Colombia: Market disclosure precedent

Author: | Published: 21 Mar 2016
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Brigard Urrutia


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Morcillo vidal
Luis Gabriel Morcillo Hernán Vidal

On February 25 2015, the Colombian highest administrative court (Consejo de Estado, the Court) decided the matter of Luis Fernando Vergara Munarriz v. the Colombian Superintendence of Finance (SFC). Between 2005 and 2006, at the time of the events under dispute, the plaintiff acted as the legal representative of Cementos Argos (the company), a Colombian listed cement company. The Court analysed whether a decision made by the company's board on September 28 2005 should have been immediately disclosed to the market, in accordance with Colombian rules on market disclosure. This decision concerned the authorisation of the company's legal representative to acquire 100% of the shares of foreign companies for an aggregate value of approximately $257 million and the negotiation of credit facilities for approximately $230 million.

According to the minutes of the board meeting, the board authorised the legal representative to negotiate all the relevant terms of the agreements required for the share acquisitions and the credit facilities. The board expressly indicated that the transactions should be disclosed once the terms had been agreed, to ensure confidentiality. The transactions were disclosed on October 4 2005.

The Court denied the plaintiff relief on a reprimand sanction issued by the SFC for breaching Colombian market disclosure rules by delaying disclosure of the board's authorisations. The Court reasoned that the authorisations would influence the price and liquidity of the securities issued by the company. In addition, the deal would entail a significant change in the company's financials so as to warrant immediate market disclosure, regardless of the board's intentions to preserve the deal's confidentiality.

Colombia follows a civil law tradition where court decisions generally do not have precedential value. Nevertheless, the Court's decision and its reasoning is likely to constitute a significant precedent for the interpretation of disclosure rules, particularly with respect to M&A deals and board decisions. This is because Colombian high courts rarely decide cases related to disclosure regulations. In fact, this is the second decision of the Court on market disclosure rules, and the first since 1997. The Court's reasoning will likely create challenges for structuring M&A deals for Colombian listed companies given the particularities of Colombian market disclosure rules. This is particularly with respect to the fact that the board's authorisation to negotiate agreements should initially itself be subject to disclosure and not the later subscription of binding agreements by the company.

Luis Gabriel Morcillo and Hernán Vidal