Corporate

Questions regarding the Resolution of the Spanish Directorate General for Legal Security and Public Faith of 23 May 2023

Published on 23rd Feb 2024

Directorate prohibits the appointment of the same natural person as a director and as a representative of a legal person director on a three-member board

Close up of people in a meeting, hands holding pens and going over papers

Facts

In its Resolution of 23 May 2023, the Directorate General for Legal Certainty and Public Faith (DGSJFP) confirmed that a director that is a legal entity may not be represented by a natural person who is already a member of the board of directors in a personal capacity, at least when the board is made up of three members.

In the structure proposed by the company, the DGSJFP questioned whether the "dual director" had a right of veto that allowed him to have control over the management body, and, therefore, would be able to block and/or abuse his position of power to adopt resolutions in favour of his interests or those of the shareholder he represented.

In the resolution, the company defended these appointments, indicating that they were made in accordance with the articles of association and the provisions of the current Spanish Companies Act (LSC), stressing that they are independent persons and that the potential conflict of interest and breach of the duty of loyalty alleged by the registrar were mere presumptions made by him to support his negative assessment.

Both the conflict of interest and the duty of loyalty are regulated in the LSC. There are respective legal mechanisms to condemn the practices should they occur. Article 230 of the LSC makes it clear that no provision in the articles of association can limit or be contrary to the regime relating to the duty of loyalty and refers to the liability arising from its infringement. Article 236.5 of the same Act, for its part, establishes that natural persons representing legal persons appointed as directors are jointly and severally liable with them.

Grounds for the Resolution

For its part, the DGSJFP argued that the proposed configuration of the board of directors does not comply with the majority principle, which establishes that decisions must be taken by majority vote, in a collegiate manner, and not individually.

Furthermore, it pointed out that this configuration could de facto grant a potential right of veto to the director in question, which it considers categorically inadmissible, insofar as the adoption of resolutions by majority would always require the consent of the director appointed in a dual capacity.

The decision of the DGSJFP is based mainly on precepts 210, 242 and 245 of the LSC, which refer to the rules on the configuration and structure of the administrative bodies. It also cites two resolutions of the DGSJFP (resolutions of 10 November 2023 and 25 April 1997), without going into much more detail in order to justify its decision.

Osborne Clarke Comment

On the basis of the Resolution of 23 May 2023, the DGSJFP prohibits the appointment of a natural person as representative of a legal person director on a three-member board of directors of someone who is already a director in a personal capacity in the same company.

The DGSJFP does not assess those cases in which the board of directors has more than three members, in which decision-making would not be so dependent on the "double" director in question. In our experience, the Commercial Registry has accepted to register the appointment of a natural person who acts as a representative of a legal person director and at the same time holds the position of director in a personal capacity, when the number of members of the board of directors was more than four directors. Consequently, such appointments did not imply granting a de facto right of veto or control to one of the directors with dual capacity. However, it is important to bear in mind that this practice does not guarantee future registrations, as registrars are not bound by previous qualifications made by other registrars.

In view of this situation, it would be desirable to have a regulatory development that settles this issue and clears up the remaining doubts. We will have to keep an eye on future rulings to see the different scenarios that the DGSJFP considers admissible. 

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* This article is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.

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