LatAm companies warned not to neglect fiduciary duties

The sudden and wide-ranging impact of COVID-19 has resulted in companies and boards of directors facing unprecedented situations and challenges, and pressure on boards of directors and companies is higher than ever, but they should be mindful of their fiduciary duties and act in a manner consistent with such duties, according to a report by law firm Clifford Chance.

The nature of a director’s fiduciary duties has not changed as a result of COVID-19; fiduciary duties exist whether or not a company is facing a crisis, financial distress, or any other circumstances—but, in many board rooms across the Latin America region, directors are asking if exercise of their fiduciary duties should change in light of the current circumstances, the report states.

The article, penned by New York-based partner Thais Garxía (pictured), highlights what fiduciary duties entail, as well as best practices that directors of Latin American-based companies can adopt to comply with their fiduciary duties and help their companies navigate this challenging environment.

“One of the most important obligations of directors of companies facing a crisis like the one resulting from the COVID-19 pandemic is to exercise oversight, keep themselves informed and ensure there are adequate systems and controls in place to facilitate timely and accurate reporting to the board of events, and circumstances that materially impact the business of the company, including supply chain issues, relationships with key customers, the need to adapt to changing political and economic challenges, including changes in law and regulatory requirements, and liquidity needs (including covenants under debt instruments and lines of credit),” the article states.

“Given the times we are living in, boards should more than ever “stress test” the corporation’s potential responses to changes in any of these and similar areas. Another key consideration that directors should keep in mind is that when a corporation becomes insolvent, directors have a responsibility to direct the affairs of the corporation to maximise value for the benefit of the corporation and all of its constituents including its creditors,” it adds.

The article includes a country-by-country look at fiduciary duties in the region’s major economies – Argentina, Brazil, Chile, Colombia, Mexico and Peru.

The article can be viewed here.