D&O Criminal Defense: Directors and Officers

D&O Coverage in Criminal Proceedings

Directors & Officers (D&O) policies cover defence costs, civil compensation and, on occasion, bail and insurable fines arising from proceedings brought against a director or officer for the exercise of their position. In Spain, large companies and most listed ones hold D&O policies with cover of between €5M and €100M per claim. Correct, early activation of the cover is decisive: most policies exclude expenses incurred before notification and require specific reservations for the various heads of cover.

Immediate Insurance Activation

We work to a 24-hour protocol: (1) review of the policy and its particular conditions; (2) formal notification of the claim to the insurer (summons, complaint, formal request); (3) request for prior acceptance of defence costs and defence measures; (4) coordination with the claim manager at the insurer; and (5) tracking of the acceptance of each expense. Prior acceptance matters because, without it, the insurer may later refuse reimbursement.

Conflict of Interest with the Company

In proceedings against directors for offences committed in the exercise of their position, the company is very frequently also investigated (under Art. 31 bis CP) and its interests do not coincide with the director's. The company may have an incentive to attribute individual responsibility to the director in order to trigger the Art. 31 bis exemption; the director, by contrast, may have an interest in showing that they were acting in line with corporate policy. This calls for separate, independent defence with the director's own counsel.

Coordinated vs Separate Defence

A case-by-case analysis determines whether coordinated defence (where there is no conflict) or separate defence (where there is) is appropriate. Where it is separate, we keep communication channels open with corporate counsel to avoid contradictions, but we defend the individual client exclusively. D&O cover usually finances this separate defence where the conflict is established.

Insurer Negotiation

D&O insurers tend to apply restrictive policies: partial acceptance of defence costs, exclusion of certain expenses, and intervention in the choice of lawyer. We negotiate each of these points and, where necessary, litigate the cover through the civil courts against the insurer. The case law of the Supreme Court's First Chamber has consolidated an interpretation favourable to the insured in cases of reasonable doubt.

Procedure and competent court: the role of immunity (aforamiento)

Identifying the court that will hear the case is no minor matter: it shapes the strategy from day one. The general rule turns on the maximum penalty of the offence charged. Where the custodial penalty does not exceed five years, jurisdiction to try the case lies with the Criminal Court (Juzgado de lo Penal); where it exceeds that threshold, the Provincial Court (Audiencia Provincial) hears it. In both cases the investigation is conducted before the Investigating Court of the judicial district where the events occurred. Unlawful administration under Article 252 and the falsification of accounts under Article 290 are usually heard before the Criminal Court, unless concurrent offences or aggravations raise the penalty.

Where the person under investigation holds a position carrying immunity (aforamiento), jurisdiction shifts. Certain public office-holders and regional parliamentarians answer before the Civil and Criminal Chamber of the High Court of Justice of their region; other national-level aforados answer before the Second Chamber of the Supreme Court. Immunity is not a personal privilege but an institutional safeguard tied to the office, requiring investigation and trial by the higher body designated by law. It is worth stressing that the National High Court (Audiencia Nacional) is not competent for these economic offences in themselves: it only comes into play through connection with matters in its catalogue or by specific rules, not by the mere fact of being an executive.

Criminal compliance under Article 31 bis as a shield for the executive

Since the reform that introduced corporate criminal liability, Article 31 bis of the Criminal Code sets up a system in which a suitable organisation and management model can exempt or mitigate the company's liability. For the executive, this framework cuts two ways. On the one hand, a serious compliance programme, with risk identification, decision protocols, a whistleblowing channel and a supervisory body with genuine autonomy, evidences due diligence and can break the attribution of liability to someone who acted within those controls. On the other, the absence or cosmetic nature of such controls can worsen the personal position of a person who held powers of organisation and supervision.

An effective defence examines whether the model was in force and operational at the time of the events, whether the executive respected or circumvented it, and whether the compliance body provided effective oversight. Showing that the challenged decision was taken within the perimeter of the controls, on the information available and after taking advice, supports the absence of intent or of any breach of duty. The so-called business judgment rule protects business decisions taken in good faith, informed and free of personal interest: not every decision that later proves harmful amounts to unlawful administration under Article 252.

Elements of the offence and lines of defence in position-related crimes

Each position-related offence has elements the prosecution must prove, and these open precise lines of defence. Unlawful administration under Article 252 requires an administrator with powers to manage another's assets who exceeds or breaches them and causes loss: it carries a prison term of six months to three years, rising to one to six years where one of the aggravations laid down for fraud under Article 250 is present. Falsification of accounts under Article 290 requires de facto or de jure administrators who falsify the annual accounts or other documents in a manner apt to cause loss, punishable by one to three years and a fine, raised to the upper half if the loss is actually caused.

Punishable insolvencies under Articles 259 to 261 bis penalise the concealment or fraudulent disposal of assets to the detriment of creditors, with reproach sharpening in a situation of crisis or insolvency proceedings. The defence works on the absence of intent, the genuine economic substance of the transactions, the lack of actual loss or of any aptitude to cause it, and on the conditions of prosecutability. Several corporate offences are governed by Article 296: they may be prosecuted only on a complaint by the injured party or their representative, unless the events affect general interests or a plurality of persons, in which case prosecution may proceed of the court's own motion.

Lawful management of reputation and confidentiality

In defending an executive, the reputational dimension is inseparable from the legal one, but its management must be strictly lawful. The secrecy of proceedings during the investigation phase and the presumption of innocence protect the person under investigation against premature public exposure. The procedural strategy includes ensuring that confidential proceedings do not improperly leak, opposing disclosures that breach fundamental rights and, where appropriate, bringing the actions the law provides to protect honour, privacy and one's own image.

Confidentiality is upheld from within: communications channelled through the defence, restraint in public statements and rigorous coordination of the information handed over to the proceedings. It is no part of a lawful defence to pressure witnesses, conceal evidence or interfere with the work of the court. The legitimate aim is that the account reaching the court and the public is truthful and respectful of the rights of the person under investigation, preventing a trial by media from skewing a calm assessment of the evidence. Measured communication, consistent with the procedural position, is part of the work of anyone defending a high-exposure office-holder.