Lifting the veil. Possible liability of the partners for the company’s debts

Analysis of the SC ruling of 5 October 2021, which applies the doctrine of the lifting of the veil, making those who were partners liable for the company debt after selling the shares and ceasing in their management positions.

Sometimes people act in the social and economic order in groups or through organisations to achieve a common goal. These groups create a unit to which, when they comply with certain legal formalities, our legal system attributes a legal personality of its own, independent and distinct from the individuals that make it up.

Legal personality refers to the capacity to be the holder of rights and obligations and has its origin in the recognition of the dignity of the person and the inviolable rights that are inherent to it. It is said to be fundamental, unique, indivisible, irreducible and equal for all men and women.

The fact that our legal system recognises this legal personality to certain groups, for some, rests on a legal fiction, as the recognition of personality, they understand, is exclusive to the human being. For others, this whole concept of personality is nothing more than an invention of the law, so there is nothing to prevent it from being attributed to any type of organisation if it is attributed to individuals.

And even within this group of legal theorists, there are those who, more imaginative, believe that the legal personality of an organisation has a natural origin, since they are true anthropomorphic beings, with their own will and interests adopted through their own decision-making bodies. Be that as it may, this legal mechanism makes it possible to separate responsibilities between the legal persons and the natural persons that make them up, so that the responsibility of one cannot be demanded of the other and vice versa. This mechanism provides an excellent opportunity for those who, wishing to evade compliance with the law, create or use legal persons as a formal cover for evading their personal liability.

The lifting of the veil of personality is a form of control that enables judges and courts to look behind the formal appearance of unity offered by the legal person and “unveil” the true composition of the grouping. When it is detected that there is confusion of assets and personalities between the legal entity and the individuals that make it up, they can apply the regulations that are being circumvented and, if necessary, hold the individuals responsible for the payment of the corporate debts.

The requirements established by the case law of the Supreme Court to determine whether or not the lifting of the veil is appropriate are as follows:

• Abuse of the company’s personality. A requirement that is met, for example, in cases of confusion of assets, confusion of identities or spheres of action or, for example, when there is external management of the company.
• Subjective or intentional element, which requires the concurrence of a fraudulent intention or animus nocendi. However, this requirement has been objectified on the understanding that it is fulfilled when the knowledge and acceptance of the damage is accredited.

In any case, in order to be able to apply this mechanism, there must be a situation of exceptionality, which requires the situation of abuse to be accredited. Furthermore, it has a subsidiary nature, and therefore only proceeds when the legal system does not offer other alternatives for the protection of interests.

The recent Supreme Court ruling of 5 October 2021, rec. no. 5903/2018 is an example of the application of the lifting of the veil doctrine, in which the ex-partners of a company are charged with a corporate debt after assessing that their conduct is abusive and fraudulent.

The case concerns a company called Libomediterráneo, set up in 2007 by two partners and joint administrators, whose corporate purpose was to carry out a real estate development. Libomediterráneo contracted with the plaintiff and appellant, Construcciones Nicolás, to carry out the works on this development and, once the construction was completed, owed the amount of €74,775.00. In order to collect the outstanding debt, Libomediterráneo issued two promissory notes, although once the due date had arrived they were not collected and were renewed by the defendant.

However, before the renewal, the two partners called a General Meeting in which they resigned from their positions and appointed a third party as new administrator. On the same date they sold their shares to a third company. Neither the new administrator nor the third company could be located. After carrying out the real estate development, the defendant company ceased its activity completely.

The creditor tried to reclaim the debt, first, by means of a bankruptcy proceeding and then, in view of the insolvency of the company, by filing a lawsuit for the crime of fraud, which was eventually filed due to the statute of limitations. The judgement lifts the veil from the debtor company and holds the former partners liable, taking into account all the actions carried out. Firstly, it highlights the fact that the debtor company only carried out its activity during the period in which the works were executed.

Furthermore, there is bad faith on the part of the co-defendants in the change of administrator and the sale of the shares, acts which show that the evident purpose was to evade payment responsibilities. He finds a confusion of assets or “emptying of assets” in that the legitimate income with which the equally legitimate payments of their creditors were to be met disappears. It also states that there was an “animus nocendi” on the part of the partners, in that they were aware of the damage caused by the avoidance of the payment of the debts.

Furthermore, it considers that the requirements of subsidiarity and exceptionality required by doctrine to apply this means of control have been met, as the creditor diligently tried to obtain prior payment of the debts through civil and criminal proceedings.

By applying the doctrine of lifting the veil, it is possible, in certain situations, to claim outstanding debts when the debtor company becomes insolvent, bringing actions against those who were or continue to be partners and/or administrators of the company.

However, the success of these actions will depend on the specific case and on whether the legal requirements are met, which is why it is important to obtain prior advice and to plan the procedural strategy properly and, to this end, the civil and commercial litigation department of AddVANTE is at your disposal.