Luis Prados Ramos
Notary

COMPETITION AND SOCIAL ADMINISTRATORS

COMPETITION AND SOCIAL ADMINISTRATORS

Some time ago I published this entrance In it, the responsibility of the administrators of legal entities was dealt with in a very general way, differentiating the different causes for which an administrator may be held liable for corporate debts.

Since the reform of 1989, corporate law has been characterised by a progressive expansion of the assumptions of liability of the director of a company, to the point where it can be considered a risk position, as evidenced by the increase in civil liability policies for directors.

Following the recent ruling of the Supreme Court of June 9, 2016, we will make a brief reminder of the liability of administrators in the event of bankruptcy, especially the possible liability for the “bankruptcy deficit”, to which administrators can be condemned, and which has generated so many questions and queries in a notary's office, in recent years of severe economic crisis.

The liability of the administrator in the event of bankruptcy may be of two types:

a) The possible conviction to compensate for damages, as set out in article 172.2.3 LC;

Article 172 Qualifying sentence

2. The judgment classifying the bankruptcy as culpable shall also contain the following statements:

3rd The loss of any rights that the persons affected by the qualification or declared accomplices had as creditors of the bankruptcy or of the estate and the condemnation to return the assets or rights that they had obtained improperly from the debtor's assets or had received from the active estate, as well as to compensate for any damages caused.

b) And the condemnation to cover the deficit of the current 172 bis LC.

The precedent of this precept was article 172.3 LC, which in its original wording said:

“If the rating section had been formed or reopened as a result of the opening of the liquidation phase, thethe sentence may, besides, condemn to the administrators or liquidators, de jure or de facto, of the legal entity whose bankruptcy is classified as culpable, and to those who had this status within the two years prior to the date of the declaration of bankruptcy, to pay the bankruptcy creditors, in whole or in part, the amount of their credits that they do not receive in the liquidation of the assets.

The requirements for this responsibility of the administrators to exist, for the bankruptcy deficit, were conditioned by the following elements:

1.- . That the contest ended with the liquidation of the company, not being applicable to the cases of agreement

2.- And that the bankruptcy was declared culpable in the terms provided for by the Bankruptcy Law itself.

And this responsibility consisted of condemning the administrators to pay from their own assets what the company's creditors did not collect from the liquidation of the "active assets" (corporate assets).

1.- THE GUILTY COMPETITION

The ease with which the bankruptcy was declared culpable, due to the presumption regime of article 165 LC, especially due to the failure to comply with the duty to request the declaration of bankruptcy, the situation of many administrators was one of anxiety, if the declaration of bankruptcy was requested by a creditor, since it could make him responsible for the company's debts.

2.- OUT-OF-COURT PAYMENT AGREEMENTS.

The serious effects of this regulation were taken into account by the legislator, establishing, through the reform of the bankruptcy law of March 31, 2009, that with the modification of article 5 LC the duty to request the declaration of bankruptcy was not required of the debtor who, despite current insolvency, requested a payment agreement (article 5 LC).

3.- THE ADDED JUSTIFICATION. THE NON-AUTOMATICITY OF THE SENTENCE TO COVER THE BANKRUPTCY DEFICIT.

However, the regulations remained a dagger, as there was doubt as to whether the requirement of the administrators' liability to cover the bankruptcy deficit was an automatic consequence of the declaration of culpable bankruptcy or was a power of the judge.

As can be seen in the underlined section of article 172.3 LC, the judge may or may not condemn the coverage of the deficit, but the indeterminacy of the provision led to two currents of opinion in the sentences of the provincial courts, regarding when the administrators could be condemned.

Thus, one school of thought considered that the liability of the administrators was unrelated to any element of fault, in order to proceed to the imposition of liability; while another school of thought considered that it was necessary to assess the degree of influence of the conduct that has determined the culpable qualification of the bankruptcy in the generation of the state of insolvency.

This matter was resolved by the Supreme Court, which in Judgment 644/2011 of October 6, introduced the concept of “added justification” saying that the mere qualification of the bankruptcy as culpable should not determine the condemnation to cover the bankruptcy deficit, but that it was necessary that there be some additional reason related to what is the object of condemnation, the total or partial coverage of the deficit, to justify it. That is, it was necessary to assess the behavior of each of the administrators and how it had influenced the qualification of the bankruptcy as culpable,

A few days after this ruling, Law 28/2011 of 10 October introduced a modification to the bankruptcy law that affected article 172 bis, relating to the bankruptcy liability of administrators, but which in essence did not modify the original regime of the bankruptcy law.

4.- THE CURRENT SITUATION

It was necessary to wait for Decree 4/2014 for this issue to be settled legislatively, in terms similar to the cited jurisprudential doctrine, and thus with the modification that was introduced to article 172 bis, in order to be able to condemn the administrators to cover the bankruptcy deficit, the following requirements were necessary:

1. That the competition ended with the liquidation of the company, not being applicable to the cases of agreement.

However, there could be a conviction if the bankruptcy had already been classified as culpable, and there was liquidation, due to non-compliance with the agreement.

2.- That the contest be declared guilty.

3.- The conviction is a power of the judge that does not exclusively affect the administrators, but extends to other people, to the extent that his conduct has determined the guilty qualification or has generated or aggravated the insolvency.

4.- The persons affected and obliged to cover the deficit may be the administrators, liquidators, de jure or de facto, or general representatives of the bankrupt legal entity, as well as the partners who have refused without reasonable cause to capitalize credits or issue securities or convertible instruments in the terms provided for in section 4 of article 165 LC.

Lleida on August 31, 2016.

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