Is It Advisable to Resort to Arbitration to Settle Corporate Lawsuits?

May 30, 2017

With the creation of the Delegation for Commercial Procedures (Delegatura para Procedimientos Mercantiles) by the Superintendence of Companies, corporate lawsuits have increased dramatically. A 700% increase is expected by the end of the year.

Although arbitrage seems like a practical and effective way to settle corporate lawsuits, it is not as easy as it seems. The growth of this model last year brought with it the admission of commitment clauses in the regulations. In some cases, ironically, these reduce the efficiency in settling these kinds of disputes.

Agreeing to arbitrage in corporate statutes can be beneficial or not, depending on the situation. These questions can help guide your decision: Is it strategic to agree to arbitrage? Is it an efficient use of resources?

It is important to keep in mind certain qualities that the Superintendence of Companies has demonstrated, such as speed and certainty, in resolving corporate conflicts. In addition, one must consider that nature and implications of the different types of lawsuits that can arise. Based on this, a decision needs to be made as to whether or not it is worth investing in an arbitrage court to resolve cases like a dissenting shareholder challenging an agreement. Suits of this nature generally do not have a determined amount and are typically only resolved with documentary evidence. 

On the other hand, economic factors should be considered, including the actual cost of the arbitrage, arbitrators’ fees, and the impact of the time and cost involved in a corporate lawsuit to the company. Taking this into account, it seems reasonable to attempt to settle contestations like invalidity actions and declarations of the circumstances of ineffectiveness of shareholders’ and board of directors’ decisions in the fastest and most economical manner possible. In this way, the company avoids incurring arbitrage costs and slows down their decisions by a disagreeing shareholder that could be settled with the agility and special ability that the Delegation for Commercial Procedures has demonstrated.  

There will always be certain conflicts that will justify the need for arbitrage. One example is a shareholder conflict that involves business agreements and financial discrepancies. In this case, it is worth investing in a specialized arbitrage court which can argue highly confidential and complex matters for the company and its partners. 

Finally, it is important that we don’t simply trust the format of the laws. When it is time to negotiate and possibly include a commitment clause, we must take into account certain factors such as the cost, speed, efficiency, and special characteristics of the conflicts. The clauses should be designed in such a way that there would be no problem excluding some lawsuits from the arbitrators’ power with enough clarity to avoid confusion and additional expenses. Disputes can be administered in such a way that one can save on the costs of expensive lawsuits, but also provide enough security and certainty for the company and its shareholders.

Contact

Gustavo Tamayo 

gtamayo@lloredacamacho.com 

Ricardo Saldarriaga 

rsaldarriaga@lloredacamacho.com

Remember to follow us Twitter and LinkedIn.

© Lloreda Camacho & Co. Copyright reserved. Reproduction is forbidden.