The Provincial High Court of Madrid confirms the validity of the appointment by co-optation of an executive director and clarifies the difference between structural and occasional conflicts of interest in the context of directors’ duty of loyalty – Judgment of the Provincial High Court of Madrid No. 243/2025, of 18 July 2025.

The Provincial High Court of Madrid confirms the dismissal of the challenge brought against the appointment by co-optation of an executive director linked to one of the shareholders of a listed company. The shareholder challenging the agreement argues in his appeal that the appointment violated the duty of loyalty because of a conflict of interest between the activity carried out by the company in which he was appointed executive director and the group to which he previously belonged, which, in his opinion, created a structural and permanent conflict incompatible with his access to the governing body.

The Court clearly distinguishes between: (i) the state of conflict inherent in the general duty of loyalty, which only arises when there is proven real, effective, direct and permanent competition between the entities involved; and (ii) the conflict inherent in the specific duty of loyalty, limited to specific cases in which the appropriate legal response is not the nullity of the appointment, but the obligation to avoid situations of conflict of interest by the executive director abstaining from the matters in conflict.

Thus, the Provincial High Court concludes that this effective competition does not exist, applying the relevant market definition criteria used by the CNMC in resolutions C/0492/13 and C/0178/09. In light of these parameters, it concludes that, although both companies are present in more than fifty countries, they only coincide in two, which results in a minimal geographical overlap. It also notes that their potential markets differ and that the joint presence of operators from the same sector in the governing bodies of a shared company is common and does not in itself imply direct competition.

Consequently, the Court dismisses the appeal, ruling out the existence of a structural and permanent conflict that would prevent the appointment, as there is no evidence of effective concurrence in a common geographical market. Should any specific situation of conflict arise in the future, the validly appointed director would be required to abstain in order to avoid situations of conflict.