The legal advisor: the great ignored

The Spanish legislator has addressed the renewal and updating of basic legal positions such as that of director, insolvency trustee, Chief Compliance Officer, independent expert and auditor. However, with the minimal modification carried out in 1989, the regulation of the position of legal advisor remains stuck in the 70s.

Despite being a mandatory appointment to provide legal advice to the management body (whether a Board of Directors or an individual manager) in companies of certain size, the position of legal advisor is a rare species. Such an appointment is mandatory for Spanish companies whose capital is equal or superior to 300,506.06 € or when, according to the balance sheet and accounting documentation corresponding to the previous tax year, the normal volume of business reaches 601,012.10 € or fixed workforce exceeds 50 employees. This requirement is also mandatory for foreign companies with a branch or establishment in Spain having a volume of operations, business or permanent staff falling within the above parameters.

The Spanish legislator has been very active in processing multiple regulations in terms of Company Law that modify and create different corporate entities and update the roles of director, Chief Compliance Officer, independent expert, and auditor, as well as the present on-going reform of the insolvency trustee to meet current times. However, the position of legal advisor has remained relegated to the sidelines.

Such is the ostracism of this figure that questions regarding whether this role could be carried out by a legal entity, in a similar fashion to the exercise of the post of director came into the legal arena not long ago. There are several doctrinal opinions on the matter that favourably interpret this possibility, especially considering the regulations in terms of professional companies. However, such an integrative approach was not clarified until 10 June 2011 (22 years after the sole reform of the special legislation in 1989) through the Report of the Legal Advisory Commission of the Consejo General de la Abogacía Española (General Council of Spanish Lawyers) on the regulation of the mandatory legal advisor. In addition, it should be noted that neither in the special nor the general regulations is the need for the registration of the appointment mentioned, nor do they specify the corporate body that should appoint the legal advisor, which in our opinion can be none other than the Shareholders Meeting.

Linked to the above, the responsibility assumed by the natural person who performs the duties of legal advisor is not trivial, nor is it mitigated by the fact that a legal person is appointed, given that the responsibility of the legal and natural person that carry out the position is effectively one (similarly to the position and exercise of the role of director). It is necessary to consider the above in the context of individual D & O policies which must expressly feature coverage of the legal advisor post and both legal and natural persons that perform it.

Beyond this, this oversight on the part of the legislator is surprising inasmuch as, indirectly and as a result of all of the updating of the commercial regulations, they have a relevant interest in issues such as the criminal responsibility of companies following the reform of the Spanish Penal Code (the fashionable Compliance) and the regime of the liability of directors.

The consequence resulting from a breach by companies obligated to appoint a legal advisor deserves special review. Although this does not affect the validity of the agreements, such an “oversight” may be subject to assessment in any liability action against the directors, leaving it to the judge to determine the impact of such a breach. It must be added that, under Article 31 bis of the Spanish Penal Code, the company liable for the criminal acts committed not only by action but also by omission of due control so that the omission of the figure of legal advisor becomes relevant. Bearing in mind the recent penal reform of 2015, there is not yet any case law that allows us to further assess how such an oversight will be taken into account by a judge with regard to the attribution of criminal responsibility to the company. Indeed, the acclaimed Judgement 154/2016, of 26 February of the Supreme Court (first judgement to sentence a legal person) does not address this specific issue. In fact, there is not even any case law regarding the impact this has on the social responsibility processes derived from the agreements or decisions of the management body, leading us to endorse the “great ignored” status of the role of the legal advisor.