LATEST NEWS: Prescription of liability for managers and directors: lessons for M&A operations

Limitation period for civil liability of managers and directors

Members of the board of directors of a commercial company are liable to shareholders for damage caused to them in the exercise of their duties.

The rights of shareholders against managers and directors are statute-barred within five years. This period runs from the time the conduct in question was committed or, if it was concealed, from the time it was revealed (Article 174 of the Commercial Companies Code - "CSC").

This period is shorter than the general period of twenty years for reasons of legal certainty. However, when the conduct is deliberately concealed, the time limit only starts to run from the moment the right holder actually becomes aware of it.

This time limit applies both to the civil liability of managers and directors towards shareholders and to their dismissal with just cause.

Ruling of the Supreme Court of Justice of 27 January 2026

In case no. 1197/23.7T8AMT.P1.S1, the shareholders of a private limited company sought to have the company's manager removed from office for just cause.

The Supreme Court of Justice ("STJ"), in its ruling of 27 January 2026, decided that the time limit of article 174 of the CSC had already elapsed, because a previous partner (to whom the plaintiffs succeeded) had become aware of the conduct on which the claim was based on a date that preceded the filing of the action by more than five years.

It therefore concluded that, although the plaintiffs had learnt of the conduct less than five years earlier and the manager's conduct was, in abstract terms, serious enough to justify dismissal for just cause, the partners could no longer use this remedy because the five-year period had elapsed.

In other words, for the STJ, the date on which the new shareholders became aware of the behaviour was irrelevant since, when they acquired the shares, they acquired them in the legal conditions in which they found themselves, including with the limitation period for the company's rights against the manager in progress.

Impact on M&A operations

This interpretation has important consequences for M&A transactions, since, on the one hand, it burdens buyers with the duty to investigate, prior to the acquisition, any conduct on the part of managers or directors that could give rise to liability or dismissal actions, as well as the time at which the previous partners became aware of it.

On the other hand, they must also contractually safeguard against these situations, which they can do, by way of example, in the following ways:

a) The inclusion of specific declarations and guarantees relating to the above issues, namely that the sellers (i) have no knowledge of any conduct by the managers or directors that could give rise to liability actions or dismissal for just cause; and (ii) that there are no legal actions pending against the managers or directors, which should be combined with liability periods and other appropriate terms and conditions.

b) The inclusion of an indemnity clause, according to which sellers are obliged to compensate buyers for all conduct arising from managers or directors potentially generating civil liability prior to the date of the transaction, regardless of whether or not (i) they are known to the seller; and (ii) the limitation period has elapsed.

In short, this interpretation by the STJ reinforces the need for more stringent legal support and preparation in M&A operations, both during the due diligence phase and during contract negotiations, so that buyers can protect their interests and ensure that they have recourse to the legally established means of protection against damaging management or, if this is impossible, transfer this risk to the sellers.