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The directors of companies are attributed with certain duties of compulsory compliance inherent to the performance of their post. Such duties may be summarised as follows:
- Duty of loyalty; and
- Duty to avoid situations of conflict of interest.
Both obligations have, as a general rule, an imperative character, in accordance with article 230 of the Spanish Capital Companies Act, and statutory provisions which limit them are not valid.
On this basis, in the following, we analyse the judgment of the Provincial Court of Barcelona of 26th September 2018, whereby the director of the company DIVERIS PUNT, composed of:
- a natural person (Mr. José M.)
- a legal entity (J.A.J, S.L.) and
- another legal entity (PROMOCIONES JE, S.L.),
was taken to court because, according to the claim, he had engaged in the prohibitions contained in article 230 of the Spanish Capital Companies Act.
Said director was taken to court by Mr. José M. and by J.A.J, S.L., who argued that the director of the company (i) had engaged in a conflict of interests by being director of two other companies – PROMOCIONES JE, S.L. and ETYSD, S.L. – with the same corporate object as DIVERIS and (ii) had engaged in the breach of non-competition by having entrusted the execution of works promoted by DIVERIS to ETYSD, S.L.
The director of the company challenged the claim alleging that the claimants knew that the defendant was the sole director of PROMOCIONES JE, S.L. and ETYSD, S.L., given that the partners reached an agreement that the defendant would provide the land and that the defendant, via ETYSD, S.L. would undertake the building works.
The judgment in first instance dismissed that the defendant had engaged in non-competition, given that the companies of which he is director already carried out their activity at the time when DIVERIS was incorporated. Thus, PROMOCIONES JE is owner of 50% of the share capital of DIVERIS. The claimant appealed against the judgment arguing that he was unaware that the defendant was furthermore director of two other construction companies and that ETYSD, S.L. was going to undertake the construction works.
The Provincial Court of Barcelona stipulates that it has already construed in two previous judgments that for the judicial separation of a director, evidence of unfair conduct or of actual harm to the company is not required in accordance with article 230 of the Spanish Capital Companies Act, all that is need to be proven is:
- that the defendant is director of a limited liability company,
- that at the same time he dedicates himself either as an employee or as self-employed (without actually being a director) to the same or a similar activity which constitutes the corporate object of the other company of which he is a director; and
- he has not been authorised by the general meeting of the company to carry out the activities mentioned in point 2. above.
The Provincial Court of Barcelona indicates, however, that although it is true that the general meeting of the company should give express authorisation to the director so that he may carry out the same or similar activities as those constituting the corporate object of the company of which he is director, regarding the case in question, it appears that, the partners of DIVERIS, upon the acquisition of 100% of the membership interests thereof, agreed that J.A.J., S.L. would provide the land upon which the works would be built and that the defendant, via one of his construction companies, would be responsible for the building works.
Said agreement was accepted by Mr. José M., who acted in his own name and on his own behalf and also in representation of J.A.J, S.L. during the court hearing.
The Provincial Court of Barcelona concludes by declaring that the claim goes against the principles of good faith and vulnerates the doctrine of the acts themselves.
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December 7th, 2018