Juan Carlos Rocha and Luz María Mercado of Philippi Prietocarrizosa & Uría in Bogotá introduce the latest changes in the country’s corporate regime
For the past few years, the Colombian Government has focused on promoting and encouraging foreign investment. As part of its efforts, the country has made a conscious effort to create stable and progressive laws. Two recent and clear examples of these are: (i) the introduction of a new type of corporation and making existing laws more flexible; and (ii) the creation of the concept of well-known seasoned issuers for recurrent issuers in the country. This article intends to give a quick overview of both examples for both the existing and potential foreign investors in the country.
Simplified stock corporation and the more flexible corporate law
Since the promulgation of the Colombian Law introducing the simplified corporation (SAS), the country has witnessed a progressive shift in the dynamism of modern type of corporations and has seen a metamorphosis of corporate law from one that is static, to one that is modern, which fulfills the necessities of current business models.
This Law, which was no stranger to modern corporate structures, emulated the Delaware Limited Company Act and the first regulation of the Société Par Actions Simplifiée in France, with the intention of creating a type of corporation that had lower transactional cost and less formalism, in regards to its incorporation.
The existence of the SAS has contributed to formalizing business – by means of the incorporation of companies - in an economy that has a tradition of using informal business models. In the four years following the promulgation of the Law, 180,000 SAS have been incorporated in the country, nearly 95% of the companies incorporated in Colombia in the same number of years prior to its enactment; 15% of large companies have transformed their corporate structure into a SAS; and almost 5,500 SAS were incorporated monthly since 2008.
As a consequence of the above, it is not surprising that the market demanded the amplification of flexible structures, not only for the SAS, but for other type of corporations as well. This explains why the Superintendent of Companies has recently announced its intention to present before the Congress a bill aimed at modernizing all corporations’ structure in Colombia.
This new project seeks, among other things, to: (i) reduce the responsibility for the breach of fiduciary duties of the management of the company, punishing only gross negligence, bad faith and acts of competition against the company; (ii) expedite the term for the incorporation of companies, by allowing the process to be carried out through private document and avoiding the necessity of a public deed; (iii) allow an abbreviated merging process between corporations; (iv) provide the company the ability to determine its corporate governance structure (i.e. avoiding the BoD in some cases or the obligation of having an statutory auditor); and (v) allow the SAS to trade publicly.
Incorporation of the concept of well-known seasoned issuers as a recent capital markets development
For the past few years, the Colombian Government has focused on promoting and expanding the participation of the capital markets in Colombia. Among its latest measures, in 2014, the Colombian Government issued Decree 2510, which introduced a parallel figure to the well-known seasoned issuers (WKSI) into Colombian capital markets law. Recently, the Financial Superintendence issued Circular 020 of 2015, in which it set forth the requirements and conditions that a company must fulfill in order to qualify as a WKSI.
Said reform is primarily based on American regulation, where WKSI have advantages in comparison to other companies that intend to issue and place securities. Now, the introduction of the aforementioned regulation intends to facilitate the registration, issuance, placement and public offering of securities by Colombian WKSI.
Pursuant to these sets of rules, once a company has been recognized as a WKSI, the securities that it wishes to issue and place will be automatically registered in the National Registry of Securities and Issuers (RNVE). Furthermore, in order to perform a public offering of the securities automatically registered in the RNVE, the WKSI will not need an explicit authorization by a Governmental authority; they will only have to deliver the information related to the security and to the company, as set forth in the applicable laws.
Moreover, according to Circular 020 of 2015, in order to be qualified as a WKSI, an issuer must comply with the following requirements: (i) it must be registered for at least five years as a security issuer in the RNVE; (ii) it must fulfill and deliver to the SFC the Best Corporative Practices Code (Código País), for the three years prior to the WKSI application; (iii) it must have carried out at least three public offerings during the two years prior to the WKSI application or must been part of an issuance and placement program during the five years prior to the WKSI application; (iv) it must have stocks registered in the RNVE; (v) it must not be subject to local or international sanctions, in relation to the infringement of capital markets regulations; and (v) it must have performed security issuances with a value of at least 1,200,000 Colombian minimum legal monthly wages, which amounts to approx. $265,989,680.
The introduction of the WSKI figure to Colombian regulation simplifies the access of both issuers and investors to the new products and securities in the Colombian capital market. On one hand, WKSI will face less transactional costs and time-consuming procedures in order to register, issue, place and offer new securities; while on the other hand, investors will find a broader offer of securities to invest in.
Philippi Prietocarrizosa & Uría
About the author
Juan Carlos Rocha is lawyer at Philippi, Prietocarrizosa & Uría in the Colombia office. He joined the firm in 1992 as one of the founding partners.
His legal practice focuses on Corporate / M&A and Real Estate. He focuses on real estate, corporate, commercial and large scale transactions. He is a recognized expert in real estate matters, according to the most prestigious publications, and has represented Colombian and international clients on corporate, commercial and real estate matters, concerning important projects in Colombia. Juan Carlos was in charge of the coordination of the entire expansion plan of Carrefour in Colombia, including the acquisition and implementation of stores, malls, commercial premises and fuelling stations. He was also in charge of the structuring, commercialization and implementation of the Santafé Mall in Bogotá, Santafé in Medellín, Multicentro Cúcuta and the Santa Ana Mall in Bogotá, and is currently advising, among others, the expansion plans of the Parque Arauco, Drummond Ltd., Anglo Gold Ashanti, Gramalote Limited, and other companies dedicated to urban, rural and agro-industry real estate projects. He also has extensive experience advising consumer goods companies, particularly those devoted to food production for both human and animal consumption.
Juan Carlos has a Law Degree from Universidad del Rosario (1989), a Post-Graduate Degree in Civil Law, graduated with honors, from Université de Paris II La Sorbonne (1990) and a degree in Public International Law and American Legal System, from Harvard University Extension School (1991).
He has been Secretary of the Latin American Regional Forum (LARF) (2015) and member of the International Bar Association (IBA) (1999 – 2015) and has lectured on Corporate Law and Energy Law in Colombia.
Luz María Mercado
Philippi Prietocarrizosa & Uría
About the author
Luz Maria Mercado is lawyer at Philippi, Prietocarrizosa & Uría in the Colombia office. She joined the firm in 2009. Between 2013 and 2014 worked as Visiting Attorney in Shearman & Sterling LLP, New York and rejoined the firm in 2015.
Her legal practice focuses on Corporate / M&A. She has acted as adviser for national and international clients on corporate matters and mergers and acquisitions in Colombia and in the United States. She has also advised international issuers on their international bond offerings.
Luz María has a Law Degree from Universidad de los Andes (2006), a Post-Graduate Degree in Public Law from Universidad de los Andes (2007), and an LLM from University of Pennsylvania Law School (2013). She took the Deal Design and Negotiation program from Harvard Negotiation Institute (2011) and has a Wharton Business and Law Certificate from University of Pennsylvania Wharton School (2013).