Director and Officer Criminal Liability and the D&O Policy

Anyone holding a management or senior executive position —board member, chief executive, chief financial officer, managing director— takes on, together with their powers, a perimeter of personal criminal liability for what happens within the company. That liability is not diluted into the company nor merged with it: the director may face trial individually even where the company is also under investigation. As criminal lawyers defending directors and board members, we explain how that liability arises, how it dovetails with the company's own liability, what a D&O policy actually covers and why the director's defence should be run separately from the company's.

The Director's Personal Criminal Liability

In Spanish criminal law the starting rule remains personal liability: the person who carries out the conduct is liable, not the office or the company by the mere fact of existing. A director or officer is criminally liable where they take part in the facts —decide them, order them, carry them out or assist in them— or where, being under a duty to prevent them, they allow them from their position as guarantor. Holding the office is not, in itself, an automatic basis for attribution; but it does place the holder under a special duty in respect of the company's activity.

Charges against directors are therefore rarely built on mere holding of the office, and instead on two axes: actual involvement in the act (as principal or accessory) and breach of duties of supervision and control that allowed the offence to be committed by others within the organisation. Both require proof, and both are ground for the defence.

Corporate, Economic and Tax Offences

The catalogue of criminal risk attached to running a company is broad. Among the most frequent:

• Corporate offences (Arts. 290 ff. CP): Art. 290 CP punishes de facto or de jure directors who falsify the annual accounts or other documents that should reflect the company's legal or economic situation, in a manner liable to cause economic harm, with imprisonment of one to three years and a fine of six to twelve months; where the harm is actually caused, the penalties are imposed in their upper half. The corporate block also covers the imposition of abusive resolutions, obstruction of inspection and fraudulent administration.
• Disloyal administration (Art. 252 CP): a person who, having powers to administer another's assets, breaches them by exceeding their exercise and thereby causes harm to the administered assets, faces the penalties for fraud according to the amount involved.
• Offences against the Public Treasury (Art. 305 CP): tax fraud where the defrauded amount exceeds EUR 120,000 per period and tax, punishable by imprisonment of one to five years and a fine, without prejudice to the possibility of regularisation.
• Other economic risks: punishable insolvencies, money laundering, offences against workers' rights, against the market and consumers, business corruption or environmental offences, depending on the sector.

The exact figure and penalty always depend on the offence applied and the circumstances of the case, so they must be checked against the current text of the Criminal Code (CP).

Interplay with Corporate Criminal Liability

Since the reform that introduced corporate criminal liability, the director and the company may answer for the same facts on different planes. Art. 31 bis CP declares the legal person criminally liable, in the cases provided for in the Code, for offences committed in its name or on its behalf and for its direct or indirect benefit: either by its legal representatives and those holding powers of organisation and control (point a), or by subordinates where the former seriously breached their duties of supervision, surveillance and control of the activity (point b).

That same provision contemplates the exemption or mitigation of the company's liability where it had adopted and effectively implemented, before the offence, an organisation and management model (a compliance programme) apt to prevent offences of that nature, supervised by a body with autonomous powers, and the individual perpetrators fraudulently circumvented it. The existence and the real operation of that model is therefore one of the great battlegrounds of the proceedings, and it bears directly on the director's position.

One caveat deserves emphasis: the legal person's liability is autonomous. Art. 31 ter CP allows it to be pursued even where the specific natural person responsible has not been identified or proceedings could not be directed against them. Company and director are not, therefore, communicating vessels in which the conviction of one acquits the other: each answers for its own part.

D&O Insurance: Scope and Exclusions in Criminal Matters

Directors & Officers (D&O) insurance is a liability policy that companies usually take out in favour of their directors and officers to cover claims arising from the exercise of the office. In criminal matters its usefulness is real but limited, and it should not be overstated.

As a general rule, and always subject to the terms of each policy:

• It usually covers the director's legal defence costs in the criminal proceedings, the costs, and in many policies the civil liability arising from the offence (compensation to the company, to shareholders or to third parties).
• It does not cover intent (dolo): proven intentional or fraudulent conduct, unlawful personal benefit and dishonest acts fall, as a rule, outside cover. The exclusion usually operates fully once intent is declared in a final judgment.
• It does not cover fines and penalties in the strict sense: a criminal fine, by its personal and public-policy nature, is not insurable; nor are strictly punitive consequences (imprisonment, disqualification). Sanctions of another nature may be treated differently depending on the policy and the applicable law.
• It requires early notification: policies are usually written on a claims-made basis and require notice of the claim —summons, complaint, demand— within time; failure to notify or delay may compromise cover.

We do not quote cover figures because they depend entirely on each contract: the prudent course is to analyse the specific policy at the outset, check exclusions and deductibles, and activate cover in proper form before incurring significant costs.

The Director's Defence Kept Separate from the Company's

The most sensitive feature of these matters is that the company and the director do not always share the same interest. Where the company seeks to show that it had an effective prevention model in order to access the exemption under Art. 31 bis CP, it may be driven to maintain that the offence was the work of an individual who fraudulently circumvented its controls; and that individual is, precisely, the director. Conversely, the director may benefit from showing that they acted in line with the company's policy and instructions. That structural conflict of interest makes a joint defence inadvisable.

For that reason we advocate, as a matter of principle, a separate and independent defence for the director, with counsel distinct from that of the legal person. This does not preclude coordination where interests converge, but it preserves confidentiality and prevents the company's strategy from being built at the individual client's expense. In this scenario the following points are especially sensitive:

• Internal investigations: the interviews, forensic reports and documentation that the company gathers may end up forming part of the case file. The director should understand their position before cooperating, and grasp that the company's lawyer is not their lawyer.
• Allocation of duties and delegation: establishing the real scope of responsibilities, the existence of effective delegations and the operation of controls can separate out liabilities within the management body.
• Activating the D&O policy: managed from the director's defence, with timely notice and follow-up of the acceptance of costs.

We do not promise an outcome —it depends on the facts, the evidence and the legal characterisation— but we work to ensure that our client's liability is examined with the rigour required by the principle of culpability, and that their defence is not subordinated to the company's.