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Harmful Instructions to Corporation Issued by the General Board of Members

Georgina Bergos's picture
Published: 30/10/18 - Country: Spain

Injurious Instructions to the corporation issued by the General Shareholders' Meeting or by the parent of the Group may be responsible for the personal liability of the administrators who execute them and of the parent / majority partner / sole shareholder.

If the General Shareholders' Meeting or the parent company, they instruct the company's directors, so that they execute acts that are advantageous for the Group to which they belong or for another company owned by the sole or majority shareholder, but that are detrimental to the interest of the society that administers (such as the deviation ; from the clientele or sale of part of the essential assets in favor of another company owned by the partner majority or other affiliate of the parent company) , administrators may end up being responsible on a personal basis of the damages that these acts cause to the society they administer.

Instructions given by the General Board to the Administration body

Compensation for the corporation

Compensation features

Responsibility administrators / parent company / sole majority shareholder

Measures to avoid personal liability of society's administrators

Instructions injurious for society but beneficial for the Group, the parent company or the majority or sole shareholder

YES
  • It must exist
  • Be prior, simultaneous or later.
  • Verifiable
  • Have economic value
  • Proportional to the damage suffered by society.

There is no responsibility

_______
NO
         _____

They are responsible

(If it is exercise the social action of liability by minority partner / creditors, administrators will respond ; with their personal assets, of the damages suffered by society.)

The parent company and the majority or sole shareholder will also respond if the administrator requirements are met in fact.

Sole administrator

  • Oppose the instructions.
  • If you do not get compensation for the company, do not execute the instructions.
  • Refusal ; may result in resignation or removal from office.

Directors Board of Directors

  • Vote against.
  • Transfer to counselors a letter with the reasons for their opposition.
  • Challenge the Board Agreement or resign / resign from office.

The company must receive compensation or advantage for the execution of instructions that are harmful to their interests.

To ensure that it is not considered harmful to the interests of the company, it is essential that the company or subsidiary obtain any advantage or compensation in the short term, that compensates it for the damages it would suffer, and to restore the balance between the interests of the other company of the Group or of the sole or majority shareholder and the interests of the injured company.

This compensation or advantage has to exist really; must be prior, simultaneous or subsequent, verifiable, have a economic value and must be proportional with the damage suffered by the company (subsidiary ).

But if the decision, agreement or instruction is so serious, the company or subsidiary does not obtain any advantage, return or compensation of any kind in the short term (in 1 year for example) and the administrator accepts it and executes it, the legal administrator will be responsible for the damages that these acts cause to society . And consequently, the action of social responsibility exercised by the minority shareholders or by the creditors of the company may be directed against him, with the consequent serious personal economic responsibilities.

Limits on the instructions of the parent and of the majority or only shareholder

The parent company and the majority or sole shareholder, have the right to give instructions to the management body, and these interferences in the management of the company by the General Board or the parent of the Group, do not have to be derived harmful consequences for its legal administrators, with the following exception or limit:

The instructions can not be harmful to the interests of society .

If these instructions or guidelines are harmful to the assets of the company itself or to its creditors, the company must receive sufficient financial compensation for the damages suffered; if it does not receive it, the administrators will be responsible for the damages caused by the execution of these agreements or instructions to the company.

The duties of loyalty and diligence of the managers before the company are above their subordination to the General Meeting or to the interests of the group

The fact that the directors have limited themselves to executing certain acts or instructions agreed upon and imposed by the General Meeting or given by the parent company of the group to which they belong, does not protect them against the actions of social responsibility that may be undertaken by them. creditors or minority shareholders, because their duties of loyalty and diligence towards the company, are above their subordination to the General Board or the interests of the group.

The Capital Companies Act expressly states that the fact that the agreement or act has been adopted, authorized or ratified by the General Meeting , does not exonerate or reduce the responsibility of administrators.

And the minor jurisprudence of the provincial hearings, in accordance with the criteria of Supreme Court decision number 695/2015 of December 11, applies the criterion that the instructions of the matrix or the resolutions of the general meeting , never exonerate the legal administrator from the responsibility that they have against the society they administer.

In these cases, if certain requirements are met and certain requirements are met, the parent company, or the sole shareholder or majority partner may be considered "de facto administrators" and may also be responsible person and "add" responsibilities , but never exonerate the liability of legal administrators.

Measures to be taken by the administrators so as not to incur personal responsibility for injurious instructions without compensation for the Company.

If this situation occurs, in order to prevent the incursion in personal patrimonial responsibilities, the administrators would have to adopt the following measures:

  1. They would have to oppose the guidelines or instructions of the Board or the parent of the group to which they belong unless they obtain compensation, and if they do not get a short-term compensation or advantage for the society that balances the losses or damages that will be caused, would have to refuse to execute the measures , because by legal imperative, their duties of loyalty and diligence that they have in front of the society, they are over the decisions of the board or the interests of the group to which the company belongs; ;
  2. If it is not possible to oppose or not to be accepted by the Board or the parent of the group, the compensation to the company for the damages that will be caused to it, it would have to resign and resign in the position;

In the cases in which the company is managed by a board of directors , given that the responsibility of all its members is joint and several and that the actions to be undertaken by ; the company, in compliance with the resolutions of the General Meeting or the instructions received from the parent company, must also be agreed by the members of the board, the directors who are not in agreement with the actions to be undertaken by the company, and who wish to protect themselves from future economic liabilities that may arise, they should record unequivocally that they have done everything in their power to avoid the damage, and at least that they have opposed the adoption of the agreement.

In order to record unequivocally your opposition, and that you have done everything in your power to avoid the damage, you would have to take the following measures:

  1. Vote against the adoption of the agreement for the execution of the measures or instructions and have your opposition recorded in the minutes together with the indication and statement of the reasons for which you oppose (that the agreement is illicit, or that goes against the interests of the company, or the bylaws based on the reasons and circumstances that are considered); or
  2. If the agreement has been adopted in his absence or there is a CEO or executive committee, and a meeting of the board of directors is not necessary, transfer to all members of the board a letter or letter , communicating its opposition to the agreement or instructions, and its execution, with an explanation of the reasons or reasons for which it is opposed or on which it is based.
  3. Within 30 days of its adoption , challenge the agreement for being harmful to the corporate interest, or as the case may be, for being contrary to the law or the bylaws, and, ask for < u> precautionary measure, the suspension of its execution.
  4. If it can not adopt the measures of paragraphs a) b) and c) above, and does not wish to incur joint and several liability with the rest of the directors, it will have no choice but to present its resignation or resign < / u> to the position of counselor.

If the administrator / counselor does not carry out the measures, and execute the instructions or guidelines that are harmful to the company without obtaining ; of the corresponding compensations for the company, they will be responsible for the patrimonial damages that these acts cause to the society , and they will run the risk that a future action of social responsibility will be directed against them, with the serious consequences economic personal assets that may be derived from it.

Decisions and measures all of which can often be very difficult to adopt, especially in those cases in which, along with the condition of administrator, the condition of a qualified manager of the company concurs, and that all or large part of the personal income comes from that society.

But every administrator must bear in mind that his duties of orderly management, loyal representation, loyalty to the interest of society and loyalty to society, refer first to the society of which they are administrators and not to the group company to which they belong or to the majority or sole shareholder.

And, therefore, that the administrator has acted in execution of instructions or guidelines of the general meeting or the parent, never, by this single fact, exonerate him from his responsibility or be a shield that protects .

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Georgina Bergos's picture

Mrs.Bergos is characterized by its high involvement in the problems and issues of the client. She likes to deal with him, study his case, plan, decide the strategy to follow to defend his interests, accompany him in his decisions, imagine, find and implement the most appropriate solutions. Knowing and understanding what the client wants, what their objective is, what their needs are and then working together to achieve it and achieve it efficiently, provides great satisfaction.
 
She believes that every customer relationship must be constructive, positive.
 
She likes working with companies that have values, that are competitive, that strive and fight for their dreams. And above all with the people behind the companies.