The Administrator has a duty to communicate the filing of a lawsuit against the company.

Our Capital Companies Law regulates the possible conflicts of interest that may exist between the Administrator and the company itself, within the mere logic those aspects in which it must refrain from acting are regulated, either because they converge directly against the interests of the company, or in any of the cases in which to act in defense of its particular interests, these acts may undermine the rights of the legal person itself.

On this aspect, the Supreme Court resolves in the judgment of April 7, 2016, in which the CEO and partner of the company Pefabricats Banyoles, S.L., exercised an action for reimbursement against said company for amounts that he had to pay personally as a guarantor to the Caixa Terrasa entity, for not having paid them at the time the company when it was obliged.

The controversy of the matter focuses on what is considered a situation of conflict of interest and how far the duty of the Director to inform the members of the Board of Directors of the filing of a lawsuit, and in case of not acting in accordance with the law, what would be the consequences of its breach.

Filing a claim for reimbursement as a conflict of interest with the company.

The director of the company, or where appropriate the CEO, has the duty to adopt the necessary measures to avoid incurring in situations in which their interests, whether on their own account or for others, may conflict with the social interest and with their duties to the company (art- 228.e of the Capital Companies Law, TRLSC), and it is these who must communicate to the rest of the directors, or if they are unique to the General Meeting, as well as if he is CEO to the Board of Directors, any situation of conflict, direct or indirect, that they or persons linked to them may have with the interest of the company art. 229 TRLSC.

In cases where it is understood that there is an infringement in the duty of loyalty, the administrator or CEO may be applied for compensation for the damage caused to the company’s assets, as well as, if applicable, to return to the company the unjust enrichment that it has first obtained. To this action may be added others of challenge, cessation or removal of effects, as well as annulment of acts or contracts concluded in violation of the duty of good faith of the administrator.

Likewise, any act that, due to conflict with the social interest, harms the partners or creditors, they may also file their corresponding actions for the damages that these acts may have caused them.

In the case prosecuted by the Supreme Court, the exercise of an action for reimbursement by the CEO against the company, is an act that is clearly framed within the assumptions that generate conflict of interest, due to the fact of the existence of conflicting interests between the CEO and the defendant company, and that as a consequence they put at risk the interests of society.

Duty to notify other directors or the Board of Directors

The CEO, in accordance with article 229 of the TRLSC, must inform the Board of Directors. This obligation is a sign of their duty of loyalty, together with that of exempting themselves from acting in any agreement or decision regarding the operations that the conflict may generate.

On the duty of communication to the rest of the directors, General Meeting (in case of sole administrator), or to the Board of Directors, it is not specified in the regulations what should be the temporary moment in which the notice must be made, if it can be later, or within what period it should be communicated, so it does not specify if the duty of communication must be made to all administrators, members of the board of directors or General Meeting, or by the mere notice of the existence of the conflict of interest to one of them, the obligation of communication is understood to have been fulfilled.

In the case of the judgment, the Supreme Court analyzes this situation, in which the Counselor first files the claim for reimbursement, and once it is filed, it is when he proceeds to communicate it to one of the members of the Council, since it is with which he had the most affinity.

Well, the Supreme Court considers that prior communication to the Council is not necessary, and allows the filing of the application first and then that the duty of communication is fulfilled, yes, provided that the information of the subsequent conflict of interests allows the exercise of defense of the legitimate interests of the company, that is, taking the example of this case, it was understood that the duty of communication was fulfilled in time, because at the time of its implementation it allowed the company to appear as a defendant and make the corresponding response to the claim.

Likewise, the fact that the communication was made to only one of the members of the Board, does not invalidate the fulfillment of the duty of communication, since it is understood that the Board of Directors had been correctly informed, as to be able to act as a party in the judicial process initiated and therefore valid in any case to understand fulfilled the obligation of communication established in article 229 of the Capital Companies Law.

It is not considered, therefore, that in the event of a conflict of interest of the CEO with the company, because the latter has filed a claim for reimbursement against the company, the latter has acted contrary to law by communicating the fact after the filing of the lawsuit and by communicating it only to one of the members of the Board, provided that, as has been the case, it has allowed the company to exercise its rights of defence in the judicial process resulting from the conflict of interest.

Experts in national and international business consulting