Introduction
The recent ruling by the Supreme Court in its Judgment No. 1512/2023, dated October 31st (the “STS 1512/2023”), regarding the prescription period for the responsibility action for social debts under Article 367 of the Capital Companies Law (“LSC”), has sparked extensive discussions in various legal forums. This discussion, prompted by the specific interpretation of the prescription period, has not only implications for the action under Article 367 LSC but also raises questions about the prescription regime of other actions under the LSC against administrators for breaches without expressly defined periods. In this analysis, we focus on the unjust enrichment action under Article 227.2 LSC and how the recent jurisprudence affects its prescription period.
Unjust Enrichment Action under Article 227.2 LSC: Overview
Article 227.2 LSC states:
“The breach of the duty of loyalty will determine not only the obligation to compensate the damage caused to the social assets but also to return to the company the unjust enrichment obtained by the administrator.”
This provision enhances the remedies available under the LSC against disloyal administrators. It allows the company to not only claim damages for the breach of duty but also seek recovery of any benefits gained as a result of such breach. Unlike the unjust enrichment action in common law, it does not require the gain to correspondingly result in a loss for the company.
However, Article 227.2 LSC does not explicitly regulate the exercise regime, identification of scenarios, exercise rules, active and passive legitimacy, or the prescription of the action.
Prescription Debate Prior to Recent Supreme Court Jurisprudence
Before the recent Supreme Court rulings (STS 1512/2023 and STS 1517/2023), the debate on the prescription of the Article 227.2 LSC action closely mirrored discussions on the prescription of the Article 367 LSC action, now resolved by the STS 1512/2023.
The debated prescription options for the unjust enrichment action included: (i) the period under Article 241 bis LSC, prescribing the responsibility action against administrators, whether social or individual, within four years from the day it could have been exercised; (ii) the period under Article 949 of the Commercial Code (“CCom”), stating that “the action against managing partners and administrators of companies or societies will end in four years, counting from the day they cease, for any reason, in the exercise of administration”; and (iii) the common prescription period for personal actions established in Article 1964 of the Civil Code (“CC”), which is five years from when the obligation can be enforced.
Before the STS 1512/2023 and STS 1517/2023, the debate leaned towards the first two options, with the third option being less popular due to the principle of speciality in favor of corporate law.
Application of the Article 241 bis LSC Period
The positions regarding the prescription period for the unjust enrichment action rested on whether this action was considered autonomous or complementary to the social responsibility action. The application of the Article 241 bis LSC period seemed to prevail over the other options.
However, the arguments presented in the STS 1512/2023 regarding the prescription period for the Article 367 LSC action cast doubt on the viability of applying the Article 241 bis LSC period to the unjust enrichment action. The Supreme Court’s interpretation, based on literal and systematic interpretation, suggests that Article 241 bis LSC applies exclusively to social and individual responsibility actions, excluding actions for social debts like those under Article 227.2 LSC.
The nature of the action also plays a crucial role, as the Supreme Court emphasizes the different nature of social and individual responsibility actions compared to the action for social debts.
Consideration of the Article 949 CCom Period
The option of applying the period specified in Article 949 CCom had competed directly with the Article 241 bis LSC option. However, the STS 1512/2023 and STS 1517/2023 rulings clearly reject the application of Article 949 CCom to any action under the LSC, limiting its scope to personalist societies regulated in the Commercial Code.
The Supreme Court’s reasoning for this limitation is based on the entry into force of Law 31/2014, of December 3, which introduced Article 241 bis LSC and allegedly restricted the application of Article 949 CCom to personalist societies.
This limitation poses a challenge for those who previously supported the application of Article 949 CCom to the unjust enrichment action, especially considering its practical advantages, such as a four-year period starting from the cessation of administrators, providing the company with time to gather evidence.
Consideration of the Article 1964 CC Period
The application of the five-year prescription period for personal actions under Article 1964 CC, although less popular in doctrinal discussions, appears to be the default option following the recent Supreme Court jurisprudence. While this option aligns with the nature of the unjust enrichment action, practical challenges arise when this action is exercised alongside social or individual responsibility actions, subjecting a single claim to two different prescription periods.
Despite the ongoing debate, the recent Supreme Court decisions have significantly influenced the discourse on the prescription period of the Article 227.2 LSC action. The application of Article 1964 CC may present practical challenges, but the debate remains open until the Supreme Court expressly addresses the prescription period for this specific action.