Related-party transactions and directors’ duty of loyalty

Directors have a duty to act in good faith and in the best interests of the company, and must therefore refrain from participating in the deliberation and voting on resolutions and decisions that give rise to a direct or indirect conflict of interest.

In judgment 504/2023 dated 29 November 2023, the Barcelona Provincial Court heard a conflict in which a company A, made up o f two families, each owning 50% of the capital, contracted with a consultancy company (company B) in which one o f the shareholders of company A owned 50% and his spouse an additional 50%. The renewal of the contract with company B was adopted by a resolution with the sole v otes of the directors with a conflict of interest.

The Provincial Court ratifies that the renewal agreement was generated in violation of the duty of loyalty because the partners who voted in favor incurred in a conflict of interest as they were linked to company B, in contravention of the provisions of articles 227 and 228.c) of the Capital Companies Act. However, the Court of Appeal considers that the infringement of the duty of loyalty does not necessarily lead to the declaration of nullity of the contested resolution, contrary to the reasoning of the lower court, which will need to be revised in accordance with article 232 LSC.

In this regard, the Court found that the agreement was signed by the family shareholder as proxy and not as director, a decision that was r eserved for the managing director, which also means that the c ontract is null and void, but because he acted outside the mandate received and not due to a breach of the duty of loyalty.

The declared nullity only leads to the non-existence of the contract, but not to the reimbursement by company B of the amounts received for services that have actually been rendered