The consequences of not requesting the bankruptcy of an insolvent company: beyond the responsibility towards the company

It is necessary to start from the fundamental principle that every capital company delegates its management to an administrative body. This body’s primary function is to represent the company in all its actions and make decisions for its efficient functioning within the limits of its powers, which remain established both in the company’s statutes and the Capital Companies Law, from now on LSC.

Specifically, the figure of the company administrator is regulated in Title VI of Royal Legislative Decree 1/2010 of July 2, which approves the consolidated text of the Capital Companies Law.

This set of articles must be known and understood completely, serving as a guide for administrators’ activities. Among them are the regulation of the administrator’s competence, the different ways of organizing the body, requirements, prohibitions, the appointment and acceptance of the position, registration, remuneration, duration of the position, expiration, cessation, the power of representation of the company, and the duties and responsibilities of administrators.

The duties are specifically regulated in articles 225 to 232 LSC, recognizing the duty to act in good faith, with loyalty and the general duty of diligence, which also derives from and binds the rest of them.

We must expressly mention the diligence required of them since after the reform of the LSC, coming from Law 31/2014, it surpasses that of the ” good father of a family”, reaching that of “an orderly businessman”. The regulation of this duty fulfils a double function: on the one hand, it is a guide that illustrates and instructs how directors must behave in performing their duties and, on the other, it establishes the basis criteria to examine the responsibility resulting from non-compliance of those basic duties.

Therefore, and again, it is worth highlighting the importance of knowing, understanding and acting with knowledge of the facts, and having the support of a team that can provide clear and truthful information on the state of society at all times.

Once the duties and obligations are known, it is important to analyze the consequences for the company administrator if he does not request bankruptcy.

First of all, we must start from the basis established by article 363 LSC, regulating the assessed and mandatory causes for which the company must be dissolved:

“The company must be dissolved when the losses reduce the net assets to less than half of the share capital unless this increases or is reduced to a sufficient extent, and provided that it is not appropriate to request the declaration of bankruptcy.” .

This directly implies knowing when it is appropriate to request the declaration of bankruptcy. To do so, we must go to the consolidated text of the Bankruptcy Law, which establishes in its article 2 that the declaration of bankruptcy will proceed in the event of the debtor’s insolvency, which may be current or imminent. Both duties lead us to talk about the first consequence that can be derived from this: the iuris tantum presumption of guilt within the bankruptcy proceedings.

“The bankruptcy is presumed guilty, unless proven otherwise, when the debtor or, where appropriate, its legal representatives, administrators or liquidators have failed to comply with the duty to request the declaration of bankruptcy.”

It is not possible to think that this classification of guilt would be limited to the company, since as its directors, they can be considered people affected by this classification, which can always mean:

• The disqualification to manage other people’s property for a period of two to fifteen years, as well as to represent any person during the same period,
• The condemnation of the costs of the company’s bankruptcy, in accordance with article 455.3.2º of the TRLC.
• The coverage of the deficit, with or without solidarity, total or partial, to the extent that their conduct has determined the classification of the bankruptcy as guilty, considering how it would have generated or aggravated the insolvency.

Secondly, it is necessary to refer to article 367 LSC to know the cases in which the directors are jointly and severally liable for the corporate debts provided that within two months from the occurrence of the cause of dissolution or acceptance of the appointment, they would have informed the court of the existence of negotiations with creditors to reach a restructuring plan or they would have requested the declaration of bankruptcy of the company.

Having examined the cases in which the administrator may be affected by not requesting bankruptcy proceedings of the company, it is necessary to highlight the importance of a general, and often presumed, duty of diligence in the actions of the administrators, the failure of which entails consequences. that go far beyond responsibility towards society, affecting first-hand their sphere. (Source E&J.)