This article first appeared on El Mercurio Legal on October 14, 2021.
Once again, unfair administration appears on the front pages of Chilean newspapers. In 2018 it debuted as a new criminal type that came to pay a historical debt, previously only tangentially prosecuted through misappropriation or fraud. However, today we see lawsuits by minority shareholders of companies who feel affected by the cancellation of a debt or by a merger with the controlling company, which could make them disappear.
Today, in addition, unfair administration is included in the catalog of crimes of the corporate criminal liability law, therefore, companies can also be liable for unfairly administering the assets of others. For this reason, it is important that companies that manage assets, such as AFPs or stockbrokers, as well as the controlling companies of business groups, be attentive because they are the ones that will be in the sights of minority shareholders, always attentive to the performance of their management and, especially, to the performance of those directors appointed by the controlling groups. Currently, in addition to civil actions, there is the possibility of criminal actions against directors or companies for fraudulent management.
That is why it is so important to know in detail the corporate networks of the business groups and to have clarity about what happens “downstream” because it will be the controlled companies or minority shareholders who could be or feel affected. The call is also to those who are engaged in the design, implementation, or certification of prevention systems, who should take into account these circumstances when implementing controls and auditing them, in addition to warning the directors of the companies about the risks associated with this crime and what could affect them as individuals, and also the legal entities under their management.
In this regard, let us remember that there are clear ways to prevent the occurrence of these facts and that the administrators and the companies can anticipate negative results as a result of lawsuits, to the extent that they carry out concrete acts to generate evidence that the administrative acts have not been disloyal, fraudulent or to abusively affect others.
We refer to documenting all decisions, recording operations, keeping shareholders informed about the important measures considered, and requesting expert and external advice in specific cases.
The corporate governance self-assessment (NCG N°385) is important in this point since it expressly points to the hiring of external advisors, which could also be proof of due diligence.
Finally, concerning this issue, we hope that a fair balance is generated between the attention of the minority shareholders in the defense of their interests, acting as legitimate supervisors of the majority forces, but also, and in contrast to this, emphasizing the importance and need to take risks of those who make decisions in any economic activity, since, as long as they are based on documented, loyal and good faith decisions, they should not be considered as a crime, but rather as part of an adequate administration of the assets of others.
By Ramón Montero