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PRINT THIS PAGE Spanish Transparency Act tightens up directors’ duties05/10/2005. Source: SJ Berwin. Carlos Pazos, Jesus Duran
Whilst UK policymakers have increased the protection available to directors, there has been a trend in Spain to raise directors’ duties and liabilities, notes SJ Berwin's Spanish private equity team. The Aldama Report published in 2003 aimed to promote transparency and security both on the financial markets and in listed companies.
The Transparency Act, however, applies to all companies, including private companies. The Transparency Act introduced far-reaching amendments into company law: greater obligations to disclose information to shareholders and the market; new rules relating to shareholder meetings, organisation and bylaws; and a clarification and extension of directors’ duties and liabilities.
In addition to confirming that directors owe shareholders a duty of care and skill, the Act expands directors’ duties of fidelity and loyalty to prevent them from exploiting their position for their own benefit or that of a related party. In particular, a director may not use the company’s name or his status for his own purpose as this would constitute taking unfair advantage of a business opportunity that arose due to his directorship.
Furthermore, the Transparency Act has significantly increased directors’ obligations in respect of conflicts of interest. Spanish directors are not only required to inform the board of directors of any conflict situations and to abstain from voting, directors must also report conflicts of interest to the shareholders in the annual corporate governance report.
The annual report must also include details of any shareholdings or offices held in competing companies; what duties the director has discharged in those companies; and any additional activities he has carried out for himself or others that are similar to those of the company. Additionally, directors must report all transactions with the company or any group companies that are not in the course of ordinary business or at arm’s length.
Finally, the Transparency Act regulates directors’ duties of confidentiality and secrecy. Following resignation or termination of their contract, directors must keep any confidential information acquired due to their position secret and are prohibited from disclosing it in any way that could damage the company’s interest.
The new Insolvency Act has also increased the duties and liabilities of directors in the event of insolvency. If a company becomes insolvent due to negligent or fraudulent management, the scope of directors’ liabilities increases and their personal assets may be seized. The new range of duties and liabilities apply to nominated and de facto directors as well as anybody who was a director up to two years before any insolvency proceedings.
Although reform was long overdue in Spain and tighter rules on directors’ duties are generally positive, private equity houses must ensure they are prepared for this regime, ensuring proper training and procedures are in place for nominated directors.
Carlos Pazos is a partner in the Madrid office of SJ Berwin. He specialises in M&A, private equity and venture capital.
He can be contacted on:
T +34 91 4260050
E carlos.pazos@sjberwin.com
Jesus Duran is an assistant in the Madrid office of SJ Berwin. His specialist areas include private equity.
He can be contacted on:
T +34 91 4260050
E jesus.duran@sjberwin.com
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