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The under-utilized figure of the alternate administrator

| News | Corporate Law and M&A

Pedro Albarracín is of the opinion that the figure of the substitute administrator is necessary in order to solve very compromising corporate situations and prevent them from occurring.

El Economista | Glasgow, Scotland, 15 May 2002. Champions League Final. Real Madrid 2, Bayern Leverkusen 1. An unfortunate shot and the Madrid goalkeeper, Cesar Sanchez, had to leave the field of play and be replaced by the substitute goalkeeper, "a certain" Iker Casillas. The rest is well known to football fans. Three decisive actions in which Iker Casillas, with a series of good interventions, avoided the draw of the German team and allowed Real Madrid to win what would be their ninth European Cup.

At this point many of you will already be wondering what relationship all the above may have with the law, company directors or the business world. Little or nothing, but it is perhaps the most illustrative example to show that on many occasions, and although nothing can make you think you will ever need it, a good substitute can save you from very compromised situations.

And that is where the previous anecdote would relate to the legal world and to the business world and the appointment of directors in public or private limited companies. Although their presence in the administrative bodies of our mercantile societies is practically null, our legal system foresees a figure, that of the substitute administrator, that can be of extraordinary utility to solve very compromised commercial situations or, even, to manage to avoid that they take place.

Specifically, article 216 of our Capital Companies Law establishes that "unless otherwise provided in the Articles of Association, alternate directors may be appointed in the event that one or more of them cease to exist for any reason."

Likewise, as regards the legal regime of this figure, this article also states that "the appointment and acceptance of the alternates as directors will be registered in the Mercantile Registry once the previous holder has ceased to hold office," as well as that "if the Articles of Association establish a specific term for the office of director, the appointment of the alternate will be understood to have been made for the period pending to be filled by the person whose vacancy is filled."

However, it should be noted that the possibility of appointing alternate directors is not an innovation of the current Capital Companies Law, since this figure was already recognized as an alternative expressly accepted by our legislation in the 1995 Limited Liability Companies Law, article 59 of which had a wording practically identical to article 216, currently in force, of the Capital Companies Law, being subsequently extended its express legal recognition also to the scope of corporations, with the approval, the following year, of the Mercantile Registry Regulations, and specifically through article 147 -still in force-, in which it was established, among other matters, that "the alternates must meet the legal or statutory requirements to be appointed as administrator at the time of their appointment," as well as that, in the case of the appointment of several alternate administrators, "the order in which the vacancies that may arise must be filled" must be expressed for their inscription.

However, as I pointed out earlier, despite the relative age of this legal figure, its actual use is almost anecdotal in our business environment, and it is very difficult to find companies in our day-to-day life that have an alternate administrator appointed, and this when, despite what it may seem, it is a mechanism that would be of enormous practical interest in many situations, being, in my opinion, the most relevant, that of the very usual limited companies in which there are two partners or groups of partners -often groups or family "sides" differentiated, either by direct investment or as a result of the inheritance of the founding father or mother- with 50% participation in the share capital of the company in question.

In these companies, it is not at all strange that, although initially there is consensus and the administrative body of the company is named by mutual agreement - for example, a single director or two joint directors - tensions or blockages subsequently arise which may imply that, for example, in the event of the cessation, resignation or even death of the sole director or of one of the joint directors, it is subsequently impossible to reach an agreement by majority in relation to the appointment of the substitute, with all that this implies, the situation generated in the case of administrative bodies made up of two joint administrators being particularly problematic, in which the position of joint administrator appointed by one of the partners, or group of partners, will remain in force -and furthermore, in the case of limited companies, surely with an indefinite duration-, while the other partner, or group of partners, could find it impossible to appoint a substitute for that administrator that he appointed at the time.

These situations would be typical scenarios in which the use of the figure of the substitute administrator -which should be noted that can be designated for appointment in case of cessation of any of the administrators or for one of them in particular, being equally possible the appointment of several-, could help to avoid future situations quite compromised and detrimental to the partners, who, as happened to Real Madrid in Glasgow, having a good substitute can get them out of a good mess.

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