MEXICO Law and Practice Contributed by: Carlo Cannizzo, Marco Cannizzo, Stefano Amato, Enrique García and Paloma Iglesias, Cannizzo
10.2 Stage of Deal Most of the litigation that exists in this area relates to agreements between shareholders, and general agreements regarding the exercise of voting rights, compulsory purchases of shares, options, the tax effects of mergers and acquisitions, etc. As noted, M&A litigation is still uncommon in Mexico. 10.3 “Broken-Deal” Disputes Although there are few judcial prcedents on the sub - ject of broken-deal disputes, from recent transactions related to the matter we can infer the clear importance of an in-depth analysis of defence mechanisms in hostile takeovers, and the compliance of such mecha - nisms with the applicable provisions. Shareholder activism in Mexico in an attempt to pro - voke a change within the company or in the favour of the activists is considered an important force when the relevant shareholder has control or a sig - nificant percentage of the capital stock of public or private companies. Likewise, shareholders may play an important role in the decision-making process by being part of committees or even on the boards of directors of such companies. It will be important to consider the existence of minority rights provided for in the relevant legislation. 11. Activism 11.1 Shareholder Activism Mexican law provides strong protections for minority shareholders under the LGSM and the LMV. Share - holders representing at least 10% of a company’s capital stock in public companies can request the Chair of the Board or the committees responsible for corporate practices and auditing to convene a general shareholders’ meeting at any time. This right applies only to publicly traded companies whose shares are registered in the RNV. In private companies, minority shareholders may negotiate veto rights, supermajority voting thresholds or board representation to protect their interests; however, at least 33% of the capital stock is necessary to request a shareholders’ meeting. Legal and regulatory barriers, along with concentrated ownership structures in many Mexican companies,
• adjourning board meetings if it is not considered that sufficient or necessary information is available to make decisions; and • avoiding participating in deliberations and deci - sion-making if there is a conflict of interest on the part of the relevant director. These duties are applicable to a possible acquisition. The decision to carry out a transaction or not must be based on relevant and sufficient information to iden - tify whether the transaction involves a benefit for the company, and without there being a conflict of inter - est. When determining the use of defensive measures to prevent a transaction, the directors should evalu - ate whether they are causing harm to the company and consequently failing to comply with their fiduciary duties. 9.5 Directors’ Ability to “Just Say No” The faculties of directors are usually provided for and delimited in the by-laws of the companies; their authority to oppose a transaction must be provided for in such by-laws or in the law. In any case, the directors must act in accordance with their duties of diligence and loyalty, even in the case of private companies to which the LGSM applies. Although the LGSM does not expressly provide for such duties – whereas the LMV does – it does consider the exercise of a liability action against the directors in the event of damage being done to the company, which occurs when the aforementioned fiduciary duties are not complied with. In the case of public companies, it should be noted that, according to the LMV, the possibility of imple - menting measures to prevent a takeover of a com - pany is subject to certain requirements and conditions (as mentioned in 9.3 Common Defensive Measures ) that the directors must consider and comply with if they consider that it is necessary to make use of such mechanisms.
10. Litigation 10.1 Frequency of Litigation
M&A litigation is still uncommon in Mexico, other than with respect to indemnification obligations under the PSAs.
838 CHAMBERS.COM
Powered by FlippingBook