The COVID-19 pandemic, or coronavirus as it is commonly known, has drastically changed the world economy and its effects are not yet quantifiable. In the midst of this unprecedented crisis, companies must make significant and difficult decisions, such as suspending activities, closing some of their plants or continuing to operate if they are engaged in an essential or strategic activity to confront the pandemic, terminating relationships with their suppliers, being unable to comply with the ab
There is no doubt that the challenge faced by company directors and officers in times of COVID-19 is monumental, and the decisions they make will not be free of risk for the company, and their consequences may have or will have medium- or long-term effects on the company’s performance. For this reason, it is important that company directors and officers have a guide that allows them to make difficult decisions within a framework of legality in the face of an epidemic that continues to spread throughout the world. How should I act when making a decision if I am a director or officer of a company in relation to the coronavirus issue? From a legal standpoint, it is important to distinguish public companies, that is, those listed on the stock exchange, from private ones, since the rules that directors and officers must observe differ depending on whether the company is public or private. In general terms, in decision-making, directors and officers must bear in mind the following: • In public companies listed on the stock exchange (such as publicly traded stock corporations, or SABs) and in those investment-promotion stock corporations (SAPIs) that have adopted the management regime of a publicly traded stock corporation, the chief executive officer is the one in charge of the day-to-day management of the company, while the board of directors establishes the general strategies for conducting the company’s business and oversees the performance of the chief executive officer. In addition to the chief executive officer, there are “relevant executives” who participate in the day-to-day running of the company and whose decisions have a significant impact on the company’s administrative, financial, operational and legal situation. In accordance with the Securities Market Law, the chief executive officer, the relevant executives and the directors, in making decisions, must observe, among others, a duty of care. This means that their decisions must be made in good faith, in an informed manner and, at all times, they must disclose the relevant information of which they are aware. To that end, the chief executive officer, the relevant executives and the directors may request opinions from other officers and committees of the company and even seek the advice of independent experts that allow them to have more information. In the event of not having all the reasonable elements for decision-making for the company, directors have the right to postpone a session. In other words, the chief executive officer, the relevant executives and the directors may and must obtain all those resources that help ensure that their decisions are informed and can be made in good faith, for the benefit of the company. • In companies that are not public, that is, those companies incorporated as stock corporations, investment-promotion stock corporations that have not adopted the management regime of a publicly traded stock corporation, and limited liability companies, the sole administrator or its board of directors, in making decisions, must act prudently as if it were their own business. The laws applicable to private companies do not make the distinction of the duties of care and loyalty required of the chief executive officer, the relevant executives and the directors of a public company; they only establish the general standard of conduct for the sole administrator or the directors: “act as if it were your own company.” The sole administrator or the directors whose conduct does not meet the aforementioned standard of conduct will be liable to the company for the damages that may be caused, without prejudice to the fact that their conduct may constitute a crime. In summary, provided that company directors and officers make decisions in an informed manner, in good faith, without conflict of interest and acting prudently, they will not be liable for the consequences that such decisions have on the company, whether serious or potentially serious, and they will have sufficient arguments to justify their decisions in an unprecedented situation, such as that generated by COVID-19. For further information, please contact our experts: Luis Burgueño, Partner: +52 (55) 5258 1003 | lburgueno@vwys.com.mx Gloria Martínez, Associate: +52 (55) 5258 1016 | gmartinez@vwys.com.mx
