Main Changes to the Corporate
Fiduciary Duties in Colombia
required of the officers and directors of
a corporation were established 20 years
ago in Act 222 of 1995, obliging them to
act "in good faith, with loyalty and with
the diligence of a good businessman"
the interest of the company, taking into
account the interests of their associates."
loyalty are incorporated into the current
regulation.
The good businessman standard
demands the utmost level of diligence
to the directors in any of their actions,
making them "jointly and severally
damages caused by negligence or willful
misconduct caused to the company, to the
partners or to third parties,"
to limit or eliminate by contract, the
officers or directors liability for damages
caused in their decision making process,
considering any agreement with that
intend to be void and null.
Likewise, all the qualifications
required to determine the negligence
categories mentioned above, such as
"not a prudent person," "diligent and
careful men" or "sensible man" are really
difficult to frame and apply by the judges,
since they lack the proper definition and
consistence procedure, thus, the use of
this article and its consequences has been
discouraged and barely seen in practice.
On the other hand, talking about the
duty of loyalty, the current applicable
provision states that the managers
shall not participate, directly (personal
interests) or indirectly (third parties
interests), in activities that involve
competition with the company or in acts
where there is a conflict of interest, unless
expressly authorized by the shareholders.
In addition, the cleaning process of any
decision involving a conflict of interests
between the company and its managers
should be voted on by a majority of
the shareholders, excluding the vote
of any interested director that is also a
shareholder of the company.
Hence, a majority shareholder who
wants to approve a self-dealing transaction
and not be covered by the vote exclusion
provision mentioned above, just has to
resign his position as manager and then
force the summoning of a shareholders
meeting to vote as a not excludable party.
regime, it is often not enforced due to
its lack of clarity of what conduct is
considered a conflict of interest. This
lack of clarity has allowed administrators
in the current legislation to bypass the
before mentioned regime regarding the
questionable transaction, the low number
of sanctions imposed by the authorities,
and the difficulty to approve any kind of
claim by the shareholders in closely held
corporations where the majority has the
control of the corporation.
Consequently, all these flaws and gaps
have produced a lack of uniformity in the
current provisions, which is triggering
the continuous abuse of the controlling
shareholders. This happens, principally,
in closely held corporations, who can
approve a self-dealing transaction, or
block a company suit against them at
any time, thus, making the actual rules
oppressive to the minority shareholders
and hardly applicable in practice.
New Definition of the Duty of
Care and Incorporation of the
Business Judgment Rule into
Colombian Corporate Regime
of the duty of care as a way to improve
its applicability. The bill defines the
duty of care in Article 6, as follows:
"the director shall fulfill his duties with
the diligence that a prudent person will
be judged reasonable in light of the
specific circumstances surrounding each
decision."
definition is the simplification of the
standard (prudent person), in order to:
of the department of corporate law for Pinilla,
Gonzalez & Prieto Abogados. His main area of
practice is related to civil and commercial law.
Pinilla, Gonzalez & Prieto Abogados. His main
area of practice is related to business and
commercial law.
Av Calle 72 No. 6-30 pisos 9 y 14
Bogota, Colombia
jalzate@pgplegal.com
pgplegal.com