In Paraguay, Corporate Governance regulations are set forth in the Civil Code. Pursuant to this juridical instrument shareholders are given the right to oppose to Resolutions of the Annual Meeting and to decisions of the Board of Directors.
i) Opposition to the Annual Meeting Resolutions
If there are substantial changes to the company like, change of objectives, domicile transfer to a foreign country, merger or acquisition the resolutions must be adopted by the majority of votes of the shareholders. However the provisions of the code import the right to not agree with these resolution in which case the shareholder can decide to withdraw from the company and there is the obligation to reimburse their shares to them, as long as they certified their opposition in the General Annual Meeting’s minute or until the 5th day after its conclusion.
ii) Judicial Challenge to Annual Meeting Resolutions
The law establishes that any Annual Meeting’s resolution that violates the law, the by-laws or regulation can be challenged by the directors, trustees and opposing shareholders.
Among the opposing shareholders the law makes the distinction of those that were absent and presents in the Annual Meeting. In regard to the first, they have no limitation to oppose but for those that were present during the General Annual Meeting have to show evidence that in such meeting they did oppose to the resolution by making such certification in the Meeting’s Minute.
There is an exception for those shareholders that voted favourably but that can annul their vote for reasons of having voted subject to duress, against public policies or having had other vices of the will when voting which turns their vote null.
This action is a judicial action that pursuant to the law has to be promoted within six months of the resolution’s date. This term does not apply in case of attempting against public policy, with has no term to file the judicial claim.
iii) Effects of the judicial challenge
The judge, as per party request, can adjourn the enforcement of the challenged resolution. In practice and at discretion of the judge, a guarantee is required to answer for potential damages that could be caused to the company due to this challenge.
If the challenged resolutions are declared null, the shareholders that in spite of knowing the vices of it vote in favour of them, shall respond jointly and without limitation for the consequences.
iv) Opposition to the Board of Directors decisions and their liability.
The shareholders that represent the fifth part of the equity (20%) can oppose to the Board of Directors decisions. When facing this circumstance the directors are liable before the company, as well as when their decision involves a violation of the law or bylaws.
In conclusion, the aforementioned demonstrates key issues of corporate governance in Paraguayan legislation. The law gives the right to shareholders not only to oppose the resolutions of the annual meetings and the board of directors’ decisions but also to judicially challenge these when they are contrary to the law and to the provisions set forth in the bylaws of the company.
