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Law 31/2014, 3rd December 2014, of the Spanish Companies Act introduces a number of specific amendments that directly affect the corporate governance of Spanish companies. What is the purpose of this reform? And how does it affect companies’ liability risks, especially when it comes to board members and corporate officers?  The main focus of the amendments is to ensure greater transparency and promote increased accountability in the corporate environment. Following a series of corporate governance scandals in Spain, an expert committee working alongside regulatory bodies prepared a report aimed at improving the regulatory framework; Law 31/2014 was based largely on this work.  Some of the most notable aspects of the new law are: Subjective extent of the liabilityThe amendments significantly broaden the scope of individuals subject to regulatory oversight. In particular, the rules regarding directors’ liability are explicitly extended to cover de facto and shadow directors as well as executives with significant managerial authority. Thus, the entire management team along with those individuals representing a company’s legal entities may be held liable for any irregularities in the management of the business. These new provisions clearly should be considered when reviewing an existing D&O policy or in structuring a new one. Liability extends to up to four yearsSome ambiguity existed under the previous regulatory framework concerning the statute of limitation for liability claims. The new reforms clarify that a liability action whether social or individual, against the Directors and Officers, prescribes after four years from the day that they could have been exercised.It is therefore essential to review D&O policies and confirm they include cover for directors who are no longer members of the board.The importance of tuning up your D&O policyAll this, together with other aspects covered by the Law – including the reinforcement of the duties of company directors, greater relevance of the general meeting, increased prominence of minority shareholders, amongst others – underscores the increasing relevance of D&O coverage in Spain. With the new regulatory environment in Spain, public and private companies would be well-served to understand how they will be affected by these reforms, and identify prudent options for managing and mitigating these risks.First published in Post Magazine on July 10, 2015

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