Directors may be held liable for a company’s rental income whilst it is in the process of being wound up

The judgement of 10 April 2019 has ruled that the directors of a company are liable for the payment of rent and other sums arising from tenancy agreements entered into by the company prior to the existence of the ground for dissolution, once that ground has arisen.

The judgement holds that the obligation to pay arises each time a service is provided within the framework of the relationship in question and, as this case concerns a tenancy agreement, the rent accrued after the grounds for termination have arisen must be regarded as subsequent obligations. This means that these obligations may give rise to joint and several liability on the part of the directors under the terms of Article 367 of the Companies Act, as set out below.

A lease agreement is defined as a contract of successive performance; that is to say, a contract under which a supplier undertakes to provide a single service that continues over time, or a series of successive, periodic or intermittent services, for a fixed or indefinite period, which are repeated, in exchange for a specific or determinable reciprocal consideration.

When will the directors be held accountable for these debts?

Article 367 of the Companies Act (LSC) provides that directors who fail to fulfil their obligation to convene, within two months, a general meeting to adopt, where applicable, the resolution to dissolve the company, as well as directors who fail to apply for judicial winding-up or, where appropriate, the company’s administration proceedings, within two months from the date scheduled for the meeting, where the meeting has not been duly convened, or from the date of the meeting, where the resolution was against winding up.

How can administrators avoid being held liable?

Therefore, the company’s directors must keep a close eye on the company’s situation and take one of the measures set out when the company begins to default on its payments. Failure to do so means that creditors may take action against the directors to recover the outstanding debt owed by the debtor company, and the directors will be held liable for these debts.

Anna Compte
anna@aurisadvocats.com

Specialties:
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Corporate disputes