Directors, watch out for joint and several liability
From the unexpected corner
The risks for entrepreneurs and businesses are already so extensive in today’s dynamic world, you would almost forget that there may also be those from legislation. Most entrepreneurs and directors are also directors (in Spain ‘administrador’) of their companies. And before you know it – or rather ‘without’ knowing it – you may suddenly find yourself jointly and severally liable from that capacity.
Thus, even here, significant risks can come from unexpected quarters.
Within two months

Directors are required by law “within two months after they could have signaled that the company had insufficient equity, and would no longer be able to meet obligations, to present this to the shareholders” – which may be themselves – who must then come up with a solution.

If this is not done within that time or no solution is offered, directors are legally required to liquidate the company. This is in part so as not to incur further debts and not to further disadvantage third parties.

If directors do not do so strictly according to regulations, they are negligent which is considered mismanagement. This then automatically creates a situation of joint and several liability for the board.

June, financial statements

While there are many times when directors should be able to determine insolvency, the presentation of the financial statements is certainly such a time.

It should be prepared and signed no later than 6 months after the end of the fiscal year, usually in the month of June, or this month.

There is already insufficient equity – insolvency – if it is less than 50% of the share capital due to losses.

So even if the equity is still positive – but less than 50% of the share capital – you can already become jointly and severally liable.

Then just sell your boat anyway

Many will remember the advertisement of the entrepreneur in financial distress, where the partner had the great tip of “then just sell your boat”. That was then about a credit solution.

In case of advice for the prevention of directors’ liability risks, and also in order to keep the boat, OTIS is happy to be your partner.

OTIS can assist in the proper formulation of deeds and provide solutions, for example, to legally restore equity.

Do you have questions about this or want legal guidance? Email OTIS via this link.

Don’t have insurance yet?

OTIS likes to think proactively.

Don’t have director’s liability insurance yet?

Then easily contact the Dutch specialist in this field, IFAR insurances, via this link.

Engage OTIS?

Then email us easily and without obligation via this link, you are welcome.

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