Legal Due Diligence

Liability of Board of Directors in Spanish Subsidiary

The new regime regarding operation of the Board of Directors became effective in 2015.  

Apparently, the greater number of requirements and persons liable for Company operations seems to be oriented towards listed companies, but if we analyse the reform more in depth, we find that the Parent Company in the case of a Spanish subsidiary or the Partner with decision-making powers, can be jointly and severally liable for the management of said subsidiary, unless it can be shown that the Spanish Company’s Board of Directors has worked reasonably in accordance with the law.

The Board has the legal representation of the Company, but according to Spanish law, liability for management is attributed to the person (whether natural or legal entity) that in fact performs the duties of the Manager. 

This premise of Spanish law, together with the legal obligation to hold quarterly Board meetings, implies the need to make the Board of Directors of the subsidiary really operational. At such meetings, not only daily matters that merit consideration at said meetings need to be analysed, but also issues that need to be solved on the spot can be delegated to Spanish subjects (such as, delegating the matter of labour risk prevention in a suitable insurer, and also the assessment of the performance of such insurer by a manager, officer or employee located in Spain).

If we set aside the actual work performed by the Board, liability may fall on the director as such, but also on the Parent Company, if it can be shown –as normally happens– that it is the actual Manager of the subsidiary, because the decisions, whether ordinary or not, are made in the end by foreign executives or officers, that are not generally members of the Spanish Company’s Board of Directors.

This issue may also have consequences in offshoring cases regarding Spain.

Our Firm offers to carry out the duties of Secretary to the Spanish Company’s Board Meetings providing the following services:

·         Assistance in the preparation of the quarterly Board meeting minutes in Spanish and English.

·         Management of Minutes Book. In Spain the Minutes Book should be certified annually by sending an encrypted file to the Companies’ Registry. Confidentiality is ensured because the Registry can only record the volume of algorithm SHA256 of the file sent by the Company.