Company default recovery

Did you know that managers of private and public limited companies are jointly and severally liable to the companies’ debts against creditors because of dissolution when such dissolution is not brought within two months?

The legal basis is found in articles 262.5 of the Spanish Companies Act and 105.5 of the Limited Liability Companies Act.

The requirements are two:

1. The concurrence of causes of dissolution under law, such as: cessation of governing bodies of the company, inability to achieve the corporate purpose, inactivity for three years, losses that reduce the share capital to less than half, reduction of share capital below the legal minimum, etc.
2. Failure to comply with the legal obligation to promote dissolution within two months.

It is worth noting that the concurrence of the above requirements unleashes personal and unlimited joint liability of the administrator, regardless of the damage occurred being a negligent conduct consequence or not, and without need to a causal connexion between the failure and the damage to the creditor for the unpaid credit.

In the practice, it is easy to prove the concurrence of the cause of dissolution through:

a) A Commercial Registry Certificate, which usually shows that the company in question did not submit its annual accounts, or the shared capital appearing in them is negative, or its registration sheet is closed, etc;
b) Publications of the debts of the company in Official Gazettes.
c) The Court subpoena to the company at its head office, which will be negative because of being disappeared.
d) A request to the Spanish Social Security and the Spanish Tax Administration to certify the cessation of the activity, the contracted debts, etc.

The deadline for completing proceedings is four years, according to Article 949 of the Spanish Code of Commerce.

Finally it is worth mentioning that due to the crisis and from December 12, 2008, in exceptional cases and only temporarily, initially for two years and extended for another two, the decrease in the net assets of a company by the depreciation of tangible fixed assets, investments in fixed assets and stocks will not be taken into account for compulsory dissolution causes.

Álvaro Porcar
Porcar Abogados’ Lawyer
Member of Eurojuris España

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