Oppression of minority partners

Bill 002/17 is currently being discussed in the Senate of the Republic, by means of which it is intended to reform the Colombian corporate regime. Such bill, among many other matters, introduces in our corporate regulation the issue of the effects of the oppression of minority associates.

Notwithstanding, there is currently no positive regulation in this regard, the issue has gained great importance in recent years thanks to the development given by the jurisprudence of the Superintendence of Corporations and some arbitration courts. Our current corporate regulation offers few effective tools to enforce the rights of minority shareholders.

There are rules for the defense of these rights that in practice turn out to be too abstract to be enforceable, such as that which indicates that corporate decisions must be of a general nature (Art. 188 of the C. de Co. ) and others that limit themselves to imposing qualified majorities for making certain decisions, such as in the case of the majority of 78% required for not distributing dividends in corporations (Art. 155 of the Corporations Code), or 75% to issue shares without the right of preference (Art. 420 of the Corporations Code), or 80% to distribute dividends in shares (Art. 455 of the Corporations Code).

Regarding the procedural means to enforce their rights, the minority associates have actions to declare the absolute nullity of the decisions adopted in abuse of majority, together with the corresponding compensation for damages (Art. 24.5.E. of the C.G.P.), as well as the individual action of liability against the administrators for violation of their rights (Art. 25 inc. 4 of Law 222/95). However, such actions are merely compensatory and therefore do not solve the problem of the minority associate, which is to cease to belong to the company by withdrawing its social contribution. The bill in question establishes that oppression of minority shareholders shall be understood as the set of conducts tending to undermine the rights that correspond to them according to the law and that, if these are judicially proven, the Superintendence of Corporations (acting as judge) may order the reimbursement of the share of the shareholder, as would occur in the exercise of the right of withdrawal, or, if this is not possible, the dissolution and liquidation of the corporation.

This is, undoubtedly, a great advance for minority associates who see their rights undermined and who cannot sell their shares due to the existence of cumbersome statutory procedures, or because they are not listed on the stock exchange (liquidity risk) or because the majority shareholder is the natural client of the shares. In such a case, if the oppression is proven, the reimbursement of the shareholder's portion of the company's assets would be ordered without the existence of a sale and purchase agreement on his shares.

However, this treatment should be extended to the opposite case, i.e. to the case in which minority shareholders abuse their position to the point of blocking certain decisions that cannot be taken without their consent. It should then be possible to apply the same procedure so that, if their abuse is proven, they can be excluded from the company by giving them what corresponds to them in the company's assets.