Acedo Santamarina obtained a judgement where the First Chamber of the Supreme Court of Justice of the Nation made an interpretation of Article 163 of the General Law of Corporations
In an appeal for review filed in defense of the interests of a minority of shareholders of a certain corporation, Acedo Santamarina obtained a judgement where the First Chamber of the Supreme Court of Justice of the Nation made an interpretation of Article 163 of the General Law of Corporations, consistent with the human rights provided in the political constitution of the united mexican states.
As part of a commercial lawsuit filed by a group of shareholders of a corporation where the civil liability of the sole administrator of such corporation was claimed, Acedo Santamarina filed an appeal for review, which was resolved by the First Chamber of the Supreme Court of Justice of the Nation, in the sense of establishing that it is not an indispensable requirement for the exercise of the action provided in Article 163 of the General Law of Commercial Companies, to demonstrate the previous holding of a shareholders’ meeting where the liability of the administrative body was discussed.
During the past year, shareholders owning more than 25% of the capital stock of a certain corporation filed an amparo lawsuit against the decision of a unitary circuit court to declare the civil liability action brought by such shareholders based on Article 163 of the General Law of Commercial Companies as inadmissible. In their amparo action, the shareholders argued that the decision of the unitary court violated their fundamental rights of legal certainty and access to judicial protection, by denying them the possibility to claim the payment of an indemnity to compensate the corporation for the damages caused by improper administration. However, the collegiate court denied the federal protection requested stating that it was necessary to prove the holding of a shareholders’ meeting in which the liability of the administrative body had been discussed as a prerequisite to exercise the corporate action.
Dissatisfied with the ruling of the collegiate court, the minority shareholders filed an appeal for review in which they argued that the court failed to interpret Article 163 of the General Law of Commercial Companies in accordance with the fundamental right to judicial protection and the principle of progressiveness in the interpretation of this human right, thus unreasonably and disproportionately hindering the exercise of the rights provided by the General Law of Commercial Companies in favor of the minority of shareholders to which they belong.
In the ruling of the appeal for review, the First Chamber of the Supreme Court of Justice of the Nation established that the rules of commercial law, as well as civil law, must be interpreted by the judicial bodies in accordance with the fundamental rights provided in the Constitution and in international treaties, without this being considered a violation of the procedural fairness of the parties.
Based on the foregoing, the First Chamber made a systematic, literal, authentic and teleological interpretation of Article 163 of the General Law of Commercial Companies, after which it concluded that the shareholders’ right to judicial protection had been violated, and that, in order to exercise the civil liability action against the administrative body of a corporation, it is not possible to expect the qualified minority to demonstrate having previously held a shareholders’ meeting, since such requirement does not provide legal certainty and makes the possibility of exercising the corporate action null and void.
In accordance with an interpretation of Article 163 of the General Law of Commercial Companies, consistent with the human rights provided in the Political Constitution, the First Chamber stated that the only requirements that the legislator contemplated in order to exercise the action foreseen in favor of minority shareholders are: (i) that those exercising it represent at least 25% of the capital stock; (ii) the action must be exercised in favor of the corporation and not in favor of particular interests of the shareholders; and (iii) the shareholders comprising this minority cannot have exonerated the administrator within a general meeting and that, in the event that a meeting has been held in which the non-liability of the administrator has been deliberated and agreed upon, the opposition of the minority shareholders to such determination must be recorded in the minutes.
The First Chamber considered that, in order to exercise the corporate action, it is not necessary in all cases to have previously held a shareholders’ meeting, since such requirement represents an undue obstacle to the access to judicial protection of the minority of shareholders.
Based on this analysis, by unanimous vote, the First Chamber reversed the challenged judgment and granted the protection to the complaining shareholders.
The Supreme Court’s decision grants certainty to the qualified minority of a corporation that intends to demand from the administrative body the liability inherent to its mandate, by clarifying the requirements that must be met to exercise the corporate action, based on an interpretation of article 163 of the General Law of Commercial Companies that is in accordance with the fundamental right of judicial protection provided in our Political Constitution.
Mexican law provides several requirements intended to ensure the fundamental rights to an audience and due process recognized by the Political Constitution of the United Mexican States. In such manner, any person is prevented from being in a state of defenselessness in the face of legal proceedings involving the exercise of the punitive power of the State.
Service of process is the first essential formality of a legal proceeding. Through it, the authority notifies the defendant about (i) the existence of a lawsuit filed against him, (ii) the lawsuit and the documents attached to it, and (iii) the term granted to answer the claim.
Recently, the First Chamber of Mexico’s Supreme Court published a case law where it is evidenced the importance of conducting service of process in strict compliance with all the formalities foreseen in law.
In one of its most recent criteria, the First Chamber held that to ensure the defendant had the possibility to exercise fully his rights of defense, it is necessary that he had complete and certain knowledge of the claims filed against him and of the documents on which plaintiff bases his action. In that regard, the Supreme Court considered that service of process is legal only if the notifier certifies in the corresponding minute that the documents attached to the lawsuit were delivered to the defendant and describes each one of them. According to the First Chamber, if the notifier did not specify in the summons minute, the documents that were attached to the lawsuit, then, considering that the lack of service of process or its deficient realization is the most significant proceeding violation, the diligence must be annulled, and it must be repeated to prevent a state of defenselessness for any part of the proceeding.
In another case law, the First Chamber of Supreme Court considered that the fifth paragraph of Article 1070 of the Mexican Commercial Code was unconstitutional since it violates the guarantees of legality and due process. Article 1070 allows to carry out service of process of the defendant by publishing edicts in newspapers without prior investigation of its domicile, in the event that the service of process has been attempted at the domicile agreed in the document that supports the plaintiff’s claim, resulting such domicile wrong or incorrect. The Supreme Court pointed out that is the duty of the courts to investigate as far as possible the defendant’s correct domicile before ordering service of process by edicts since such alternative must be the last remedy to fulfill the obligation to communicate to the defendant, the existence of a legal proceeding filed against him.