liability: Administrators who adopted a decision are jointly liable, unless you prove you did not take part and did not know or tried to prevent it.
• Cause for dissolution: You have two months to call the meeting or request dissolution or insolvency, or you become liable for later debts.
• Tax debts: You can be liable for company tax debts if the company defaults and you allowed or failed to prevent the breach.

The short answer

As an administrator, you owe the company two things: diligence and loyalty. If you breach them and cause damage, you can be personally liable to the company, to shareholders and to creditors. You can also be personally liable for some tax and Social Security debts. Your private assets can be at stake, not just the company's.

What you owe the company

Diligence means acting as an orderly businessperson would. You must look for the information you need and supervise the business. Delegating tasks does not remove your duty to oversee them.

Loyalty means acting in good faith and in the company's best interest. You must not use your powers for other purposes, and you must keep confidential information confidential.

You must also avoid conflicts of interest. Without authorisation, you must not:

• do transactions with the company;
• use the company's name or assets;
• take up opportunities that belong to the company;
• accept advantages from third parties;
• compete with the company.

If you have a direct or indirect conflict, tell the other administrators or the shareholders. These duties are mandatory. The general meeting can waive some of them only in specific cases.

The business judgment rule

Business and strategic decisions are protected if you acted in good faith, had no personal interest, had enough information and followed a proper decision process. This protection does not cover decisions that affect your personal interest or that are unlawful.

Liability to the company, shareholders and creditors

You are liable for damage caused by acts or omissions that break the law or the bylaws, or that breach your duties. The exception is where there was no fault or wilful misconduct. Fault is presumed when you act against the law or the bylaws, so you would need to prove otherwise.

If a board decides something, all administrators who carried out or adopted it are jointly liable. That means a claimant can pursue any one of you for the whole amount. You escape only if you prove you did not take part and either did not know about it or tried to prevent it.

Who can bring a claim

• The company. It can sue you after a general meeting resolution. The meeting can adopt it even if it was not on the agenda.
• Shareholders with 5% or more (3% in listed companies). They can sue if the administrators do not, if the claim is based on breach of loyalty, or if the meeting rejects it.
• Creditors. They can sue if neither the company nor its shareholders have, and company assets are not enough to pay debts.
• Shareholders and third parties directly. They can bring an individual claim for direct damage to themselves.

The time limit is four years from the date the claim could first be brought. Different periods apply to liability for debts after a cause for dissolution.

Debts after a cause for dissolution

A cause for dissolution arises, for example, when losses wipe out a large part of the company's equity. Once it arises, you have two months to call the general meeting, or to request dissolution or insolvency. If you do not, you are jointly liable for company debts that arise after that point. Debts are presumed to have arisen after it unless you prove otherwise.

Tax and Social Security debts

• Tax fraud. Anyone who causes or collaborates in tax fraud is jointly liable.
• Company infringements. You are liable after the company defaults if you did not do what was needed to comply, agreed to non-compliance, or made decisions that allowed it.
• Companies that cease activity. You can be liable for their tax debts if you did not take the steps needed to pay them. In bankruptcy or liquidation, this covers debts pending at the cessation.
• Social Security. Liability is narrower than for tax. It arises in cases such as business groups and de facto control, and through the dissolution rule above.

The Tax Agency declares liability through an administrative procedure. You have a hearing and can appeal.

What to do

Document your decisions and the information you relied on. Record any objection you make to a decision. Declare conflicts in writing. Watch the company's equity position and its tax payments. Take advice from a Spanish lawyer or adviser when a problem appears. The decision tool, warnings and FAQ below help you apply this to your situation.

Choosing between options

Which kind of liability could apply to an administrator in your situation?

• Liability to the company, shareholders or creditors: Your acts or omissions broke the law or the bylaws, or breached your duties, and caused damage; fault is presumed when the act was contrary to law or the bylaws.

• Liability for tax debts: The company defaulted on tax and you did not do what was needed, consented to non-compliance, or took decisions that made it possible, or the company stopped trading without payment steps.

Ask which duty was breached and when the debt arose: damage from a breach points to the first, debts after the two-month window point to the second, and unpaid tax after the company defaults points to the third.

What to watch out for

• Deals that benefit you personally: Doing business with the company, using its name or assets, taking its opportunities, accepting advantages from third parties or competing with it breaches your duty of loyalty and can make you personally liable. Report any direct or indirect conflict of interest to the other administrators or the shareholders, and get authorisation before dealing with the company.

• Tax debts the company cannot pay: If the company defaults, the Tax Agency can come after you personally when you did not do what was needed to comply, consented to non-compliance or took decisions that made it possible. Anyone who causes or helps with tax fraud is jointly liable. Make sure taxes are filed and paid, and if the company stops trading, take the steps needed to pay its tax debts. If the Tax Agency declares you liable, you have a hearing and can appeal.

• Leaving a company with a cause for dissolution unaddressed: If the company has a legal cause for dissolution and you do not call the shareholders' meeting, or request dissolution or insolvency, within two months, you become jointly liable for the company's debts arising afterwards. Debts are presumed to arise after the cause unless you prove otherwise. Act within the two months: call the meeting or request dissolution or insolvency.

• Sharing blame for a decision you opposed: All administrators who carried out an act or adopted a resolution are jointly liable for it, and fault is presumed for acts contrary to law or the bylaws. If you did not take part, or did not know about it, or tried to stop it, be ready to prove it.

Frequently asked questions

Who can sue an administrator for damage to the company?

The company itself can sue its administrators, once the shareholders' meeting votes to do so, even if the item was not on the agenda. A shareholder with at least 5% of the capital (3% in listed companies) can sue directly if the administrators do not, if the claim is based on a breach of loyalty, or if the meeting rejects it.

Can a creditor sue an administrator directly?

Yes, a creditor can bring the company's claim against an administrator, but only if neither the company nor its shareholders have done so and the company's assets are not enough to pay its debts. Shareholders and third parties who suffered direct damage can also bring their own individual claim.

How long do I have to bring a claim against an administrator?

You have four years from the date the claim could first be brought. This period was introduced in 2014. Claims for company debts after a cause for dissolution follow other periods, so ask a lawyer how long you have.

Does the business judgment rule protect an administrator from liability?

Yes, it protects strategic and business decisions, but only if the administrator acted in good faith, without a personal interest, with enough information and through a proper decision-making procedure. It does not cover decisions that serve the administrator's personal interest or that are unlawful.