Corporate ·
When a director is personally liable for company debts
A company's limited liability does not shield its directors in every case. A review of the situations that most often transfer company debt to the personal assets of those who manage it.
One of the most widespread — and most dangerous — assumptions among those running a Spanish limited company is that liability is always capped at the share capital. That cap exists and is real for the shareholder, but a director occupies a different position: the law imposes specific duties on them and, when those duties are breached, they answer personally.
These are the four situations that most frequently materialise.
Liability for debts: failing to promote dissolution
This is the most common route and the one that surprises people most. When a company falls into a statutory ground for dissolution — typically, losses that reduce net assets below half the share capital — the director has two months to call a general meeting and pass a resolution either to dissolve or to remedy the position. Failing to do so makes them jointly liable for company obligations arising after that ground appeared.
No fault or loss needs to be proven: it is enough that the ground existed, the deadline passed and subsequent debt was incurred. It is an almost strict form of liability, and it explains why periodic monitoring of net assets is not an accounting question but a legal one.
Individual and derivative liability claims
Shareholders, the company or its creditors can claim for loss caused by acts of the director contrary to the law or the articles, or carried out in breach of the duties of care and loyalty. Here the conduct, the loss and the causal link must be established, but the scope is very wide: undisclosed related-party transactions, appropriation of corporate opportunities, competing with the company or asset stripping.
Tax and social security debts
Spanish tax legislation allows liability to be extended to directors where a company ceases trading without an orderly settlement of outstanding debts, and in cases of tax offences committed by the company. The social security authorities have equivalent mechanisms. These are swift administrative procedures and those affected often discover them only once the derivation order has been issued.
A finding of culpable insolvency
If the company enters insolvency and the proceedings are classified as culpable, the director can be ordered to cover all or part of the shortfall, in addition to being disqualified. Delaying the insolvency petition beyond the statutory deadline, keeping irregular accounts or breaching the duty to cooperate weigh decisively on that classification.
What reduces the exposure
None of these liabilities can be eliminated entirely, but all of them are contained by the same ordinary measures: periodic monitoring of net assets, documenting significant decisions in board minutes, formally declaring conflicts of interest, strict compliance with statutory deadlines in a crisis and, where the risk profile justifies it, directors’ and officers’ liability insurance.
Most directors who end up answering with their own assets do so not because of a mistaken business decision, but because they failed to react in time to a situation the law required them to address.
This article is for general information only and does not constitute legal advice. Every situation requires individual analysis.