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Corporate actions in the event of the death of a member of the board of directors
What should I do in the event of the death of a member of the board of directors of my company?
The loss of a company administrator due to death is an event that occurs frequently and for which foresight is essential to avoid the paralysis of the company’s activities.
When the sole director or one of the joint directors dies, or when all the joint directors or the majority of the members of the board of directors die, the ordinary course of the company’s business may be paralysed due to the persistence of situations that are difficult to postpone, such as the payment of payrolls, the making of transfers, the signing of new contracts, or the opening of electronic communications, as the case may be.
In these cases, it is important to bear in mind that the possibility for the administrative body to call a meeting can be reduced, and it is not possible to call an ordinary meeting in accordance with the law.
How to avoid the paralysis of corporate management in the event of the death of a member of the administrative body?
Firstly, as with most of the conflicts and events that arise in a company, Article 216 of the Corporate Enterprises Act (Ley de Sociedades de Capital) regulates the possibility of preventing this type of situation from occurring by developing a system of alternates in the Statutes or, failing that, in agreements or pacts adopted by the company and its shareholders. However, the appointment of deputy administrators, despite its great usefulness, especially in family businesses, is a practice that is currently rarely used.
Secondly, and for those cases in which the company does not have this system of substitutes, Article 171 of the Corporate Enterprises Act (Ley de Sociedades de Capital) provides another alternative, which basically consists of the possibility for any of the partners of a company to request the court clerk or the commercial registrar of the company’s registered office to convene a meeting for the appointment of a new administrator.
Furthermore, the second paragraph of the same article establishes the possibility for any of the administrators in office to call a General Meeting for this sole purpose, and the Directorate General for Legal Certainty and Public Faith has even admitted the possibility of changing the structure of the administrative body when the General Meeting is called by means of this instrument when the administrator or administrators in office provide adequate information to the shareholders regarding this change. (see: https://www.boe.es/boe/dias/2020/11/06/pdfs/BOE-A-2020-13753.pdf)
Finally, it should be considered that the Shareholders’ General Meeting may not only be called by court order, or through the Commercial Registrar or the administrative body, but it is also possible for the shareholders to hold a General Meeting, without prior notice, if all the share capital is present or duly represented, provided that they unanimously agree to hold the meeting, in accordance with the provisions of Article 178 of the Corporate Enterprises Act (Ley de Sociedades de Capital).
In regard to our legal system, it provides companies with various alternatives for handling situations of paralysis of the management body in the event of the death of one of the administrators. In these cases, the importance of having legal advice should not be underestimated, as this event can trigger a series of complex legal and functional issues that must be addressed promptly and accurately to ensure the smooth running of the company.
In addition, proper legal advice can provide peace of mind to the partners and/or shareholders of a company, as well as to its management body, ensuring that the company complies with all legal obligations and continues to operate efficiently and in accordance with the law. In times of uncertainty and grief, having the support of legal experts can make the difference between a smooth and successful transition versus potential legal complications and disputes that could jeopardise the future of the company’s operations and management.
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