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.

Regulatory Framework: The Statutory Liability Architecture

The director liability framework in Spain rests on four statutory pillars that operate independently and cumulatively:

LSC Arts. 236-241 (Civil corporate liability): the foundational civil liability regime. Art. 236 establishes liability for acts or omissions contrary to law, the articles, or the duties inherent to the role. Art. 226 provides the business judgment rule safe harbour. Art. 238 grants standing to the company, shareholders (5% minimum), and creditors. Art. 241 grants direct standing to third parties for direct damage.

LSC Art. 367 (Liability for delayed dissolution): automatic joint and several liability for company debts incurred after the occurrence of a dissolution cause (Art. 363 LSC) if the director fails to call the shareholders’ meeting within two months or fails to file for insolvency. The most frequent dissolution cause is losses that reduce net equity below 50% of share capital. This is strict liability: no fault needs to be proved beyond the failure to act.

TRLC Arts. 455-460 (Insolvency liability): the qualification section of insolvency proceedings determines whether the insolvency is culpable. If culpable, the court may order persons affected by the classification — typically the directors — to cover the insolvency deficit in whole or in part. The TRLC establishes absolute presumptions of culpability (double accounting, fraudulent asset removal) and relative presumptions (late insolvency filing, material accounting irregularities).

Criminal Code Art. 31 bis (Corporate criminal liability and director exposure): corporate criminal liability is distinct from but related to director criminal liability. In practice, prosecutors frequently charge both the company and the directors individually for offences committed in the company’s name — including insolvency offences (Arts. 259-261 CP), fraudulent administration, bribery, and money laundering.

Sectors Most Affected by Director Liability Claims

Construction and real estate: the sector with the highest concentration of director liability claims in Spain. Project-based companies with high fixed costs, concentrated customer bases, and cyclical revenue patterns generate repeated insolvency scenarios. The two-year insolvency build-up period typically contains decisions that are subsequently scrutinised in the culpable insolvency analysis.

Retail and distribution: the structural retail crisis of 2020-2024 has generated hundreds of insolvency proceedings in which the qualification section scrutinises the directors’ decisions regarding lease liabilities, supplier payment priorities, and the timing of the insolvency filing.

Technology and startups: venture-backed companies where the runway exhaustion is rapid create specific director liability scenarios — particularly for founders who continue to incur employment liabilities (salaries, social security contributions) after the point at which insolvency became current, without filing for insolvency within the two-month deadline.

Family businesses: succession transitions and inter-generational ownership disputes frequently create governance failures that trigger director liability — failure to hold the general meeting, failure to approve annual accounts, delayed response to dissolution causes — that may not be apparent until a creditor brings a claim years after the fact.

Worked Example: Director Liability in a Retail Group Closure

A sole director of a family retail company (28 employees, EUR 4.2 million revenue) continued trading for 14 months after the company’s net equity fell below 50% of share capital, without calling the required shareholders’ meeting or filing for insolvency. During those 14 months, the company incurred EUR 380,000 in new debts (supplier invoices, social security contributions, AEAT declarations).

When the company ultimately entered formal insolvency, the insolvency administrator brought an Art. 367 LSC claim against the director personally for the EUR 380,000 in debts incurred after the dissolution cause arose. Separately, the insolvency was classified as culpable based on failure to file in time (relative presumption under Art. 456 TRLC), and the director was ordered to cover 40% of the EUR 820,000 insolvency deficit — EUR 328,000 personal liability on top of the Art. 367 claim.

Total personal exposure: EUR 708,000. The director’s personal assets — a house in joint ownership with their spouse and a savings account — were subject to enforcement proceedings.

We did not advise this client until after the claim was brought. The outcome demonstrates precisely why the exposure audit matters — and why it must happen before the crisis, not after.

Common Mistakes We Fix

1. Not tracking the date the Art. 363 LSC dissolution cause arose. Directors frequently focus on the date they became subjectively aware of the financial difficulties, rather than the objective legal date when the dissolution cause arose. Art. 367 LSC liability starts running from the objective date — which may be earlier than the director realised. In many cases, the annual accounts preparation is the moment when the loss exceeding 50% of share capital is first formally recognised; the two-month clock starts from that moment.

2. Relying on informal board discussions rather than formal minutes. Oral agreement between partners about the financial situation does not constitute documented diligence. Board minutes that record the financial situation, the information reviewed, the external advice sought, and the decisions taken are the evidentiary foundation of a successful liability defence. Decisions taken without documented process are decisions that cannot be defended.

3. Not seeking legal advice before taking the insolvency filing decision. The decision to file for insolvency is itself a high-stakes legal decision with consequences for the director’s personal liability, the company’s trading relationships, and the classification of the insolvency as culpable or innocent. Directors who file for insolvency without legal advice frequently make procedural errors — including the choice of court, the documentation filed, and the description of the insolvency cause — that complicate the subsequent proceedings.

4. Assuming the D&O policy will cover everything. D&O policies exclude intentional fraud and, in some formulations, exclude situations where the director should have known the company was insolvent and continued trading. Directors who rely on D&O insurance without checking the specific exclusions in their policy may discover that the most critical scenario — the one that actually materialises — is precisely what the policy does not cover.

5. Not documenting related-party transactions. Transactions between the company and its directors, shareholders, or connected parties must be documented with market terms, governed board approval, and compliance with Art. 229-231 LSC (duty of loyalty). Related-party transactions at below-market terms made in the two years before an insolvency filing are prime targets for the insolvency administrator’s rescission action and culpable insolvency analysis.

Geographic Coverage

We advise directors across Spain from offices in Madrid, Barcelona, Málaga, and Marbella. Director liability claims are brought before the Commercial Courts (for insolvency-related claims) or Civil Courts (for LSC civil liability actions), and we manage proceedings across all Spanish jurisdictions. For international directors of Spanish companies — particularly non-resident directors of foreign-owned subsidiaries — we provide English-language advice on Spanish director liability law and coordinate with the parent company’s legal team.

Tax Agency Liability Derivation: the AEAT Dimension of Director Liability

Beyond the corporate law and insolvency regimes, Spanish directors face a further personal liability route under tax law: the AEAT liability derivation procedure (procedimiento de derivación de responsabilidad). Under Arts. 41-43 of the General Tax Law (LGT), the tax authority can derive tax debts of the company to its directors in three situations:

Subsidiary liability (Art. 43.1.a LGT): directors who fail to pay company taxes and whose passive conduct is the determining factor in the non-payment are subsidiarily liable for the unpaid taxes, surcharges, and interest. This requires a formal derivation procedure by AEAT that ends with an administrative resolution enforceable against the director’s personal assets.

Joint and several liability (Art. 42.1.a LGT): directors who participate actively or conduct capable of constituting a tax infraction by the company are jointly and severally liable for the company’s tax debt. This applies where the director took the decision that generated the non-compliant tax position, not merely where they failed to act.

Successor liability (Art. 42.2 LGT): directors who conduct business asset transfers designed to frustrate AEAT enforcement — or who participate in the de facto dissolution of the company without following the legal dissolution procedure — can be held jointly and severally liable for the company’s pre-transfer tax debts.

We advise directors on the AEAT derivation procedure — both in challenging derivation resolutions through the administrative appeal and TEAR review route, and in structuring company operations and management decisions to avoid the conditions that trigger derivation. This advice is increasingly integrated with the broader director liability compliance programme.

TGSS (Social Security) Director Liability

The Tesorería General de la Seguridad Social has its own liability derivation mechanism for unpaid social security contributions, parallel to the AEAT’s tax derivation procedure. Under Art. 142 of the General Social Security Law (LGSS), directors of companies that fail to pay social security contributions can be held jointly and severally liable where:

• The director was aware of the non-payment and failed to take action to rectify it.
• The director ordered or approved payments to other creditors while social security contributions were unpaid (preferential payment rule).
• The non-payment is attributable to the director’s failure to comply with the company’s contribution obligations during their period of office.

TGSS derivation proceedings run independently of AEAT derivation and can generate parallel personal liability for the director that compounds with the tax derivation. We coordinate advice on both simultaneously to ensure a consistent position and avoid inadvertent admissions in one proceeding that create exposure in the other.

How We Work

Our director liability practice operates across three tracks:

Prevention: exposure audits, compliance programmes for the governing body, D&O insurance advisory, and insolvency action protocol design — all focused on reducing the probability and severity of a future liability claim.

Crisis management: advice during financial difficulty — the high-risk period when director liability is most likely to crystallise — including insolvency notification timing decisions, AEAT and TGSS deferral coordination, and documentation of the board’s decision-making process.

Defence: representation in civil liability proceedings (Art. 238/241 LSC), AEAT and TGSS derivation challenges, insolvency qualification proceedings, and criminal defence coordination where prosecutions overlap with civil claims.

Initial consultations are available on a fixed-fee basis for directors who have received a claim or a notification from AEAT, TGSS, or a creditor and need an urgent assessment of their position.