Guest Post: Argentina Right to exclude shareholders in closely held corporations

Posted 24 May, 2011 by Ralph Mylie, Jr., CIC, RPLU
Categories: Uncategorized

Contributed by Estudio Garrido Abogados

The Commercial Court of Appeals of the City of Buenos Aires, the most active tribunal for corporate law in Argentina, recently passed a ruling (in In re Microomnibus Ciudad de Buenos Aires SATCI v Martinez) regarding the right to exclude shareholders in closely held corporations in the event of ‘just cause’. The court stated that although the Business Association Law 19,550 does not specifically include corporations among the type of legal entities where any equityholder (whatever its stake) may be excluded for ‘just cause’, such exclusion is valid if the bylaws of the corporation expressly contemplate it.

New ruling

Closely held corporations amount for more than 90% of legal entities in Argentina, employ more than 70% of the workforce and amount for more than 50% of economic activity. The ruling is significant because it will:

  • reduce litigation;
  • make the Argentine closely held corporation a more attractive investment instrument, thus reducing the use of foreign vehicles (which contain squeeze-out provisions and would enforce a call option against a shareholder that has engaged in illegal conduct); and
  • by analogy, eliminate uncertainty in the enforceability of shareholder agreements, in particular in respect of puts and calls, deadlock resolution mechanisms and drag-along rights (all instances where a shareholder leaves a corporation).

However, the ruling does not define:

  • ‘just cause’;
  • the price at which the shareholder is to be excluded;
  • who (the corporation or its shareholders) is entitled to the rights; or
  • the majority required to amend the bylaws of an existing corporation to include the exclusion right.


The above matters can be interpreted as follows.

Just cause
The bylaws could leave the matter for judicial interpretation or specify what would constitute ‘just cause’ (eg, wilful misconduct or gross negligence that results in damages to the corporation, diversion of corporate funds, utilisation of the corporation for an illegal purpose or voting under a conflict of interest).

Any reference to fair market value should withstand scrutiny. In addition, references to net worth, even if lower than fair market value in a particular circumstance, should also withstand scrutiny since this is the price at which appraisal rights are exercised.

Entitlement to the rights
The bylaws could provide that the rights belong to the corporation or to the other shareholders. If exercised by the corporation, the stated capital of the corporation will be reduced, unless the corporation has accumulated profits or free reserves.

Required majority
An absolute majority of shares entitled for a vote, with only one vote for shares with multiple votes, would be be required to amend the bylaws of an existing corporation to include the exclusion rights.


UK Government Modern Workplaces Consultation

Posted 19 May, 2011 by Ralph Mylie, Jr., CIC, RPLU
Categories: Compliance, Employment Practices, Human Resources

In the United Kingdom, when government departments change or make policy, they listen to public views via a consultation. For those of us in the United States, this is similar to the our government’s request for public comment on a matter. You can read the consultation paper about what government wants to do or change and then send your thoughts back. For those with clients in the UK, this can have an effect on the administration of people in those offices.

The UK Government has just published consultation (Found Here) on its plans for flexible, family-friendly employment practices. There are four key elements:

  1. System of flexible parental leave,
  2. A right for all employees to request flexible working,
  3. Changes to the interaction of annual leave and sick leave, and
  4. Measures to encourage equal pay for equal work between men and women.

The changes to maternity, paternity and parental leave are likely to be of most immediate interest to employers, who have only just got used to the new rules on paternity leave and pay. The key proposal is that maternity leave and pay, reserved exclusively for mothers, will effectively be reduced to 18 weeks. There will then be an entitlement of 30 weeks flexible parental leave which can be shared between the parents in whichever way they wish, subject to their employers’ agreement. 17 weeks of this leave will be paid and 13 weeks will be unpaid. Payment will be on the same basis as now with reference to the same eligibility criteria and set financial limits. Parental leave can be taken by both the mother and father concurrently so that parents can be together. An additional period of 4 weeks paid leave will be reserved for each of the father and the mother. The father will also retain a right to the current 2 week paid paternity leave period available around the time of the baby’s birth. Employers will be concerned that the changes will have financial and administrative consequences and that it will be more difficult to plan for absences. The consultation seeks to minimize administration and states that the default position where the parties cannot agree when leave is taken is for parents to take leave in a continuous block.

The consultation also proposes extending the statutory right to request flexible working to all employees. However to reduce the administrative burden the current statutory process for considering requests will be replaced with a new duty on employers simply to consider requests reasonably. A statutory code of practice would be created to demonstrate a reasonable process. An interesting proposal is that employers will be allowed to take account of any factors they consider relevant in the event that they have to choose between multiple requests. The consultation makes it clear that employers would still have to show that all the requests could not be accommodated for purely business reasons and wider principles of discrimination would still need to be respected.

The Government also takes this opportunity to consult on changes concerning the carryover and rescheduling of annual leave in the light of recent European cases. The consultation proposes amending the Working Time Regulations so that where a worker has not been able to take his annual leave (due to sickness absence) in the current leave year he can carry it over to the next holiday year, provided he does not exceed a four week limit. The consultation recognizes that employers would still need to be aware of other contractual or statutory obligations such as the disability discrimination provisions of the Equality Act 2010.

The equal pay proposals would require tribunals (which have found an employer to have discriminated because of gender in relation to contractual terms or non contractual pay matters) to order that employer to conduct a pay audit. The pay audit would involve comparing the pay of women and men doing equal work and investigating the causes of any potential discrepancies.

Small U.S. Businesses Need to Consider Their Global Exposures

Posted 3 May, 2011 by Ralph Mylie, Jr., CIC, RPLU
Categories: D&O, Uncategorized

Last week I attended a seminar here in Atlanta designed for small businesses to improve their sales. The attendees were a wide range of business types from heavy equipment sales to document security. I had the pleasure to talk with some of these business owners who were quick to dismiss their ‘global’ exposures because they are not Coca-Cola, UPS or some other multi-national firm – they are ‘Main Street USA’. To their credit, they were willing to spend 3 minutes with me and learn that many of them do have global exposures, and they have no plans for this risk, yet.


What I reminded them of, in a globalized economy all linked by overnight delivery, advanced telecommunications and the internet, even today’s small companies increasingly do business with foreign suppliers and customers. For these businesses, conducting business outside of the U.S. has never been easier, but doing so leads to a wide array of risk management and insurance issues.


Like them, it is obvious to most people that companies with foreign subsidiaries, branches or joint ventures need to be aware of their exposure to loss in the various countries in which they do business. They need to be certain that their insurance programs are appropriate to the exposures and in compliance with local regulations. Failure to do so may leave a company without insurance coverage – which may not become apparent until after a loss has occurred – and potentially subject to fines and penalties.


Managing a multinational insurance program can be enormously complicated. Some countries require policies to be purchased locally, meaning that the buyer needs access to distant insurance markets and must be able to manage language issues, especially since the policies are often issued in the local language. One solution is to delegate local insurance purchases to local employees, but this can lead to other issues concerning the quality and consistency of coverages. These ‘multi-national’ companies oftentimes simplify the insurance process by working with brokers experienced in international insurance programs and multinational insurers that can provide substantially one-stop service, even when local insurance policies are required.


However, a point I made with these small business owners is that most, if not all of them, have a company website, and there is where they are potentially exposed to liability from foreign sources. Even if they do little or no business in a foreign country, since the Internet is borderless, the company could potentially run afoul of various libel, intellectual property infringement and privacy laws. Companies that sell products to foreign buyers have even more opportunities to incur liability, such as product liability lawsuits and enforcement of consumer protection laws. Companies with physical locations outside the U.S. face the full range of property and liability exposures in each country in which they have facilities and people.


Understanding the exposures presented by each country in which a company operates can be daunting. Liability exposures are especially challenging since laws and legal systems vary widely.


Even if not required by law, local policies may be a good idea in many cases. Local policies are more likely to be tailored to local laws and practices, and ready access to local claims personnel may be essential following a loss. Additionally, buying local policies may avoid certain complex tax issues associated with multinational policies.


Globalization is a business and economic reality, but insurance still is regulated locally. A well-structured insurance program with an insurance broker that understands these exposures is critical. Businesses should expect their broker to choose an insurance company that can minimize the friction that can be caused by the myriad of insurance regulation around the world, and allow management of the businesses to focus on growth and profitability without liability and insurance issues being an impediment.

The Impact on D&O for Multinationals with Certain Cuba Sanctions Restrictions Lifted

Posted 27 April, 2011 by Ralph Mylie, Jr., CIC, RPLU
Categories: D&O, Legal

Earlier this year, the US Treasury’s Office of Foreign Assets Control (OFAC) amended the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR or Cuba sanctions). The amendments implement policy changes announced by President Obama on January 14, 2011 to continue outreach efforts to the Cuban people. The amended regulations took effect immediately and among other things, authorize general licenses for (i) certain transactions with Cuban nationals who are permanent residents outside of Cuba, (ii) travel to Cuba in connection with educational and religious activities, and (iii) remittances to Cuba.


Immediately, I began to wonder about the impact of this lifting on the D&O policies of U.S. firms with local policies outside the U.S. Specifically, I previously had an insured client who had a subsidiary in France. We were looking to provide a local D&O policy in France. The French subsidiary had a Cuban National who sat on their Board. In the case of a claim, we were advised that we would not have had the ability to provide indemnity payments to this board member. The broker and client sought other alternatives. No one wanted to have to tell the French board that one of their members were excluded from payments by the US insurer whose policy was acting as a DIC / DIL.


Prior to the amendments, the Cuba sanctions broadly prohibited transactions with Cuban nationals no matter where they resided. The amended regulations establish a new general license that authorizes persons in the United States to engage in certain transactions with individual nationals of Cuba who are permanent residents outside of Cuba. The general license is subject to the requirement that US persons obtain from the Cuban national at least two documents issued to the individual by the government authorities of the new country of permanent residence. However, all property in which a Cuban national has an interest that was blocked prior to the later of the date on which the individual took up permanent residence outside of Cuba or January 28, 2011, remains blocked.  


The amendments to CACR also add general licenses for certain educational and religious activities that had previously required specific licenses from OFAC. A specific license will still be required for any educational or religious activities not authorized under the new general licenses. The new general license for educational activities authorizes accredited US graduate and undergraduate degree-granting academic institutions to engage in travel-related transactions incident to certain educational activities. Students traveling under the general license must carry a letter on official letterhead, signed by a designated representative of the sponsoring US academic institution, stating that the study in Cuba falls within the scope of the general license.  


Similarly, the new general license for religious activities authorizes religious organizations located in the United States, including members and staff, to engage in travel-related transactions that are incident to religious activities in Cuba. Under the general license, travelers must engage in a full-time program of religious activities, and donations to Cuba or Cuban nationals are not authorized. In addition, individuals traveling under the general license must carry a letter on official letterhead, signed by a designated representative of the US religious organization, stating that the travel is within the scope of the general license.


Finally, the amended regulations add three general licenses related to remittances to Cuba subject to certain restrictions. Unfortunately, it appears that the D&O claims issue may not be resolved because these new licenses authorize (i) remittances of up to $500 per quarter to any Cuban national, except prohibited officials of the Government of Cuba or prohibited members of the Cuban Communist Party, to support the development of private businesses, among other purposes; (ii) unlimited remittances to religious organizations in Cuba in support of religious activities; and (iii) remittances to close relatives who are students in Cuba pursuant to an educational license for the purpose of funding transactions authorized by the license under which the student is traveling.

New EU insurance sector block exemption adopted

Posted 18 May, 2010 by Ralph Mylie, Jr., CIC, RPLU
Categories: Compliance, Risk Management

On 24 March 2010, the European Commission announced that it has adopted a new insurance sector block exemption regulation (BER). The new insurance BER came into force on 1 April 2010 and will last until 31 March 2017. The insurance BER exempts certain aspects of the insurance industry from the EU prohibition on restrictive agreements.

The headline points of the new insurance BER are that it:

  • renews exemption for joint compilations, tables and studies;
  • renews exemption for co-(re)insurance pools, subject to some amendments;
  • no longer exempts standard policy conditions; and
  • no longer exempts agreements on security devices.

This should not come as a surprise as it is effectively what the European Commission set out in its consultation draft of the insurance BER in October 2009, although there were some slight amendments.

The Commission observed that standard policy conditions are used in other sectors, such as banking, without the need for a specific block exemption. It reasoned that to give the insurance industry special treatment could result in unjustified discrimination against other sectors which do not benefit from a sector-specific BER. Security devices and their installation were found to fall into the general domain of standard setting.

Standard policy conditions

The exclusion of standard policy conditions and provisions on security devices from the BER does not mean that they are necessarily illegal – rather a regular competition analysis is required. This will consider whether the particular arrangements do actually comprise a restriction of competition, whether any other block exemption could apply (e.g. the vertical agreements block exemption) and/or whether the particular arrangement merits an individual exemption.

Associations and their members will need to carry out a self-assessment in relation to proposed standard policy conditions and their terms of use as for any other association activity.

The Commission plans to offer more guidance on standard policy conditions for all sectors (not just insurance) in its guidelines on horizontal agreements which it is currently reviewing and on which it plans to consult “in the first half of 2010”.

Joint studies

Key changes to the exemption regarding joint compilations, tables and studies are:

  • a new right of access to the results for customer and consumer organizations, subject to an exception on the grounds of public security (e.g. where information is related to the security systems of nuclear plants or the weakness of flood prevention systems); and
  • clarifications to the scope of the exchange of information covered by the BER.


Key changes to the pools exemption are:

  • market share calculation now covers gross premium income earned within and outside the pool by participating undertakings – bringing this area into line with other general and sector-specific competition rules; and
  • a broadening of the definition of “new risks” to cover risks the nature of which has changed so materially that it is not possible to know in advance what subscription capacity is necessary in order to cover such a risk.

The Commission emphasized that the pools exemption is not a “blanket” exemption and that careful legal assessment is required of whether a pool complies with the conditions of the BER. It intends to monitor their operation closely.

Subscription market co-(re)insurance agreements

The Commission has also underlined that ad-hoc co-(re)insurance agreements on the subscription market have never been covered by the insurance BER and remain outside the scope of the new regulation.

Transitional provisions

It is useful to note that there is a 6 month grace period until 30 September 2010 for agreements which comply with the expiring insurance BER but not the new insurance BER. This gives industry a little more time to adapt their agreements to bring them into line with the new rules.

New Mediation Rules in Russia

Posted 16 May, 2010 by Ralph Mylie, Jr., CIC, RPLU
Categories: Legal, Risk Management

On 11 March 2010, draft regulations establishing mediation as alternative procedure for the settlement of disputes were introduced to the Russian Parliament. Assuming they are accepted, they will come into force on 1 January 2011.

Mediation has not previously been expressly provided for in Russian legislation nor has any law contained a detailed description or procedure for it.

In most cases, mediation allows parties to reach the best possible, and a mutually beneficial, compromise without involving judicial bodies or reducing the effectiveness of the settlement process.

The draft regulations contain complex and detailed legal mechanism for mediation, as well as various amendments and additions to civil law, civil procedural law and arbitration procedural law.

It is assumed that mediation can be initiated by agreement between the parties. A mediator may arrange meetings with both sides jointly or individually. This may culminate in the resolution of their dispute, which may be formalized in a civil law contract or an amicable settlement approved by a judge if the dispute has been already submitted to the court.

If the dispute is not resolved, the participants may not disclose during judicial proceedings any information provided by another party to conclude a mediation agreement or about their intentions to do so. They are also prohibited from disclosing any opinions or suggestions made by the parties during the mediation process and any information about a party’s readiness to accept any suggestions. The mediator may not provide the parties with legal counseling or other help.

The individual or organization providing mediation services is not authorized to disclose any information about the mediation procedure unless it is expressly permitted by the parties.

The draft regulations also contain certain quality requirements and procedures for the provision of mediation services, as well as some features of mediation in the course of initiated proceedings in arbitration tribunals and courts of common jurisdiction.

UK developments on climate change risks disclosure

Posted 13 February, 2010 by Ralph Mylie, Jr., CIC, RPLU
Categories: Climate Change, Compliance, D&O, Risk Management

In the UK there is a growing scrutiny of how climate change and environment issues are managed and reported.

1. The Companies Act 2006 (the “Act”)

The Act requires directors to carry out their duties in a way which is most likely to promote the success of the company for the benefit of its members as a whole. The Act also obliges most companies to produce a business review. Directors of listed companies must understand the likely consequences of any decision in the long-term and disclose the main trends and factors likely to affect the future development, performance or position of the company’s business in their business review. Large quoted companies must also report on environmental risks, policies and key performance indicators (KPIs). Environmental risks encompass a wide range of issues, not purely climate change although climate change may be an inherent factor. In order to assist with the reporting process the Accounting Standards Board has issued a statement of best practice and DEFRA has issued guidance on KPIs.

2. Recent Guidance for Auditors

In September 2009 the Environment Agency and the Institute of Chartered Accountants for England and Wales (ICAEW) launched new guidance on annual reporting in annual financial statements, entitled “Turning Questions into Answers: Environmental Issues and Annual Financial Reporting 2009”. The report provides guidance to assist preparers, users and auditors of annual financial statements to identify sufficiently relevant environmental issues, which affect company financials warranting disclosure. The aim being that the disclosure of management policies relating to environment matters and companies’ corporate commitment to these issues will assist in avoiding financial risks and prompt internal change. The report is expected to be of interest to directors and users of annual reports in addition to auditors.

Whilst particular obligations are placed by the Act on large and quoted companies to report on environment related risks, policies and KPIs, the report advocates voluntary reporting for all companies in excess of the required standards in order to generate information on environment performance.

3. Calls for harmonized climate change disclosure framework

The ICAEW, the Climate Disclosure Standards Board and Prince’s Accounting for Sustainability Project and others including 12 accountancy institutes from around the world have called for a single set of universally accepted standards for climate change related disclosures in mainstream financial reports.

In 2009 the Climate Disclosure Standards Board (CDSB) consulted on a Draft Reporting Framework designed for companies to use in evaluating the type and extent of disclosures that should be made about climate change in their mainstream reports. The Framework is to apply to disclosures made in or connected to information provided outside financial statements – such as the business review – that assists in the interpretation of a complete set of financial statements or improved users’ ability to make efficient economic decisions. A response to the public consultation is expected in the first quarter of 2010.

Ceres report on survey of asset managers practices

A recent report by Ceres entitled “Investors Analyze Climate Risks and Opportunities: A Survey of Asset Managers Practices” (January 2010) is also of significance. The report is the result of a survey conducted in 2009 of the world’s 500 largest asset managers asking them to describe how they are considering climate risks in short and long-term decisions. The report examines best practices that asset managers are using to incorporate climate and environment risks into their due diligence, corporate governance and portfolio valuation. The key findings reveal that many companies are still developing protocols for reporting on their carbon emissions and the risks and opportunities that they face. Whilst these disclosures are more prevalent, they are still voluntary and lack consistency.

The report notes that five of the world’s largest financial institutions have adopted the Carbon Principles, a roadmap for banks and utilities to evaluate and mitigate climate risks in lending to electricity generation projects. These financing entities acted out of concern about long-term viability of high-emission electricity generation. This means that the Carbon Principles initiative could increase the cost of financing high-emission enterprises if lenders demand more favorable terms to compensate them for potential liability, or if they simply avoid financing high-emitting projects. Ceres identifies that utilities that are investing in energy efficiency and cleaner renewable energy may not only face fewer material risks related to climate change regulation, but may also benefit from lower financing costs and higher market share, as emission regulations and renewable portfolio standards take effect.


Increasingly climate change impacts, sustainability issues and environmental compliance are being considered in making investment decisions. The emergence of new guidance on requirements for disclosures on climate change risks is indicative of heightened awareness of how environment related legislation, policy and risks should be factored into business decision making in a cohesive way.  More developments in this area should be expected.