Opinion From The Superintendency Of Companies In Connection With Certain Matters Included In Companies´ Bylaws Or Shareholder Agreements Related With Compulsory Sales Of Shares Or Dilution Practices

The Superintendency of Companies recently issued an opinion that may affect the effectiveness of clauses contained in bylaws of Colombian companies or in shareholders agreements related with remedies that other shareholders or partners may avail of due to the breach by another shareholder or partner of its obligations (e.g. dilution or mandatory transfer clauses).

By means of opinion No. 220 - 18127 of May of 2001 the Superintendency of Companies answered a query regarding the possibility of a company or its maximum corporate body of disposing of the shares of its shareholders (i) without the relevant shareholder's authorization, and (ii) based on a clause in the company's bylaws that allows this type of procedure.

For purposes of issuing the opinion the Superintendency took into account that:

(i) the right to private property implies the relevant owner's capacity of enjoying and disposing the good at its will;

(ii) the Colombian Constitution establishes that private property may not be affected or ignored by future legislation and that there will only be expropriation for public interest reasons; and

(iii) the above-mentioned principles are ratified by Law 16 of 1972, which incorporated the American Convention on Human Rights into the Colombian legal system.

Based on the above, the Superintendency established that neither a corporation nor its maximum corporate body (e.g. assembly of shareholders) may dispose in an arbitrary manner of a shareholder's ownership rights over its participation in a given company.

Furthermore, a conduct of such nature may not be justified on a clause in the relevant company's bylaws. Therefore, such a clause would be deemed illegal and contrary to the Colombian Constitution.