The director of a capital company has never borne more risks and responsibilities than at present. From an economic standpoint, and perhaps as its essential responsibility, the director must ensure not only its survival but also the generation of profits to be distributed among partners and shareholders, since this is essentially the objective with which a capital company is established. But this objective cannot be achieved in just any manner or by any means; it must be pursued in accordance with the rules established in the company’s statutes and under the law. Accordingly, the director must act towards both third parties and shareholders in accordance with prescribed rules that cannot be breached, whether or not those actions ultimately result in loss or profit.
Among the duties that the law imposes on the director is the duty of loyalty when performing their organisational, representative and executive functions in the capital company. This duty is set out in Article 227 et seq of the Spanish Capital Companies Act (Ley de Sociedades de Capital, “LSC”). The difficulty lies in the fact that the definition proposed by the legislator contains adjectives and abstract concepts that require a comparative analysis between the theoretical concept and the director’s action or omission, taking the circumstances of the case into account.
Article 227 stipulates that:
“Directors will have to perform their duties with the loyalty of a faithful representative of good faith and in the best interests of the company”
The first element of this definition of conduct is the “faithful representative acting in good faith”, which is rooted in the concept of “diligent businessperson” and, in turn, incorporates the element of loyalty and proper conduct towards the company and its shareholders. For present purposes, we will highlight that the loyal behaviour required of directors obliges them to avoid situations of conflict of interest, as expressly stated in Article 228.e of the LSC, that is, situations in which there is a conflict between the director’s own interest and that of the company or the corporate interest.
The second defining feature of loyal conduct is the “interest of the company”, which the law does not define, but which the case law of the Spanish Supreme Court (Tribunal Supremo, “TS”) has defined as the “interest of the body of shareholders as a whole (the sum of the individual interests of the shareholders)”. Among the most relevant and recent judgements referring to this concept is the TS 889/2021 of 21st December 2021.
Consequently, the director’s loyal conduct must be guided by loyalty to the company and to the body of its shareholders, placing their interests above the director’s own in the exercise of those functions.
Directors who violate the duty of loyalty are liable to the company and its shareholders for the damage caused, provided that there is intent or negligence (Article 236 LSC), and negligence is presumed where the act (or omission) is contrary to the law or the company statutes, unless proven otherwise.
On the other hand, liability claims against a director may be brought either through individual action or through a corporate action. The former is provided for in Article 241 of the LSC and corresponds to shareholders and third parties in respect of acts by directors that directly harm their interests, while corporate action (Article 238 LSC) is brought in order to remedy damage caused directly to the company’s assets by unlawful acts carried out by directors or by their breach of duties, and requires the prior approval of the general meeting of shareholders or partners, subject to certain exceptions.
Disloyal conduct stemming from situations of conflict of interest.
One of the most frequent grounds for holding directors liable arises from conduct undertaken in situations of conflict of interest. Article 229 of the LSC requires the director to avoid such situations, listing six specific cases and establishing that the prohibition also applies in cases where the beneficiary of the prohibited acts is a person connected to the director. Nevertheless, it is important to remember that the list of prohibited forms of conduct contained in Article 229, as well as the basic obligations derived from the duty of loyalty contained in Article 228 of the LSC, have a merely exemplary character, as the Spanish Supreme Court Judgement 613/2020 of the 17thNovember 2020 made clear.
Also, it is worth having in mind that the rules governing a director’s duty of loyalty and the liability arising from its breach are mandatory, as set out in Article 230.1 of the LSC. However, as the second section of the same article provides, the prohibitions applicable to directors concerning situations of conflict of interest (Article 229 LSC) are not absolute. These are “relative” prohibitions insofar as the company itself may grant an exemption through a resolution of the general meeting of shareholders. The same exemption mechanism also applies, in the case of private limited companies, to the establishment or modification of any type of service or work between the company and one or various directors, which are prohibited unless authorised by the general meeting of shareholders. The exemption may be applied either before the act is carried out or after, by way of ratification.
The conclusion of service contract between the director and the natural or legal persons connected to them constitutes a good example of the conflict of interest situations mentioned above. Failure to inform the general meeting of the existence of a conflict of interest in the conclusion of such contracts and to obtain the corresponding exemption constitutes, in itself, an act of disloyalty. This act is disloyal in nature irrespective of its relevance in relation to any corporate action for liability that may be brought, as confirmed by the Spanish Supreme Court Judgement 449/2025 of the 20th March 2025. This clarification, contained tangentially in the Eighth Legal Ground of said judgement, is significant because both the individual and the corporate actions seek to remedy the damage caused, whether to shareholders or to third parties, or to the company itself, and in all cases have a restorative nature and purpose.
Accordingly, it might be thought that if the director’s action, contrary to the law or the company’s statutes, does not entail actual damage to the company, the outcome of the corporate action, even if the existence of the alleged disloyal act were established, would have little or no practical effect.
In this regard, it is worth citing the Judgement of the Provincial Court of the Balearic Islands of the 11th September 2025, which examined the loyal conduct of a director who had hired two relatives without prior notification to the general meeting and without obtaining the corresponding exemption. The defendants argued that the hiring had not caused any damage to the company; on the contrary, the results had considerably approved since they were hired. The Provincial Court focuses on the objective existence of the director’s disloyal conduct, which is established irrespective of other considerations and of the final economic outcome of that conduct. It rejects the appellant’s argument that the authorisation would in any event have been granted by the general meeting, since the defendant directors held a majority and therefore submitting the matter to the meeting would have been unnecessary (although, in fact, they never raised the issue before the meeting). Citing the aforementioned Spanish Supreme Court Judgement 449/2025, the Provincial Court insists that “the communication must be express and (…) the failure of the sole director to inform the general meeting of shareholders already constitutes, per se, a breach of the duty of loyalty.”
For the purpose of considering whether disloyal conduct existed and whether any damage was caused therefrom, the Judgement of the Provincial Court of the Balearic Islands disregards the indirect effect of the increase in the company’s profits resulting from the work of the persons hired, and likewise does not examine whether their renumeration was proportionate or excessive. Rather, it simply considers that the damage to the company resulting from such hirings consists of the amounts received by the administrator’s brothers who were hired by her, arising from the mere fact of contracting with them, “as this entailed the company making a payment without the authorisation of the competent corporate body that would have permitted it.” Overall, the reproachable conduct lies in the hiring (in itself) of two persons connected to the director with neither the authorisation nor the knowledge of the shareholder meeting, such that the fact that the hiring may have had positive consequences for the company’s performance does not exclude the existence of a breach of the duty of loyalty.
However, this identification of the “damage” with the perceived remuneration for the persons connected to the administrator is not exempt from criticism, insofar that it seems contradictory to recognise – even if only implicitly – that the performance of the persons hired brought about positive operating results for the company, and at the same time, to consider that the payments made to those persons constitute harm to the company merely because they were hired in a situation of conflict of interest.
As the Spanish Supreme Court Judgement 449/2025 rightly distinguished, the breach of the duty of loyalty is one thing, but its relevance for the purposes of corporate action for liability is another. If the object of reproach is the breach of the duty of loyalty itself (per se and irrespective of any harmful effect on the company), the appropriate consequence would be the annulment of the contracting act, since it was never approved by the general meeting of shareholders, and as a result of the ex tunc effect of such annulment, the amounts received would have to be returned. By contrast, the Provincial Court of the Balearic Islands automatically equates the payments made to the connected persons with the damage effectively caused, which appears, at the very least, open to criticism or even inappropriate, since in that case the hiring not only caused no harm to the company’s assets but, paradoxically, a benefit.
Let us recall that within the framework of the corporate liability action, the breach of the duty of loyalty must have incurred damage to the company itself, which is what is intended to be compensated (STS 449/2025). In our view, damage could only be established if, as a consequence of the contracting, acts had been caried out that had resulted in harm to the company – beyond the breach of the obligation to disclose and to obtain authorisation from the general meeting of shareholders – which is what must be examined in substance to determine the existence and, where appropriate, the quantification of the damage. It appears neither logical nor balanced that mere disloyalty should necessarily result in damage to the company’s assets; such damage will only arise if it actually occurs, which would require the court to analyse this issue in light of the specific circumstances of the case.
In the absence of any effective damage to the company’s assets, the director’s obligation to return the amounts received by the contracted related person in fact stems from the declaration of nullity – retroactive to the date of the contract – of a legal transaction prohibition to the director and therefore flawed from the outset for having failed to obtain approval from the general meeting of shareholders or subsequent ratification by it. Unlike other cases examined in case law, in the matter addressed by the Provincial Court of the Balearic Islands, the contract entered into with the director’s two brothers did not suffer from a “fumus of unnecessary nature”, since the services were effectively provided, and (without this being disputed by the Court) with a beneficial effect for the company; thus, it was neither an unnecessary expense, nor did it result in harm to the company’s assets. Therefore, it is imperative to assess whether actual damage exists in order to impose liability for damages; the basis for the resolution of the contract and the corresponding restitution of the amounts paid to the connected person is not the existence of the damage, but rather the mere breach of the duty of loyalty. As a consequence of the foregoing, a corporate liability action may very well end in a judgement annulling a contract entered into by the director with a connected person, and ordering the restitution of the amounts received, while nevertheless exempting the director from liability for damages where no tangible harm to the company’s interests or assets had resulted from such conduct.
Finally, it is worth briefly addressing the legal costs incurred by the company in proceedings in which the legality of certain acts or legal transactions of the company is challenged, in which the director participated in breach of the duty of loyalty. The expenses borne by the company in the (unsuccessful) defence of the legality of such acts or legal transactions – pursued through actions of the director that were ultimately proven to be disloyal – should be borne by the director, insofar as the latter acted procedurally on behalf of the company to defend her own interests rather than those of the company.
Eduardo Vilá
Vilá Abogados
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20th March 2026
