In this article, we will address a matter of utmost importance for those who hold the position of administrator of a capital company (limited company or public limited company), namely the duties of administrators and, specifically, the duty of diligence.
The position of company director (whatever form it takes, sole director, joint directors, joint and several directors, or board of directors) entails a series of powers, but also a series of obligations and duties.
This article will not address the many obligations imposed on company directors by the applicable regulations in the exercise of their duties (obligation to prepare annual accounts, obligation to convene shareholders' meetings in certain cases, etc.) but rather one of the two duties (along with the duty of loyalty) that Articles 225 to 232 of the Capital Companies Law generally impose on them in the exercise of their duties: the duty of diligence.
Duty of Diligence.
The first duty imposed on directors by law is to perform their duties with the diligence of a prudent businessperson. This standard of conduct serves as a guideline for them, so that, for the purposes of assessing their diligence in the performance of their duties and their compliance with the obligations imposed by law and the company's articles of association, it will be determined whether they have acted in accordance with this standard.
In turn, this generic duty is broken down into a series of duties that are a concrete expression of it.
1.1.- Duty to effectively perform the duties of the office.
The administrators are appointed to carry out the effective administration and representation of the company and this requires active conduct on their part, their decisive involvement in the fulfillment of the obligations that correspond to them, both in management, as well as representation and promotion of social life (calling of the Board, formulation of Annual Reports, drafting of reports, etc.).
1.2.- Duty of vigilance and supervision.
The duty of care requires active and continuous monitoring of the company, with the initiative in supervision resting with the directors. They must take all necessary measures to ensure effective control, overseeing the individuals and bodies to whom they delegate their powers and being aware of the most significant management decisions made.
Logically, the assessment of the conduct of the administrators for the purpose of verifying whether in their actions they have adhered to that duty, must appropriately assess the elements present in the case, such as the type of company (whether it is a small or medium-sized entity with a simple organizational structure or whether it is a large company with a large organizational structure) or the form of the administrative body (whether there is an administrative body with a simplified form with a single administrator, or several joint or several administrators, or whether, on the contrary, we are in the presence of a board of directors with a large number of members), since these circumstances will determine how the conduct of the administrators should be judged.
1.3.- Duty to be informed.
Company directors have the duty and the right to receive adequate information to perform their duties and functions, since obtaining and analyzing information is fundamental for diligent action, given that only well-informed directors can make the decisions necessary for the proper functioning of the company.
This right is unlimited, as it extends to any information or data necessary to perform their duties.
1.4.- Protection of business discretion.
The role of director, by its very nature, entails the need to make strategic and business decisions within the company. These types of decisions are made continuously within corporations, and their adoption involves a clear element of uncertainty regarding their future outcome. In this sense, any decision in this area can ultimately prove successful, but it can also be a mistake.
Therefore, the obligations assumed by administrators upon accepting the position do not entail the obligation to ensure the accuracy of all organizational, strategic, and business decisions, nor the economic success of all their decisions; that is, it is not possible to assess whether an administrator has been diligent in decision-making solely based on the accuracy or success of that decision.
Therefore, the rule established by the legislator to judge whether decision-making has complied with the duty of diligence is that such decisions will be considered to have been made diligently provided that the following elements are present in the decision-making process:
- That the administrator acted in good faith.
- That the administrator act without personal interest in the matter.
- That the decision be made in the presence of sufficient information.
- That the decision be adopted in accordance with an appropriate decision-making process.
Failure by administrators to exercise due diligence, if it causes harm to the company, its partners, or third parties, could lead to the administrators' liability towards them.
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A graduate in Law from the University of Barcelona and with a Master's degree in Business Law from the same university, he worked at the law firm Alonso-Cuevillas Advocats and later joined the Civil and Commercial Litigation department of the law firm Bufete Bueno Bartrina. He then joined the team at the firm Casamitjana-Cuyas-Morales, and subsequently continued his career at Bufete Herrera Advocats, in the Commercial and Litigation department. In November 2015, he joined aÀmbitJurídic i Econòmic, SLP, as a professional partner, to head the Commercial and Insolvency practice.
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