Company insolvency
It is not uncommon for limited liability companies to file for bankruptcy because they are unable to meet their debts. The great advantage of a limited company is that the shareholders are not personally responsible.The shareholders’ personal property would not affected.
However, it should be mind that “limited liability” only applies to shareholders, but not the legal representative (director) or general manager. According to Article 163 of the Spanish Insolvency Act, the causes of insolvency of a company can be qualified as fortuitous or guilty insolvency.Fortuitous is, as the name implies, the failure of a company to operate because of external factors such as economic downturn, high competition etc. Guilty insolvency is due to some human factors or serious negligence (for example, the company made false accounts, illegal acts, illegal transfer of company funds, etc.). If the cause of the company’s bankruptcy is deemed guilty, then the legal representative would be found responsible for paying the debts.
Note: If the legal representative can prove that the bankruptcy of the company is not related to his actions, then he can be exempted from punishment.
Company general manager would be also affected
First of all, it is important to understand the difference between generam manager (apoderado general) and an director.
The law states that only the legal representative (director) has the right to manage the company (Administrador in Spanish). The legal representative’s signature or authorization is required to access the company’s funds and to sign contracts for the company. The legal representative is appointed by the General Meeting of Shareholders. Usually, the legal representative of a large company is not a single person, but a “board of directors”.
Thelegal representative may be too busy to be able to take care of all the company’s affairs. Therefore, the law allows the legal representative to authorize another person to represent the company, namely “apoderado”. There are two types of authorized persons, the first is the “apoderado especia”l, which is a person who is authorized to do a specific thing on behalf of the company (for example, to sign a contract). This authorization is temporary, and when this specific contract is signed, the authorized person will no longer represent the company.
The second is the apoderado general, that is, the person who can do a wide range of things on behalf of the company (for example, transfer money, deposit money, sign contracts etc.). This type of authorization is usually not specific, and the authorizer can exercise a variety of faculties.
In view of these two distinctions, Article 163 of the Bankruptcy Code provides that the general manager (apoderado general), like the legal representative, would also be responsible in caso of guilty insolvency as long as the insolvency causes are related to the general manager actions. In such case, personal property will be liable to pay the company’s debt.
