COLOMBIA Law and Practice Contributed by: Jaime Trujillo and Natalia Ponce de León, Baker McKenzie
ation underscores the complexity of corporate gov - ernance, where regulatory constraints can sometimes conflict with the responsibilities entrusted to company directors. 9.5 Directors’ Ability to “Just Say No” Except for certain business combinations such as mergers, directors of a target do not play a role in rejecting or accepting public tender offers, nor in negotiating a transfer of shares. It is the shareholders who possess the exclusive right to determine whether to sell their shares. In Colombia there have been fewer instances of liti - gation associated with M&A deals compared to the United States and other common law jurisdictions. However, claims related to breach of representations and warranties and purchase price adjustments are not unheard of. 10.2 Stage of Deal Most frequently, M&A disputes arise after the closing of the transactions. Broken-deal disputes triggered by a failure to close a transaction (due to the occurrence of a material adverse change, or otherwise) are rare. 10.3 “Broken-Deal” Disputes To our knowledge, no broken-deal disputes that estab - lished relevant precedent and legal principles arose in Colombia resulting from the COVID-19 pandemic, nor have we found any identifiable trends regarding mate - rial adverse effect or material adverse change clauses. However, there are valuable lessons to be learned in the M&A landscape following the COVID-19 pandem - ic. Deal makers are now placing greater importance on certain aspects, such as: 10. Litigation 10.1 Frequency of Litigation • ensuring that exit or walk away rights are properly drafted and negotiated, specifically including provi - sions related to material adverse effects caused by pandemics and other disruptive events;
• carefully negotiating interim covenants between the signing and closing of a deal, particularly in uncertain times; this includes provisions related to operating the business in the ordinary course, in accordance with past practices or in a prudent and reasonable way; • rethinking the extensions to drop-dead dates; and • purchase price and related adjustments, including completion accounts and locked-box mechanisms.
11. Activism 11.1 Shareholder Activism
In Colombia, corporate culture has traditionally involved closed-capital companies with a limited number of shareholders, contrasting with common law jurisdictions. This environment has historically limited shareholder activism. One of the mechanisms available for activists is the shareholders’ corporate action known as “acción social de responsabilidad”, which is employed against directors who fail to act in the best interest of the com - pany. To date, the use of this action has been limited, because in practice it was restricted to the control - ling shareholder. However, this may change with the recent introduction of Decree 46 of 2024. According to this Decree, any shareholder (including any minority shareholder) may file claims on their own account, but in the interest of the company, to seek compensation for the losses suffered as a result of breaches of the directors’ duties (ie, if a director acts in a conflict of interest that results in losses to the company). We consider this action to be relevant for the future of shareholder activism in Colombia. 11.2 Aims of Activists In most companies, it is the shareholders or associ - ates who decide whether to sell their shares. Con - sequently, acquisition deals are primarily governed by the decisions of the shareholders rather than the directors. This principle also applies to mergers and spin-offs, which are typically considered amendments to the by-laws and are usually decided by the shareholders.
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