After winning the presidential election in January 2010,
President Sebastian Piñera took office on March 11. This
meant a centre-right coalition, after 20 years of centre-left
and socialist governments. A severe earthquake marked
Piñera's inauguration and a destructive tsunami followed
it on February 27. A large portion of Chile's densely populated
Central Region was destroyed, including highways and roads,
hospitals, schools, houses and other infrastructure assets. The
cost of the damage was estimated at $30 billion. This act of
nature imposed changes on the new government's agenda; a
reconstruction package is being discussed in Congress that is
intended to enhance investment and productive activities.
In accordance with certain commitments related to Chile
having been accepted in 2009 as a member of the Organisation
for Economic Co-operation and Development (OECD), several
developments have taken place within the business community
during 2009 and 2010. These include deep amendments to
corporate governance rules and regulations, the enactment of a
Criminal Liability of Corporations Act and the establishment of
a new environmental institution.
Corporate governance
In order to comply with the international standards of
corporate governance recommended by the OECD, Chile amended
several internal laws including corporate governance rules set
forth in the Securities Market Act and in the Corporations Act.
The new rules served their purpose of updating some corporate
governance issues, but cast confusion on the interpretation of
certain rules. The main aspects of the new rules are as
follows.
Transactions with related entities
The new law established a set of separate rules for listed
corporations, regarding transactions with related entities.
Previously the same rules applied to both closely held and
listed corporations. According to the new regulations,
transactions between a listed corporation and its related
entities (including affiliates, directors, officers and other
entities in which directors and officers have a proprietary
interest, among others) may only be conducted if several
requirements are met.
In accordance with the regulations, the purpose of the
transaction must contribute to the benefit of the company
(under the previous rules, a transaction not prejudicial to the
corporation i.e. a neutral transaction would have sufficed).
The price, terms and conditions of the transaction must be
similar to those prevailing on the market when the transaction
was approved and the directors committee (discussed below) must
revise the operation. The committee must prepare a report to be
read in the board meeting summoned to approve the transaction.
Although this rule already existed in the Corporations Act, the
composition of the committee has changed. The requirement for
the operation to be approved by the board of directors already
existed under the amended Corporations Act; a new rule states
that directors must disclose any interest in the transaction
and refrain from participating in the voting of its approval.
It should be noted that, before the Act was passed, it was
common for directors to provide this information and abstain
from voting voluntarily.
In the event that the majority of the board is required to
abstain from the decision making process, an independent
evaluator must be appointed and the transaction may only be
conducted if approved by the unanimity of the remaining members
of the board or by two thirds of the shareholders' meeting.
The resolutions of the board (as was required before the
passing of the Act) must be disclosed in the following
shareholders' meeting.
The Act allows the boards of listed corporations to
determine that certain operations be exempted from the
foregoing requirements in transactions involving low amounts;
habitual transactions in accordance with the purpose of the
company; and transactions entered into with fully owned (95% or
more) subsidiaries.
Independent directors
Prior to the amendments, the Corporations Act stated that
certain listed corporations were required to have a directors
committee with a majority of independent directors. Independent
directors were defined as those elected without the votes of
the controlling shareholder. There was however, no requirement
for corporations to have independent directors; the directors
committee could therefore be formed exclusively from directors
appointed by the controlling shareholder. In Chile, most listed
corporations have a shareholder with controlling capabilities.
The directors committee has a number of audit duties including
the revision of related entities transactions. The new rules
state that listed corporations that meet certain patrimony and
property dispersion thresholds must have at least one
independent director who must also be a member of the directors
committee.
The new law redefined the figure of the independent director
by applying certain objective restrictions on their eligibility
for election. These requirements aim to preserve the lack of
economic, personal or professional subordination to, or
connection between, the independent director and the company
and/or the controlling shareholders of the company in which
board they will sit. Despite their intended effect, the
amendments have introduced great uncertainty regarding the role
and requirements to be elected independent director.
When these requirements are met, the director will be
considered independent even if elected with the votes of the
controlling shareholder alone. The fact that the independent
director can be re-elected in that capacity with the votes of
the controlling shareholder, has led the legal community
(second guessing the real independence that some directors will
really have) to widely criticise the new rule.
It is important to make clear that although the contrary is
widely believed, independent directors do not represent the
minority shareholders since they remain bound by a rule stating
that directors elected by one group or class of shareholders
have the same duties towards the company as the other
shareholders. This provision confirms that the idea of the
independent director has always existed and that all directors
have the same duties, regardless of who elected them, i.e.
acting in the best interest of both the company and its
shareholders. Clarification is important regarding the fact
that it cannot be expected that independent directors elected
by the minority shareholders will be subordinated to them, or
to the company or the other shareholders. Furthermore, if they
were, they would openly breach their fiduciary duties to the
company and its shareholders as a whole. Therefore, the
enactment of the new law regarding independent directors cannot
be interpreted as creating two classes of directors –
those who are independent and those who are not and where the
latter is liberated of duties to the minority shareholders and
the first to the majority shareholders – all should act
independently and in the best interests of both the company and
their shareholders.
In sum, these new rules (together with other amendments that
impose new obligations and liabilities on corporations, their
board members and officers) anticipate a new advanced corporate
culture in Chile, where close monitoring of compliance with
these obligations will be the standard practice.
Criminal liability of corporations
In Chile, criminal liability was traditionally reserved for
individuals. In accordance with the societas delinquire non
potest principle, only individuals can commit crimes.
There are however several cases in which collective legal
rights are affected by the action of corporations acting as
criminal agents and producing a deep social concern. These
actions are commonly committed by high ranked officers of
corporations.
The international trend in the world today is towards
corporate criminal liability for the commission of certain
crimes. Chile has ratified several international conventions in
this regard. These include, in particular, the OECD
Anti-bribery Convention, the signatories of which are obliged
to enforce rules and take action against the bribery of foreign
public officers.
This constitutes the direct antecedent for the enactment of
law Nr. 20,393 (the Criminal Liability of Corporations Act)
which establishes the criminal liability of corporations in
money laundering related crimes (hiding or disguising the
illicit origin of certain assets and acquisition, possession or
use of said assets with knowledge of their illicit origin);
financing of terrorism (solicitation, collection, or finance of
terrorism related activities); and both domestic and
international bribery (offering, committing, or giving an
economic benefit to a local or international public
officer).
The Criminal Liability of Corporations Act applies to
private corporations (corporations, companies, foundations) and
government owned corporations or companies when the described
conduct is committed for the entity's direct benefit; and by
its owners, controllers, responsible officers, representatives
or those involved in its management or supervision when the
wrongdoing breaches their supervising and management duties.
Basically, the wrongdoing consists in not fulfilling the
managerial or supervisory duties that would have prevented the
corporation from committing the said crime.
The Criminal Liability of Corporations Act establishes a
voluntary Crime Preemptive Model (CPM). Once implemented by a
corporation, it will be assumed that the managerial and
supervisory duties have been fulfilled. The above does not
operate as a blanket waiver since the assumption is of a legal
nature and is subject to being proven false by the public
prosecution agency. The CPM must contain, at least, the
appointment of a responsible officer in charge of prevention,
the scope of duties, the applicable procedure, etc.
On the implementation of the CPM, corporations are entitled
to obtain a certification by external audit companies, risk
assessment companies or other entities duly registered with the
Superintendence of Securities and Insurance. This certification
will provide the corporation with a strong proof that is very
useful, although it does not exonerate the corporation of its
legal responsibility.
Another interesting aspect of the Criminal Liability of
Corporations Act is the transmission of criminal
responsibility. In the event of a voluntary merger,
transformation, absorption, division, or winding up of a
corporation, the legal responsibility of the corporation
extends to crimes committed before the said voluntary merger,
transformation, absorption, division, or winding up. Legal
responsibility will then pass on to the resulting or surviving
entity or entities. Hence due diligence in this regard would be
advisable before executing any of the above corporate
actions.
Penalties established in the Criminal Liability of
Corporations Act range from the dissolution and cancellation of
the legal identity of the corporation to fines. Dissolution and
cancellation only apply in certain very delicate cases where a
corporation has been sentenced for the same crime within the
previous five years. Among the ancillary penalties is the
publication of an excerpt of the ruling in the Official Gazette
or a national newspaper.
The part of the Criminal Liability of Corporations Act that
refers to bribery is especially relevant to multi-national
corporations that may be liable in Chile for bribery of foreign
public officers committed abroad.
New environmental institution
Another important amendment features our environmental law
and regulations; new concepts were included, certain timeframes
were changed and a new environmental institution was created.
Some of the amendments require more detailed regulations to be
put in place; a new law that creates a special environmental
court must also be enacted.
Among the most relevant amendments is the new law
eliminating the Environmental Commission (CONAMA) and creating
a new Environmental Ministry (which will generate and develop
environmental public policy), an Environmental Assessment
Agency (which will manage the environmental impact assessment
system) and a new Environmental Superintendence (which will
supervise approved projects). Other relevant amendments include
increasing social participation in the approval process of
projects.
| Author biography |
Roberto Guerrero V.
Guerrero, Olivos, Novoa y Errazuriz
Roberto Guerrero V. was admitted to practice in Chile
in 1991. He is a graduate of Pontificia Universidad
Católica de Chile School of Law, Santiago,
Chile. He has a Masters of Comparative Jurisprusdence
(MCJ) from New York University, School of Law, New
York, US. (1994). He is an Inter-American Development
Bank Scholar (1993-1994); Fellow of the Eisenhower
Fellowships Multi National Exchange Program (2007) and
foreign associate at Simpson Thacher & Bartlett,
New York, US (1994).
He was Professor of Economic Law and Civil Law at
Pontificia Universidad Católica de Chile School
of Law (1995-1997) and has been Professor of Commercial
law at Pontificia Universidad Católica de Chile
School of Law since 1998. He was Director of the
Masters in Corporate Law Program, Pontificia
Universidad Católica de Chile School of Law
(1997-2000) and has been Vice Dean of Pontificia
Universidad Católica de Chile School of Law
since 2003. He is a member of the Council for
Transparency (2008-2010).
He is a member of the Chilean Bar Association and the
International Bar Association (IBA). He is an
arbitrator and mediator of the Arbitration and
Mediation Center of the Santiago Chamber of Commerce
and arbitrator of the National Center of
Arbitration.
Publications: Summary of the Legal Aspects of the ADRs
Placement in the International Markets (Revista Chilena
de Derecho, 1995); The Study of Law in Chile: A
Critical View (Revista Chilena de Derecho, 1997); The
Public Offer of Foreign Securities in Chile (Revista
del Abogado, 2000); Legal Aspects of Internet:
Cyberspace and the Law (Informativo Jurídico,
Editorial Jurídica de Chile, 2000); The private
Issuance of Bonds: a Mistaken Administrative
Interpretation (Revista Chilena de Derecho, 2002).
Global Financial Services Regulators, The Americas,
2004, Issue 1, Chilean chapter, with Sebastián
Yunge (Richmond Law & Tax, England, 2004) Is it
Possible to Manage a Law Firm? (Revista del Abogado,
2006).
Languages: English, Spanish.
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| Author biography |
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Sebastián Yunge
Guerrero, Olivos, Novoa y Errazuriz
Sebastián Yunge was admitted to practice in
Chile in 1996. He is a graduate of Universidad Gabriela
Mistral School of Law, Santiago, Chile. He has a
Masters of Law (LLM) from Duke University Law School,
Durham, North Carolina (2000). He was a Foreign
Associate at Morrison & Foerster, San Francisco,
USA (2000 – 2001) and worked with Bórquez
& Quinzio Abogados (1995 – 1997).
Publications: Global Financial Services Regulators, The
Americas, 2004, Issue 1, Chilean chapter, with Roberto
Guerrero (Richmond Law & Tax, England, 2004); Doing
Business in 2006 “Creating Jobs” (World
Bank/Oxford University Press, 2006).
Languages : English, Spanish.
Roberto Guerrero V and Sebastián Yunge are
members of Guerrero, Olivos, Novoa y Errázuriz
Corporate Group. Their practice focuses on general
corporate law, mergers & acquisitions and banking
& finance, project finance and capital markets.
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