Prior to the Supreme Court Judgment 98/2018, the majority view of the Directorate General of Registries and Notaries (DGRN) and the Provincial Courts was that a dual system existed for the remuneration of the administrative body of the companies:
- Article 217 of the Capital Companies Act (Ley de Sociedades de Capital – “LSC”) regarding the remuneration of company directors, made exclusive reference to the functions of administration as such, that is to say, deliberative and supervision functions, etc.
- Article 249 of the LSC regarding the delegation of the faculties of the board of directors made exclusive reference to the remuneration of the executive functions, that is to say the ordinary management of the company.
On the basis of the above differentiations, a distinction was made between the remuneration of directors which should be, in any case, subject to statutory provision, and therefore, subject to the maximum annual remuneration approved by the partners’ meeting, and that the retribution of the executive functions of managing directors, which was neither subject to the statutory provision, nor limited by the maximum annual remuneration approved by the partners.
Supreme Court Judgment 98/2018 unsettled this system, deviating from what had been the majority view, pointing out that the remuneration of the executive functions of the managing directors was also subject to statutory provision and that it must comply with the maximum limit of annual retribution approved by the general partners meeting for this year.
Hence, the resolution of 31st October 2018 of the Directorate General of Registries and Notaries (DGRN) has admitted an appeal filed against the resolution of a registrar who refused the inscription of the decisions taken by the sole shareholder of a joint stock company regarding the modification of the company bylaws, censuring various paragraphs which did not “establish the retribution system or systems for board members with executive functions”. However, the Directorate General of Registries and Notaries (DGRN) dismissed the reasons given by the registrar for non-registration, on the understanding that the remuneration system was in place, although “it does not coincide with the usual perception, in practice”, thus introducing the idea that the retribution system of the administration organ must be flexible.
The interesting part of this resolution is the fifth legal argument, in which the twenty-third legal argument of Supreme Court Judgment 98/2018 is mentioned, and the need for the statutory provision to be interpreted with a certain flexibility is reiterated, pointing out that the attribution of the competence to fix the retribution of the managing directors to the board of directors must be construed as recognition of the scope of autonomy within the statutory framework, which “allows the retribution of the board members or executives to be adapted to the changing demands of the companies themselves and the general economic traffic”, provided that due guarantees are respected for the partners and they are not surprised by disproportionate retributions.
However, we still have to wait for an additional resolution or judgment, although the resolution of the Directorate General of Registries and Notaries (DGRN) does not depart in substance from Supreme Court Judgment 98/2018, it seems that it is starting to indicate that with regard to the remuneration of the managing directors, flexibility and the scope of autonomy should prevail, but always within the statutory framework.
Pedro Blanco
Vilá Abogados
For further information, please contact:
