Personal liability of directors: one little known way to collect your debt in Spain

Do you have a Spanish debtor who doesn’t pay? When you have complied with the contract and delivered the products, it is not fair you don’t get the payment you deserve. In some cases it is the director’s fault. Some directors did a bad job and brought their company in a bad state. The result is that the company can’t pay your invoices. Is it possible the company’s director can be held legally liable?

Personal liability of directors

Debt recovery in Spain can be a tough cookie sometimes. Only in December 2015 the stats from the National Bank show a total of non honored 125.695 drafts (“efectos bancarios”) with a total amount of 172.886.525 Euros. When traditional debt recovery doesn’t have the desired effect, you can go to court to make your debtor pay. For scenarios like this, the director of the company can be held personally liable for the debts of his company. The personal liability of the directors is based upon subjective causes and objective causes.

Subjective causes

Subjective causes refer to the cases where there is a link between the misdemeanors of the directors and the prejudice suffered by the creditor. There is an uncollectable debt. For example, a CEO decides to give an important loan to a third party. He knows this party is not solvent. This third party is not even the business of the company. These types of cases are very complicated. All three elements, misdemeanor, link and prejudice must be proven in the proceedings.

Objective causes

The second type, objective, refers to those cases where there is no need to prove any links. The only thing that has to be proven by the creditor in court, is that the director failed to comply with its social (corporate) obligations, such as keeping the activity of the company for a certain time or ensure the financial structure of the balance sheet is healthy. For instance, when the company hasn’t doing any business for a period of 14 months and the director hasn’t asked the stakeholders to agree on its liquidation. These cases are easier to prove in court. These cases also represent a higher and higher percentage in the daily forensic practice in Spain.

Should you wish to receive more information on this or any debt collection in Spain related topics you are kindly invited to contact our Spanish lawyer.