Director and Officer Liability: Audit, Prevention and Defence

Director and officer liability in Spain arises under three distinct legal regimes: civil liability to the company, shareholders, and third parties under Articles 236–241 of the Ley de Sociedades de Capital (LSC); liability for company debts when directors fail to respond to mandatory dissolution grounds under Article 367 LSC; and insolvency liability under Articles 455–460 of the Texto Refundido de la Ley Concursal (TRLC), which can result in directors being held personally liable for the company's insolvency deficit if the insolvency is qualified as culpable. Additionally, Article 31 bis of the Spanish Criminal Code creates the possibility of personal criminal liability for directors who commit offences in the exercise of their role, even if the company itself is also prosecuted.

Types of director liability: civil, insolvency, and criminal

Spanish law articulates the liability of directors of capital companies through three distinct regimes that can be triggered simultaneously or successively: civil corporate liability under the LSC (Ley de Sociedades de Capital — Companies Act), insolvency liability under the TRLC (Texto Refundido de la Ley Concursal — Consolidated Insolvency Act), and criminal liability under the Criminal Code.

Civil corporate liability divides into two actions with different standing to bring a claim. The corporate liability action (Art. 238 LSC) may be brought by the company itself, by shareholders representing at least five per cent of share capital, or by the company’s creditors where the company or shareholders fail to bring it. It seeks compensation for loss caused to the company’s assets. The individual liability action (Art. 241 LSC) is brought directly by the third party — creditor, shareholder, or employee — who has suffered direct loss through an act of the director, without requiring that the company’s assets have been affected.

Insolvency liability under the TRLC operates in the context of insolvency proceedings when those proceedings are classified as culpable. Judgment of the Supreme Court (Sentencia del Tribunal Supremo) 372/2025 has refined the causation criteria required for an order to cover the insolvency deficit to be proportionate to the director’s degree of culpability, moving away from the mechanical application of full deficit coverage. This judicial evolution makes it more important than ever to document the director’s diligent conduct from the earliest signs of financial difficulty.

How to protect yourself: documented diligence and a crisis action protocol

The most effective protection against a director’s personal liability is not reactive — it is not a matter of engaging good lawyers when the claim arrives — but preventive: building, from the outset of the mandate, a diligence record that demonstrates compliance with statutory duties at every relevant decision point.

The director’s duties under Article 225 LSC (duty of care) and Article 227 LSC (duty of loyalty) translate into practical obligations: to be adequately informed before deciding, to seek external advice when the subject matter requires it, to identify and manage conflicts of interest, to act in the interest of the company rather than their own, and to document the process followed. A director who can demonstrate that they followed this process has access to the business judgment rule under Article 226 LSC, which protects them from liability for the adverse outcome of a business decision correctly adopted.

The crisis action protocol is the necessary complement: when the company detects liquidity difficulties or losses that may compromise net equity, the director must initiate a documented process of assessment, consultation, and decision that is recorded in minutes with a verifiable date. We coordinate this protocol with the insolvency advisory team to ensure consistency of advice at critical moments.

D&O insurance: real coverage and limitations you need to know

Directors & Officers insurance is a necessary tool, but one that is frequently purchased inadequately. Market policies differ significantly in coverage, exclusions, and limits — differences that can mean the policy fails to respond precisely in the highest-risk scenarios if it has not been correctly selected.

The minimum coverage a D&O policy for the risk profile of a mid-sized Spanish company should include is: Side A coverage for direct claims against the director’s personal assets, Side B reimbursement to the company for defence costs incurred, coverage of the costs of administrative investigations prior to judicial proceedings, and a run-off clause for claims brought after the director’s cessation of office for acts carried out during the mandate. The exclusion of fraudulent or intentional acts is standard and reasonable, but the precise wording of that exclusion may leave outside its scope situations that the director considers covered.

We advise on product selection with technical criteria, not merely budgetary ones, and coordinate with the insurance broker to negotiate critical clauses. Where a policy is already in place, we conduct a coverage review to identify gaps before they materialise in an uncovered claim.

Recent case law: STS 372/2025 and its impact on director defence

Judgment of the Supreme Court 372/2025 (STS 372/2025) introduces a proportionality criterion in insolvency liability orders that represents a significant development for directors. Prior to this judgment, standard practice in many commercial courts was to order the director to cover the full insolvency deficit where the insolvency was classified as culpable, regardless of the actual causal contribution of the reproached conduct to the creation or aggravation of the insolvency.

STS 372/2025 requires an assessment of the causal link between the reproached conduct and the insolvency deficit: the order must be proportionate to the degree to which the director’s fraudulent or grossly negligent conduct actually contributed to creating or aggravating the insolvency. This does not reduce the liability of a director who acted fraudulently or with gross negligence, but it opens the door to a more nuanced defence for directors whose reproachable conduct was limited in scope or did not have a determinative causal impact on the deficit.

This judicial evolution makes it more important than ever to have documentation that demonstrates critical decisions were taken diligently, on the basis of available information, and following the correct process — even where the final outcome was adverse. The distinction between a director who managed a company in difficulty diligently and one who did so negligently is the key to a successful defence in the insolvency qualification section.