The dissociation between the ownership of the power of representation and the power of management in joint administrative bodies

The First Chamber of the Supreme Court’s ruling, no. 424/2019, of 16 July, deals with the problems posed by joint company administration, with regard to its internal dimension -management- and external dimension -representation-.

Among the ways to organize the corporate administration, the Law allows entrusting such a relevant function to several administrators acting jointly, commonly known as joint administration.

In limited companies, the possibility of entrusting the administration of the company to several directors acting jointly may be an option, to be decided by the General Meeting of Shareholders, when the Articles of Association have established it from among the different possible alternatives. In public limited companies, however, joint administration will be the rule when administration is entrusted to two directors. The reasons why a limited liability company opts for joint administration are varied, although they usually tend to be based on the reciprocal control of the exercise of the position by the representatives appointed by members with an equivalent representative share in the share capital.

The ruling referred to in the title (No. 424/2019 of the First Chamber of the Supreme Court, Speaker H.E. Mr. Pedro Jose Vela Torres) resolves a conflict generated as a result of the call to a general meeting carried out by only part of the joint administrators of the company, i.e. not by all of them. Through this case, the Civil Chamber brings us closer to the figure of the joint administration by making an interesting dissociation between the representative powers of the joint administration body, i.e. outside the walls of the company, from those of corporate management, i.e. within the walls or internal relations, when it comes to administering a limited company.

To this effect, the High Court informs us that in joint administration there is a dissociation between the ownership of the power of representation, which depends on the provisions of the articles of association and is subject to the rules of article 233.2.c) of the Law on Corporations; and the power of management, which corresponds to all the joint administrators and which, therefore, must be exercised by all of them jointly (article 210 of the same Law).

What does the Supreme Court mean by this statement?

The rule provided by law for the external representation of the company, according to which, if more than two joint directors are appointed, the power of representation will be exercised jointly by at least two of them, in the manner determined in the articles of association, is not applicable at an internal or management level.

Consequently, and given that the power to convene the general meeting falls within the management or administration power of the administrators, the rules on the exercise of the power of representation are not applicable, and therefore the partial joint administration will not be valid. The call of the general meeting must necessarily be made with the agreement of all the joint directors, unless the articles of association have provided for the possible risk of blockage that may result, and on the merits of this, it has been established that the directors with joint power may jointly manage the internal affairs of the company (admitted by the DGRN in its Resolution of 4 May 2016).

The solution adopted, however, is unsatisfactory because it may lead to situations that are contrary to the company’s interests, in that it establishes requirements for action for internal purposes that are greater than those existing for external purposes. It cannot be any other solution, given the legal provisions that currently regulate joint administration, and therefore we recommend that the different scenarios, risks and contingencies that may arise from joint administration or joint administration be provided for in the articles of association, prior to establishing such a system of administration and governance in limited liability companies.