Latin Lawyer Reference

Private Equity 2016

Published on Wednesday, 27 July 2016

  1. 1.

    What are the most common types of private equity transactions in your jurisdiction?

    The most active types of investors in the private equity market of Colombia are pension funds. Besides, insurance companies, multilaterals such as the Multilateral Investment Fund (MIF), the Andean Development Corporation (CAF) and the International Finance Corporation (IFC), family offices and Bancoldex are playing an increasing role as investors in the private equity market. Most of the foreign funds investing in Colombia are from the United States, England and Chile. 

    In addition, there are other government-sponsored funds that have been recently created as investment vehicles in order to allow state-owned companies to invest in social interest programmes.

  2. 2.

    What types of investors are most active (and what jurisdictions are they most commonly from) in the private equity market of your jurisdiction?

    The most active types of investors in the private equity market of Colombia are pension funds. Besides, insurance companies, multilaterals such as the Multilateral Investment Fund (MIF), the Andean Development Corporation (CAF) and the International Finance Corporation (IFC), family offices and Bancoldex are playing an increasing role as investors un the private equity market. As stated, most of the foreign funds investing in Colombia are commonly from the United States, England and Chile. Recently Colombia is seeing the presence of more funds with interests in investing in Colombia and neighbouring jurisdictions.

    Please note that certain state-owned entities are creating programmes to promote the private equity industry in Colombia. Such is the case of the Colombian Development Bank which in 2009 created the Bancoldex Capital programme designed to grant financial and non-financial support to Private Equity Funds (PEFs) oriented to invest in small and medium-growth companies.Bancoldex has invested as a limited partner in seven PEFs, supporting economic sectors such as: outsourcing services, information technology, biotechnology, clean energy, digital animation, tourism, generation of energy and logistics, among others. As a result, more than 28 companies have been capitalised for 554 billion pesos.

    In addition, there are other government sponsored funds that have recently been created as investment vehicles to allow state-owned companies to invest in social interest programmes.

  3. 3.

    What historically have been the main target industries and what trends were noticeable throughout 2015? What trends do you expect to see in the next 18 months?

    Private equity funds started to show important activity in the Colombian market in 2005, and the main industries where such funds have invested are as follows:

    • infrastructure: investments in various public works (ie, bridges, tunnels, toll roads, airports, ports, public transportation and other public works);
    • energy and extractive industry: investments in a wide variety of companies engaged in oil and gas, power industries, gold, coal and mining;
    • real estate: investments in real estate properties to own and operate the corresponding properties (ie, hotels, industrial parks); and
    • general services: financial and insurance services, medical and health services, manufacturing, industrial sectors innovation technologies, biotechnology, telecoms, ports, among others.

    In general terms, Colombia saw a slowdown in the M&A market in 2014 compared with 2013. According to the financial media, Colombia had a 39 per cent decrease in M&A activity, with an aggregate deal value of US$4.30 billion. In addition, we saw evidence of investments made by private equity funds attempting to turn around their investment. A significant example is the acquisition by Empresa de Energía de Bogotá (EEB) of 31.92 per cent of Transportadora de Gas Internacional (TGI) from The Rohatyn Group (previously Citi Ventures Capital International) for US$880 million.

    Other examples of private equity deals seen in 2014, according to the financial media, include:

    • Latin American private equity companies Altra, Mercantil Colpatria and SCL Energía Activa acquired a Colombian power plant from El Dorado Group, a US-based infrastructure and project developer;
    • US private equity company Advent International acquired a minority stake in Colombian brokerage Alianza Valores, less than a year after acquiring Alianza’s asset management arm as part of a strategic alliance between the two companies;
    • Santo Domingo Group made an equity and asset contribution to Terranum Hotels, in order to fund the acquisition of major hotel management chain Hoteles Decameron Colombia SA and of its subsidiaries in Colombia, Panama, Peru, Ecuador, El Salvador, Mexico, Venezuela, Jamaica, Guatemala and Costa Rica;
    • Encore Capital Group acquired a 51 per cent stake in Bogotá-based counterpart Refinancia;
    • private equity group Ashmore bought a majority stake in the concession holder of two runways at Bogotá’s international El Dorado airport;
    • Argentina-based private equity firm Victoria Capital Partners formed a strategic alliance with ceramics manufacturer Corona, buying a stake in the company at the same time; and
    • Gramercy Funds Management made a US$34 million investment in consumer finance company Credivalores-Crediservicios.

    In 2015, we believe private equity activity will be driven, among other things, by the first wave of divestment by private equity funds of initial investments made over the past six years, following the natural maturity of their investments in local assets. As mentioned before, if the Colombian peso continues to devaluate with respect to the US dollar, as has occurred during the past six months, Colombian assets will be cheaper for foreign investors paying with hard currency, which will benefit international PEFs.

    In 2015, we expect to see private equity deals in the energy (especially generation plants), industrial, real estate, financial services (including regulated and non-regulated), retail sales, services (especially franchising) and for profit-making education industries.

    We expect to see M&A opportunities involving infrastructure projects in the following 18 months. The Colombian National Agency of Infrastructure (ANI) has opened several public bidding processes to award fourth generation concessions as part of the plan of the national government to revamp the country’s infrastructure. For example, the ANI is implementing 25 concessions for construction of national highways, involving 8,917 kilometres, for an estimated aggregated value over US$24 billion. The Colombian government also has plans for concession projects involving the re-establishment and development of the long defunct Colombian railway system, construction of river ports along the Magdalena River and the refurbishment of the Bogota and Barranquilla airports.

  4. 4.

    Please describe the main features, size and activity levels of local private equity funds. Are there any regulatory or market restrictions or incentives to the development of any such local funds? Have any begun to participate significantly in transactions out of their local jurisdiction?

    In Colombia, PEFs are considered closed collective investment portfolios, created pursuant to an offering memorandum that contains the regulations of the fund and to which the investors adhere when executing an investment commitment. Consequently, a Colombian PEF does not have a corporate nature (ie, limited partnership) but rather a contractual nature (ie, a portfolio with assets separate from those of its manager).

    Generally, we are seeing that local funds range between US$50 million and US$200 million. Activity levels of private equity funds are increasing significantly. In the past year we have seen important M&A activity, including the participation of PEFs, both local and foreign. In some cases we have seen a joint participation between foreign PEFs and local players. A typical Colombian PEF has the following participants:

    • a management company: stock broker dealers, trust companies or investment management companies, all entities under the surveillance of the Superintendency of Finance (SFC). The management company carries the PEF’s back-office activities and reporting obligations to SFC and may choose to appoint a professional manager, which is generally the case;
    • professional manager: in charge of the investment activities of the fund (due diligence, overview and divestitures). It appoints the investment committee;
    • investment committee: PEFs must have an investment committee that serves as an advisory body to the professional manager regarding investments strategies and the definition of limits and maximum investments per issuer and the settlement of investments;
    • general assembly of investors: the investors constitute the general assembly of investors. The general assembly of investors requires a quorum to deliberate constituted with a plural number of investors whose units represent at least the 51 per cent of the outstanding units of each PEF. The decisions of the general assembly of investors shall be taken with the favourable vote of half plus one of the units represented in the respective meeting. Each unit grants one vote to its holder.
    • oversight committee: this has a surveillance function over the activities of the management company and the professional manager, and is appointed by the investors’ assembly.
    • custodian: Decree 1,242 of 2013 (Decree 1,242) issued by the Ministry of Finance sets forth that custodianship of securities shall no longer be performed by management companies of PEFs. As of the enactment of Decree 1,242, custodianship of securities held by PEFs must be performed by entities authorised by the SFC to act as custodians (trust companies) and such entities shall be deemed independent to the management company. If determined by the management company, custodians may be responsible for the accounting and tax obligations of PEFs.
    • incentives: PEFs allow channelling resources to investments that certain institutional investors (ie, pension funds primarily) would not be able to do. In fact, Decree 816 of 2014 enacted by the Ministry of Finance increased investment limits applicable to mandatory pension funds when investing in PEFs which in turn invest in infrastructure projects. In addition, PEFs are now authorised to invest in papers issued by special purpose vehicles developing infrastructure projects, and allowed as well to purchase accounts receivables originated in infrastructure projects. With such measures, the government intends to increase capital investments in infrastructure projects in Colombia, which financing needs are expected to exceed 47 billion pesos. Restrictions: Pension funds can only invest in PEFs that are exclusively offered to professional investors. The professional manager must meet certain experience requirements.
    • furthermore, Decree 1,242 established that funds, in which 75 per cent of the assets are made of real-state assets, will be considered closed collective investment schemes different to PEFs real estate investment funds. Professional managers will no longer be in charge of investment activities of real estate investment funds, unless such managers are entities under the surveillance of the SFC (stock broker dealers, trust companies and investment management companies) or a financial regulator in a different jurisdiction. Such provision excludes ordinary corporates as potential managers of real estate investment funds. Furthermore, PEFs may only invest one-third of their resources in listed securities and this provision is the rule currently applicable. However, the Ministry of Finance recently published a project of decree, which aims to modify the above mentioned percentage in order to invest 100 per cent of the fund investments in real estate assets; therefore, it will allow managers to not be under the surveillance of the SFC. The project was published recently to gather comments for the public (PEFs, trust companies, stockbroker dealers) once the comments are received the Colombian government expects to issue the official rule within the next few months. 
    • Tax matters: note that the general rule applicable to open and closed collective investment portfolios have a tax treatment by which the first pay off of their investments are deemed as profit and consequently the withholding tax applies upon redemption.  Nevertheless, in 2014 the Ministry of Finance enacted the Decree 1,859, which sets forth the tax treatment regarding the withholding tax applicable to the events on which the investors are allowed to pay off their investment and this redemption is deemed as capital instead of profit or return, thus, withholding tax is not applicable at that point. After redeeming the entire investment, following payments will be considered as profit, hence, withholding tax will apply  according to the treatment established by Decree 1,848 of 2013. 

    Some Colombian private equity players have recently expanded out of Colombian jurisdictions to make investments in Peru, Mexico and other similar jurisdictions.

  5. 5.

    Are there any private equity funds listed in your jurisdiction? Are there any special regulations or requirements applicable to the listing and public offering of securities by such funds or any reform initiatives that are under discussion?

    In Colombia there are no private equity funds listed in Colombia. However, as explained below, Decree 1,242 authorises PEFs to list and offer publicly participation units in the Colombian securities market.

    As per Decree 1,242, participation units issued by a PEF may be registered in the Colombian securities register (RNVE) if determined so by the management company in the offering memorandum. The registration of the units in the RNVE is one of the required steps to list such units on the Colombian stock exchange (BVC) or to allow its negotiation in private registry systems (sistemas de negociación de operaciones sobre valores). In addition to the registration in the RNVE, the units also need to be registered on the BVC. The process of registration in the BVC and public offering of the PEF units are no different than those applicable to a typical corporate.

    It is worth mentioning that once a PEF is listed on the BVC, it will be necessary for it to adopt certain corporate governance rules applicable to listed entities.

  6. 6.

    What are the main issues in connection with the liability of fund managers?

    Under Decree 1,242, the management company and its board members owe fiduciary duties to the investors. However, if the management company decides to appoint a professional manager, then its liability is limited to the act of election of the professional manager and its adequate supervision. Generally the liability of the fund managers is regulated in the offering memorandum.

  7. 7.

    What are the main remuneration schemes and related features for fund managers and have there been any recent shifts observable in the market? Are there any limitations or reforms under discussion regarding the same?

    The same as the standard international remuneration schemes:

    • carried interest: 20 per cent;
    • management fees: 2 per cent; and
    • organisational costs, generally with a cap.

    On this matter it is worth mentioning that the 20 per cent ‘carry’ generally paid as a cost of the fund. However, with the different types of participation units that can be issued by a PEF as per Decree 1,242 (see answer to question 30), it is expected that the 'carry' will be deemed a right of the professional manager when acting as investor of the PEF.

    In addition, the market is beginning to see reduced management fees well below the 2 per cent mark. Pension funds generally require that prior to the end of the investment period the management fees are low and based on the amount of the investments commitments and increase gradually until the end of the investment period. Upon the end of the investment period the percentage is the calculated over the assets under management.

  8. 8.

    Please describe any legal considerations of particular importance in your jurisdiction in connection with executing leveraged buyouts and similar strategies.

    For many years, leverage buy-outs were restricted for local financial institutions. In fact, article 72 of the Financial Organic System Statute (EOSF) sets forth that the entities under the surveillance of the SFC, its officers and directors, legal representatives, fiscal auditors and employees shall refrain to ‘use or facilitate’ the resources obtained from the public to acquire the control of target companies without legal permit.

    As a general rule, except expressly permitted under Colombian regulations (ie, financial corporations), entities under surveillance of the SFC may only undertake transactions to facilitate control acquisition of target companies as long as the resources from its clients are not being used, which means that these transactions may only be undertaken with the entity’s own funds (article of Decree 2,555 of 2010).

    In 2009, Law 1,328 was issued, which expressly authorised commercial banks to grant loans to acquire the control of target companies, except on the cases foreseen in article 10(c) of the EOSF, which means that currently commercial banks are allowed to facilitate credits to acquire the control of entities that are not under the surveillance of the SFC while there is an express prohibition to grant such credits to acquire the control of entities under surveillance (except on specific circumstances).

    Please note that the above is only applicable for local financial institutions, which means that any Colombian or foreign entity may structure a leverage buy out transaction of a financial institution without the above-mentioned restrictions as long as the purchaser seeks to obtain financing from foreign financial institutions.

    We have seen a growing confidence among banks, which are likely to assume higher risks in M&A financing due to Colombian assets becoming more trustworthy. In 2014 we witnessed an interesting financing scheme: syndicated financing coming from local banks and local subsidiaries of foreign banks. For example, according to the specialised media, in the case of Colombian electricity company Celsia’s US$840 million acquisition of seven power plants in Panama and Costa Rica from France’s GDF Suez, Celsia obtained US$560 million in financing from local and international banks (Bancolombia loaned US$360 million, Bank of Tokyo US$100 million and Banco Santander US$100); as part of the financing structure of Terranum Hoteles’ acquisition of major hotel management chain Hoteles Decameron, a portion of bank financing was provided by the Nassau branch of Itaú Unibanco and Colombia’s Banco Davivienda; and Colombian investment company Evolvere Capital used US$60 million financing provided by Colombian bank Davivienda to help fund the acquisition of local advertising company Carvajal Información (formerly Publicar).

  9. 9.

    What are the main organisational forms used in your jurisdiction to channel private equity investments? Has there been any change over time in the types of organisational forms used? What are the main formation requirements?

    As an alternative to traditional bank financing, domestic companies have turned to private equity funds seeking fresh capital in the form of equity investments and mezzanine financing in order to finance working capital, expansion plans and acquisitions. Private equity funds represent an excellent investment opportunity to procure local resources from institutional investors such as pension funds and insurance companies that can later be injected into healthy companies of several economic sectors with capital needs.

    However, before the issuance of Decree 2,175 of 2007, which was incorporated on Decree 2,555 of 2010 and amended by Decree 1,242, other forms were structured, such as family offices and other major private equity investors, which used corporations to channel their investments. Those private equity players that maintain the use of corporations are now using the SAS corporate form created by Law 1,258 of 2008 due to its flexibility.

  10. 10.

    What are the most important legal issues arising in the operation and governance of local companies in your jurisdiction?

    As to the operation and governance issues of local companies, we consider important for investors to acknowledge the main corporate bodies of Colombian stock corporations (commonly used type of companies incorporated as sociedades anonimas or sociedades por acciones simplificadas, in which shareholders are liable for the corporation’s debts up to the amount of their respective capital contributions):

    • general shareholders’ meetings. The ordinary meeting must take place on the first quarter of each year in order to discuss and approve, among others, the financial statements of the company for the previous year and declare distribution of profits. Extraordinary meetings can be held at any time to discuss any particular matter within the powers of the general shareholders assembly;
    • a general manager who is empowered to execute any act or agreement contemplated in the corporate purpose of the company’s by-laws, or which is directly related with the existence and operation of the company. Notwithstanding the above, the company may limit the powers or faculties of its manager by establishing such limitations in the company’s by-laws, which shall be registered in the Chamber of Commerce of the company’s domicile. Finally, it is important to mention that as a general rule, there is no limitation for the company’s manager to be at the same time an employee of the company;
    • a board of directors, composed by at least three principal members and their alternates, are in charge of the day-to-day administration of the company. A board of directors may not be required in the case of simplified stock corporations if expressly set forth in the company’s by-laws;
    • in some cases it is also imperative to appoint a statutory auditor duly registered as public accountant in Colombia.
    • additionally, it is important for investors to consider that under very limited circumstances provided under Colombian law, relevant authorities may pierce the corporate veil and the shareholders may be held liable for the company’s liabilities, as further described below:
    • article 61 of Law 1,116 of 2006 establishes a presumption setting forth that the insolvency of a subsidiary might have been caused as a consequence of the parent company’s controlling actions, except the parent or controlling company evidences that its actions did not cause the insolvency of its subsidiary and were not taken in the interest of the parent or its affiliates and against the subsidiary. If the presumption is not rebutted, the parent or controlling company will have subordinated liability with its subsidiary for the obligations of the latter; and
    • article 60 of Law 1,116 of 2006 sets forth that if the assets of the wound up company are insufficient to pay all external liabilities of the latter, the liquidator will be able to demand to the shareholders the payment of the unpaid shares of the company and to cover the additional liability established in the by-laws of such company.

    Finally, in the case of Colombian stock corporations, it is important to consider governance rules, disclosure requirements and minority rights (see question 12).

    As per governance issues in PEFs, management companies must act in a professional manner, with the diligence required for a prudent expert in the management of funds and in accordance with the investment policy of each fund. In this sense, management companies have fiduciary duties before the investors and are liable for slight negligence in the performance of their activities as managers of the PEF. Consequently, management companies are subject, among others, to the following duties with the investors of PEFs.

    • Information: management companies must implement policies and procedures to ensure that the information to be delivered to their investors or prospective investors is objective, opportune, complete, impartial and clear. As minimum, basic general financial statements, the general description of the portfolio, the evolution of the participation value, the value of collective portfolio and the participation of each investor therein shall be submitted.
    • Conflict of interest: as a general rule, management companies must refrain from acting in cases of conflict of interest in accordance with the minimum standards required under Decree 1242. In addition, such entities must implement principles, policies and procedures in order to detect, prevent and manage potential conflicts of interest. When acting on behalf of PEFs, management companies must give prevalence to the interests of the investors over their own interests or any third party’s interests, including the management companies’ shareholders, officers and affiliates.
    • Confidentiality:management companies are bound to keep the reserve and confidentiality of the transactions performed by their investors, unless in the cases expressly exempted by law.

    It is worth mentioning Law 1,607 of 2012, which among other matters in the area of corporate taxation, sets forth the following:

    • lowers the statutory rates of corporate income tax as well as capital gains tax;
    • sets forth a new tax called income tax for equality which replaces, in some instances, the payment of wage based employer welfare contributions;
    • brings new regulation regarding the concept of permanent establishment, and defines the idea of the effective place of management for purposes of determining corporate residency and its tax obligations;
    • sets forth rules on tax effects of the distribution of profits by branches of foreign corporations and permanent establishments;
    • changes the rules on depreciation; adopts thin capitalisation rules;
    • changes the rules on corporate reorganisations (such as mergers and spin-offs) in order to tax some of these operations; and
    • adopts general anti-avoidance rules.

    Finally, please note that on 23 December 2014, Colombian Congress enacted Law No. 1,439, which amends the Colombian tax code. The new tax law provisions entered into force on 1 January 2015. Although this law does not impact M&A activity directly, it may disincentivise investment in Colombia because it creates a tax that is known as a “wealth tax”. The wealth tax applies to nationals or foreigners, whether individuals or companies, who have a net worth or assets located in Colombia of over 1 billion Colombian pesos, as of 1 January 2015. It is important to bear in mind that stock held in Colombian companies is excluded from the baseline used to calculate net worth for wealth tax purposes. This wealth tax might cause buyers to have second thoughts before acquiring Colombian companies, because the overall tax burden of the target has now increased, or at the very least valuation methodologies based on cash flow would need to take into account the impact of the wealth tax in the target’s projected cash flow.

  11. 11.

    Are there any issues to be considered in connection with the limitation of liability under the laws of your jurisdiction?

    As mentioned above, the members of the oversight committee are appointed by the investor’s assembly. As a general rule, the liability of the members of the oversight committee is a personal liability and shall not compromise the liability of the investors who appointed such member. Notwithstanding the above, the matter is not free from doubt as to whether an investor having the right to appoint a member of the oversight committee and such member’s subsequent role on giving of consents and approvals through such committee in the manner instructed by an investor, would cause such investor to lose the limited liability established that is generally set forth in the offering memorandum. We believe the better view is that it should not affect such limited liability, provided however that the decisions taken by the oversight committee member and the instructions of the respective investor are free of fraud, wilful misconduct, gross negligence and are not in breach of laws or the offering memorandum.

  12. 12.

    What are the most common minority protection rights, whether granted by operation of law or contractual agreement? Are there any special issues to be considered under the laws of your jurisdiction?

    In the Colombian legal system, the majority rule controls the decision-making of corporate entities. Nevertheless, there are several minority protection rights that are foreseen under Colombian regulations, such as the following.

    • the right to participate and vote in shareholders’ meetings: in order to deliberate, the presence of at least two shareholders, depending on the type of corporate entity, representing the absolute majority of subscribed shares is necessary. Decisions are made, as a general rule, with the absolute majority of votes present in the corresponding meeting. Please note that shareholders have the right to be represented at the shareholders’ meetings by means of a power of attorney without the requirement of any legalisation formalities.
    • super majorities: according to Colombian law, the following decisions require special super majorities in order to protect minority shareholders: decisions approving distribution of profits below the percentage established by the law (50 per cent) will require at least the favourable vote of 78 per cent of the shares present in the corresponding meeting; the waiver of pre-emptive rights upon the issuance of shares if the favourable vote of at least 70 per cent of the shares present at the meeting is obtained; and the approval of payment of dividends by way of shares will require the favourable vote of at least 80 per cent of the shares present at the corresponding meeting.
    • summoning of shareholders’ meetings: shareholders representing 25 per cent of the issued and outstanding capital of the corporation have the right to request the legal representative of the company, which is generally the chief executive officer of the company, to summon an extraordinary general shareholders’ meeting.
    • inspection rights: directors and officers shall permit the shareholders or their representatives, the exercise of their right of inspection at the company’s main place of business of the company’s books and records during a 15 business day period prior to each meeting at which financial statements are to be approved (generally, ordinary annual shareholders’ meetings).
    • pre-emptive rights and the right of first refusal: The Colombian Code of Commerce establishes that shares are freely negotiable except for cases where pre-emptive rights and the right of first refusal are established in the by-laws.
    • the right of withdrawal: the right of withdrawal (appraisal rights) is a protection contained under Colombian corporate law, which applies in cases when the transformation, merger or spin-off of a company, imposes a higher liability on the shareholders, or implies a detriment to their economic rights. The withdrawal right may be exercised by: shareholders who did not attend the meeting of the corporate bodies where the respective decision was adopted; or shareholders who voted against such decision. Please bear in mind that the right of withdrawal does not apply in transactions such as purchase of shares.
    • directors’ liability: with respect to the legal actions that may be taken by the company against its directors, article 25 of Law 222 of 1995 (Law 222) provides for a derivative action that may be filed by the company, prior affirmative decision of the shareholders meeting, irrespective of whether such item was included in the agenda for the corresponding meeting. The summoning of this meeting may be made by a plural number of shareholders representing at least 20 per cent of the company’s interest. If the decision is taken, and the action is not filed within three months, said action may be presented by any administrator, the auditor or any shareholder on behalf of the company.

    Notwithstanding the above, please note that shareholders agreements may include additional contractual provisions to protect minority shareholders, such as mechanisms to control the decision-making of the corresponding entity (ie, veto rights and sunset provisions), co-sale rights (which permits a stockholder to ‘tag along’ and have his or her shares purchased as part of another stockholder’s sale to a third party), and resolutions of disputes allowing an exit to the shareholders. The enforceability of such mechanisms is further described in question 15.

  13. 13.

    What are the main exit strategies used by private equity investors in your jurisdiction? Are there any limitations to the availability, effectiveness or enforceability of exit arrangements that are commonly used in other jurisdictions? Have you seen a shift away from or towards certain exit strategies over the past year?

    Among the main exit strategies used by private equity investors, we would like to mention the following:

    • sale to strategic investors;
    • sale to PEFs;
    • sale in the securities market through an initial public offering (IPO); and
    • sale to initial shareholders (sale-back through a put option).

    The IPO is one the preferred mechanisms since it is usually in the interest of all the shareholders to assure the access of the company into the securities market and allow a transparent exit strategy. In Colombia, the shareholders of a closely held corporation that wish to list the corporation in the Colombian Stock Exchange and sell their shares to the public must register the company and the shares before the RNVE; and the company must list the securities before the BVC. Once they are listed in the BVC, the shareholders may sell their shares in a secondary offer (ie, ordinary sale, auction or ‘pre-agreed’ sales) or jointly with a primary issuance of shares, in which case the existing shareholders would only be allowed to include their shares in the offering up to a 25 per cent of the total amount of the securities being offered.

    There are no limitations as to the enforceability or effectiveness of the exit arrangements. Despite the IPO being an ideal exit strategy, we have recently seen sale-back transactions and sales to strategic investors.

    Considering Colombia’s current economic condition, with economic growth and liquidity resources available, we have not yet seen cornerstone investments as exit mechanisms.

  14. 14.

    What are the key legal issues to be considered when appointing or replacing directors and officers?

    Law 222 considers any of the following individuals as officers and directors under Colombian law (who are denominated as administrators): legal representatives of the company, its liquidator, members of the board of directors or other committees and the representatives of a company’s commercial establishments. In addition, Law 222 contains a blanket provision that includes within the concept of administrators those individuals that, pursuant to a company’s by-laws, hold or have powers such as those given to the above mentioned positions (ie, decision making positions).

    Under these circumstances, Law 222 establishes that directors and officers shall act in good faith, with loyalty and with the diligence of a good businessperson and establishes several duties that directors and officers must observe, such as the following:

    • perform all the necessary actions in order to carry out the corporate purpose;
    • comply with all the legal provisions and with the company’s by-laws;
    • allow the adequate fulfilment of all the tasks entrusted to the company’s statutory auditor;
    • guard and protect the commercial and industrial property of the company.
    • abstain from improperly using privileged information;
    • give an equitable treatment to all shareholders and allow them to exercise their ‘inspection rights’; and
    • abstain from participating, directly or indirectly, either for their personal interest or for that of third parties, in any activities that imply unlawful competition with the company or in acts that may give rise to a conflict of interest, unless there is a prior authorisation of the shareholders' meeting.

    The general rule with respect to directors’ liability is that they shall be jointly and severally liable for all damages caused, without any limit, to the company, its shareholders and third parties, because of negligence or wilful misconduct. Please note that D&O insurance policies are available in the Colombian market.

    Finally, it is important to point out that any provision in the by-laws limiting directors’ liability or exempting directors from their liability are understood by Law 222 as not existing.

    Please note that if investments are being made in entities under the surveillance of the SFC, additional requirements may be considered when appointing directors and officers. In fact, according to financial regulations, the appointment of legal representatives, members of the board of directors, administration committees, compliance officers, and financial ombudsman, requires the clearance of the SFC, and for purposes of obtaining such clearance, the SFC undertakes an evaluation of the corresponding individuals based on their working experience as well as on their professional and moral qualifications. As a general rule, the replacement of directors and officers shall only become effective until obtaining clearance by the SFC of the newly-appointed director or officer.

    Finally it is worth noting that public companies have additional requirements regarding the need of independent members of the board of directors. As a general matter, in public companies at least 25 per cent of the board must be composed of independent members. Private companies do not contain this type of independence requirement. However, it is common to find that, as a matter of best corporate governance practices, private companies have adopted these practices.

  15. 15.

    Please describe the most significant issues commonly considered under the laws of your jurisdiction in connection with purchase and shareholders’ agreements.

    The M&A market is becoming more sophisticated and demanding, and the need to achieve international standards has become a priority. The documentation for these deals is usually drafted in English, following common law practices; even if the share purchase agreement (SPA) is drafted in Spanish and governed by Colombian law, in large M&A deals (commonly involving a foreign party) the SPA would follow the typical New York-style SPA format (eg, definitions, acquisition of shares, purchase price, representations and warranties, conditions to closing, covenants, indemnification, termination, non-compete, dispute resolution and miscellaneous). Of course, when using the New York-style SPA for a deal governed by Colombian law, one should be very careful in using the appropriate Colombian applicable legal terms and forms and dropping NY law provisions not applicable under Colombian law (eg, equitable relief, waiver of jury trial, punitive damages, consequential and indirect damages, best efforts, specific performance, etc). Currently, there are no major significant differences between domestic and international deals. It could be said that civil/common law differences have been reduced when negotiating and documenting an M&A deal, to some extent thanks to front-runner law firms adopting a global standard to handle cross-border deals, which they apply to both domestic and international transactions. However, caution must be observed when using certain New York-style provisions for Colombian law governed SPAs.

    For example, regarding representations and warranties and breaches thereof, there are not as many precedents and case laws in Colombia testing these kinds of provisions as compared to other jurisdictions such as New York. In Colombia, there are a handful of recent arbitration awards enforcing and giving full force and effect to indemnification due to the breach of representation and warranties under New York-style agreements (governed by Colombian law) and one judicial precedent that gives full force and effect to representations and warranties, the absence of which will not cover under Colombian law the underlying assets of a target company (only the shares of the target company being sold).

    Colombian law will recognise as valid the choice of a foreign law as governing law provided it is subject to a valid international arbitration clause under Colombian regulations. Assuming there is no fraud in the selection of the applicable law and that the selection of the law does not have as its object to escape from or violate an otherwise applicable public policy provision, there are no limitations in Colombian law as to which substantive law may be agreed upon to govern an agreement where the disputes that arise in connection with such agreement are subject to an international arbitration clause. In the presence of a valid international arbitration clause, Colombian law does not require any specific points of contact between the law that is selected to govern the agreement and the parties or the place of performance or execution of the agreement itself.

    In addition, for purposes of negotiating the indemnity under the SPA, it is worth to consider that Colombian Law only provides for direct damages in the form of actual damages and loss of profit or benefit, unless the latter is expressly limited by law, and within the following scope:

    • in the case of negligence, the liable party will only be responsible for direct damages that were foreseen or could have been foreseen at the time of the contract; and
    • in the case of bad faith, gross negligence or wilful misconduct, the liable party will be responsible for all direct or immediate damages even if they were unforeseeable direct damages. Colombian law does not incorporate the concept of consequential or indirect damages therefore any agreement or wording contractually agreed by the parties in such regard will not be enforceable before a court.

    Finally, please note that for many years, there was no certainty as to the enforceability of non-compete clauses under Colombian law considering Colombian antitrust regulation prohibits any agreement that has the purpose or effect of limiting or refraining from producing a good or rendering a service. In that regard, the Superintendency of Industry and Commerce (SIC) issued opinions setting forth that every non-compete agreement would be deemed banned since it would be viewed as an illegal limitation of free competition, therefore with an unlawful purpose. Nevertheless in a resolution issued by the SIC in 2010 (Resolution 46,325), while adopting international standards, the SIC set forth that non-compete clauses in M&A deals could not be considered per se as restrictive of free competition without analysing the scope of the clause and its actual impact in the relevant market.

    In relation with the shareholders’ agreements and its applicability, Law 1,258 of 2008 creates SAS as a new type of corporation, which permits that the shareholders’ agreements deposited at the company’s offices may be validly executed without any limitations. Any shareholder could demand the compliance of the shareholder’s agreement before the Superintendence of Corporations. This new element is encouraging confidence in private equity investments.

    Other than the deposit requirements described above, shareholder agreements do not have any additional execution formalities as they are considered private agreements.

  16. 16.

    Please describe the main issues related to dispute resolutions under purchase, shareholders’ and other principal private equity agreements. What are the most common dispute resolution mechanisms selected in these agreements?

    The most common dispute resolution mechanism selected in principal private equity agreements is international and domestic arbitration. However, certain entities prefer to include forum selection clauses in their agreements. Under Colombian law, forum selection clauses designating the exclusive jurisdiction of foreign courts entail significant risks, unless a substantial part of the obligations are performed outside Colombia. If performance takes place in Colombia, courts tend to disregard clauses providing for the jurisdiction of foreign courts.

    The New York Convention and Law 1,563 of 2012 (the Arbitration Statute) govern the recognition and enforcement foreign arbitration awards and arbitral agreements. The Arbitration Statute governs an international commercial arbitration seated in Colombia.

    The Arbitration Statute adopts a dual arbitration system which sets forth different rules for domestic arbitration and international arbitration. The arbitration is qualified as ‘international’ in the cases provided for under article 62.

    Only disputes that concern matters which may be directly settled by the parties or authorised by law can be submitted to arbitration (Arbitration Statute, articles 1 and 62; Constitutional Court, Decision C-098/01). Pursuant to Colombian statutory law and the judgments of the Constitutional Court, certain matters may not be settled through arbitration.

    In international arbitration the parties are free to determine the language of the proceedings (Arbitration Statute, article 95). In domestic arbitration, proceedings shall be held in Spanish (Colombian Code of Civil Procedure, article 102).

    In the case of international arbitrations seated in Colombia, as per article 73 of Arbitration Statute, the parties are free to agree on a procedure of appointment of arbitrators.

    In domestic institutional arbitration, as per article 8 of the Arbitration Statute, ‘[t]he parties shall jointly appoint the arbitrators, or delegate this task – in whole or in part – to an arbitration centre or a third party. Arbitration centres shall always make the appointments entrusted to them by random selection, from a list of lawyers specialised in matters related to the subject matter of the dispute…’

    In international arbitration, unless otherwise agreed by the parties, the arbitral tribunal is empowered to grant interim relief at the request of either party (Arbitration Statute, article 80). Under the domestic arbitration section of the Arbitration Statute, arbitrators are also empowered to adopt interim measures in arbitral proceedings at the request of either party (Arbitration Statute, article 32). The granting, enforcement and elimination of such measures shall be governed by the Colombian Code of Civil Procedure and the Code of Administrative Procedure. The tribunal can request assistance from local judges in the enforcement of interim measures.

    Recognition of foreign arbitral awards and judgments must be submitted before the Civil Chamber of the Supreme Court of Justice. In the case of foreign arbitral awards, if a Colombian state entity is involved, the claim for recognition must be submitted before the Council of State. If recognition is granted, enforcement proceedings may be commenced under the provisions of the Colombian Code of Civil Procedure. Recognition of a foreign arbitral award may be refused only on the grounds set forth in article 112 of the Arbitration Statute. Recognition of a foreign judgment may be refused only on the grounds set forth article 694 of the CCP.


  17. 17.

    What are the most common funding structures? Are there any significant issues commonly confronted in implementing such structures?

    The most common funding structures are capital increases, irrevocable contributions, private placement of debt and debt offerings in international markets. There are no minimum holding periods.

    Please note that transfer pricing rules are applicable, for Colombian income tax purposes, to the transactions performed by income taxpayers with foreign related parties. Thus, income taxpayers must determine their assets, liabilities, income, costs and expenses, for income tax purposes, on the basis of prices and profit margins used in comparable transactions entered into with or between independent or unrelated parties.

    Considering question 8, we expect to see an increase of leverage buyouts transactions to occur in the following months.


  18. 18.

    Is there a domestic financing market for private equity deals? Has there been a shift in the sources of funding over the past few years? Where do you expect to see financing come from in the next 18 months?

    As we mentioned above, institutional funds (such as pension funds and insurance companies) are increasingly investing in PEFs. As a general matter the Colombian market has a high level of liquidity and the market has seen important financing transactions with only domestic financing. However, foreign financing is still highly competitive especially for transactions of considerable amounts. In any case, under applicable Colombian regulations, interest income earned by the lenders resulting from foreign currency long term loans entered into by Colombian borrowers will be subject to income tax withholding in Colombia, which is currently at 14 per cent.

  19. 19.

    What are the principal accounting considerations that arise in private equity transactions? Are there any contemplated or ongoing shifts in regulatory accounting standards in your jurisdiction?

    There is no difference in connection with the Colombian Generally Accepted Accounting Principles (GAPP) applied to the investments in PEFs or in local companies, which differs in significant respect from US GAAP and International Financial Reporting Standards, or IFRS. Although the Colombian government has undertaken a review of current accounting, audit, and information disclosure regulations and the Colombian Congress passed Law 1,314 of 2009 purporting to provide for convergence with international standards, current regulations continue to differ in certain respects from those in other countries and any changes thereto will be gradually implemented as of 2015 pursuant to Decrees 2,784 of 2012, 3,024 of 2013 and 2,584 of 2014 (depending on the amount of assets and income of the companies).

    Even though the Colombian GAAP will not be enforceable as a result of the entry in force of the IFRS, please note that only for tax purposes, the legal references ​ to the accounting rules (Colombian GAAP) made in the Tax Code will continue to be enforceable for four years.

  20. 20.

    Are there any disclosure, registration or licensing requirements affecting private equity funds investments currently in effect or under consideration by regulators?

    Except for investments in regulated companies, there are no special disclosure requirements to be done before the government authorities in private equity investments.

    Decree 2,555, as amended by Decree 1,242, establishes that there is no prior authorisation required to set up a PEF. However, prior to initiating operations, the management company must send to the SFC the offering memorandum together with additional information. The SFC has established a licensing process whereby this entity reviews the offering memorandum and makes comments to it. Until all changes and comments made by the SFC are made, the SFC does not issue a registration number that allows the management company to establish the channel for the reporting requirements to the SFC and register the fund with the tax authorities. In other words, through this process the SFC has established a prior authorisation requirement.

  21. 21.

    Please describe any restrictions, requirements or protections applicable to foreign investors in connection with private equity investments.

    Foreign investment in Colombia includes direct foreign investment and portfolio investments. In accordance with Decree 2,080 of 2000 as amended, and in accordance with External Circular DCIN 83 of the Central Bank of 1 March 2011 (Circular 83), it is necessary to register foreign investments with the Central Bank. Investments in PEFs are considered a direct foreign investment in Colombia.

    Pursuant to Circular 83, in order to register the investment with the Colombian Central Bank, on the same day in which the foreign currency is converted into pesos for the purchase of the participations in the fund, a Form 4 will have to be prepared and filed with the foreign exchange intermediary.

    With the filing of this form, the direct foreign investment is considered as being automatically registered with the Central Bank.

    Please bear in mind that there is no limitation on the amount of the investment, and additionally there is no need for a creation of a permanent establishment.

    Furthermore, it should be taken into consideration that the Ministry of Finance is expecting to issue a new decree that amends the Decree 2,080 and the regime applicable to direct and portfolio foreign investments. 

  22. 22.

    Are there any government approvals required in connection with private equity investments in certain industries or any industry-specific regulatory schemes that can affect private equity investments? What are the main requirements to obtain such approvals? Have there been any observable trends recently in the posture of specific regulators or the regulatory environment generally in connection with the review or approval of such investments?

    There are no foreign exchange approvals required for purposes of foreign investments in Colombia, except for the registration as described in question 20. The existence of governmental approvals will depend on the industries where the investment is made. In fact, some industries, such as: national defence, toxic waste management, television broadcast, private security companies, and aviation have specific restrictions as per the foreign investment participation. Other types of investments, such as in regulated entities (ie, financial institutions), require a previous governmental authorisation.

    In 2013 a major investment by a private equity fund in a regulated financial institution was authorised by the Colombian Financial Superintendency.

    International private equity firm Advent International acquired a 50 per cent stake in Colombian trust (fiducia) corporation Alianza Fiduciaria, setting an important precedent for private equity funds in Colombia.

  23. 23.

    Please describe any antitrust approvals or other competition law requirements that may apply connection with private equity investments into your jurisdiction?

    According to Law 1,340 of 2,009 and Resolution 10,930 of 2015, Colombian merger control rules provide as follows:

    Companies dedicated to the same activity or participating in the same chain of value, shall be obliged to inform the Antitrust Authority  the Superintendency of Industry and Commerce (SIC)  of any operation they might wish to undertake implying their merger, consolidation, acquisition of control or integration disregarding the legal mechanism used for said proposed transaction, as long as one of the following conditions is met:

    1. if the parties, individually or collectively, had during the fiscal year previous to the proposed transaction revenues that exceed 64,435 million pesos, or;
    2.  if at the end of the fiscal year previous to the proposed transaction, the parties had, individually or collectively, assets in the Colombian territory that exceed 64,435 million pesos.

    In the event that the parties to the transaction comply with either of the conditions above, but jointly have less than 20 per cent of the relevant market, the proposed operation is deemed to be approved. In this case, the parties only have to inform the operation to the SIC, through a simple notice document.

    If the thresholds mentioned above are met and the parties have more than 20 per cent  of the relevant market (ie, a Colombian market on which their activities overlap), the proposed transaction is subject to approval from the SIC. They have to submit a pre-evaluation document, prior to the closure of Colombian part of the proposed transaction and therefore the Colombian part of the integration may not be closed until the competition authority approves the transaction.

  24. 24.

    Are there any anti-money laundering or other similar financial regulations that should be considered when structuring a private equity transaction or setting up a vehicle?

    As it relates to PEFs, before accepting a commitment from an investor, management companies carry out a full-blown ‘know your customer’ investigation for anti-money laundering purposes. It is common to structure strategies to control these issues via due diligence and the representations and warranties of the purchase agreement.

    In the case of foreign investors, both foreign PEFs and other private equity players are keen to apply their anti-corruption laws and regulations. In that scenario, the application of the FCPA and the UK Bribery act are certainly extraterritorial regulations that are playing an increasing role in Colombian private equity transactions.

  25. 25.

    Are there any exchange controls that typically affect how foreign private equity investments are structured in your jurisdiction?

    Pursuant to article 15 of Law 9 of 1991 (Law 9), once a foreign investment is made in due form, that is, has been channelled through the FX Market and registered with the Central Bank, the foreign investor shall have the following foreign exchange rights:

    • remitting abroad proven net profits periodically generated by the investments;
    • reinvesting the profits or retaining as surplus any undistributed profits with drawing rights;
    • capitalising any amounts bearing drawing rights, generated by investment-related obligations; and
    • remitting abroad any amounts obtained from selling the investment in Colombia, or from liquidating the company or its portfolio, or from a capital reduction

    Article 15 of Law 9 states that the conditions for the reimbursement of the investment and the remittance abroad of the profits and revenues, that were legally in force at the time in which the investment was registered, may not be changed in such a form that they unfavourably affect foreign investors. Notwithstanding the above, please be advised that this same article establishes as the only situation under which restrictions can be imposed on a temporary basis, the event in which the international reserves fall below the value of imports for a three-month period.

    In essence, Colombian law, as a general rule, does not set forth foreign exchange restrictions, but rather a set of rules that must be complied with for purposes of obtaining clear FX rights.

    In 2013, an interesting novelty was introduced in the foreign exchange rules set forth in Regulation 4 promulgated by the Colombian Central Bank. Before this new regulation, as a general rule, payments among Colombian residents could only be done in Colombian pesos, meaning that if a Colombian company (even if incorporated as a local vehicle by a foreign investor) acquired a local target from Colombian shareholders, the purchase price had to be paid in Colombian pesos. This general rule had some few narrow exceptions. Regulation 4 introduced the possibility to all Colombian residents to make payments between them in foreign currency through offshore accounts provided such accounts are previously registered with the Colombian Central Bank as compensation accounts. With this in mind, once the debtor’s account and creditor’s account have performed an operation subject to report: (i) the right to register the account will arise; and (ii) consequently they will be allowed to perform the payment in foreign currency.

    This has been an attractive alternative for Colombian residents seeking to keep foreign currency abroad, and also avoids the burden of going through the loops of converting foreign currency into Colombian pesos through the foreign exchange market. Most importantly, if the purchase price is agreed in foreign currency, currency exchange fluctuation risk is prevented since there is no need to convert into Colombian Pesos. A compensation account is an account opened by a Colombian resident abroad (ie, a checking account opened by a Colombian company in US dollars at US bank) that is registered by the Colombian resident as a compensation account before the Colombian Central Bank. Holders of compensation accounts must report the movements of the account on a monthly basis to the Colombian Central Bank and also report on a quarterly basis to the Colombian tax authority (DIAN). 

  26. 26.

    What are the basic tax issues affecting private equity investments in your jurisdiction?

    Foreign companies and foreign entities of any nature are subject to income tax and capital gains tax in Colombia, but only with respect to Colombian source income and capital gains, regardless of whether they receive such income and capital gains directly or through branches or permanent establishments in the country.

    Dividends paid by a Colombian company to foreign investors are not subject to income tax in Colombia, provided that the dividends correspond to profits subject to income tax in Colombia at the Colombian corporate level. If the dividends paid by the Colombian company correspond to profits not subject to income tax in Colombia at the corporate level, such dividends are subject to a withholding tax at a rate of 33 per cent.

    Additionally, the transfer abroad of branch profits or profits obtained through permanent establishments in Colombia is now deemed as dividend distribution for income tax purposes. Thus, the transfer abroad of profits obtained through a branch or any other type of permanent establishment would generate an income tax in Colombia (33 per cent) as long as such profits have not been taxed previously in Colombia.

    According to new ‘thin capitalisation’ rules in Colombia, interest expenses will be deductible for income tax purposes, to the extent that they result from debts whose average amount during the fiscal year does not exceed the result of multiplying by three the net worth on 31 December of the previous year.

    As a general rule, capital gains generated in the sale of shares of Colombian companies are subject to income tax at rate of 10 per cent.

    Colombian companies and Colombian entities are subject to income tax in respect to both, Colombian and non-Colombian source income and capital gains, at a rate of 25 per cent applied on the highest base between the ordinary taxable income and the presumptive taxable income. Tax losses can be carried forward against ordinary taxable income accrued in subsequent taxable years.

    Additionally, all companies, legal entities and entities assimilated to these, subject to income tax and liable to file income tax returns, are subject to a new tax called income tax for equality, at a rate of 9 per cent in years 2013, 2014 and 2015, and at a rate of 8 per cent as of year 2016, applied on the highest base between the ordinary taxable income (which value can be different than the ordinary taxable income determined for income tax purposes) and the presumptive taxable income.

    Colombia has entered into several double taxation treaties (Spain, Chile, Switzerland, Canada, Mexico, etc). However, only treaties between Colombia and Spain, Colombia and Switzerland, Colombia and Chile, and Colombia and Canada, are currently in force.

    On the other hand, please note that PEFs are not considered as taxpayers for income tax purposes.

    PEFs operate as pass-through entities. Accordingly, the income obtained by the PEF, after deducting the expenses (including the fees paid to the local managing company), is distributed to the subscribers or participants under the same title as they were received by the PEF (dividends, interest, capital gains, etc) and under the same tax conditions as if they were received directly by the subscribers or participants.

    Consequently, the tax treatment of the participants will depend on two factors: the participant’s tax attributes (foreign companies, Colombian residents, Colombian companies, etc); and the nature of the income received through the fund (taxable income, non-taxable income, exempted income, etc).

    In addition, PEFs act as income tax withholding agents in relation to the payments made by the fund to their participants or subscribers and to third parties. It is worth taking into consideration the new rule applicable to withholding tax of PEFs mentioned in question 4.

    As a general rule, interest income earned by non-Colombian entities, resulting from loans of which term is equal or exceeds one year, or from financial lease agreements, granted to residents or domiciled entities in Colombia, will be subject to 14 per cent income tax withholdings. Otherwise, 33 per cent income tax withholdings will apply.

  27. 27.

    What impact are recent and projected changes in macroeconomic trends in your jurisdiction and abroad and your government’s reaction to these trends having on private equity activity in your jurisdiction? When did you start to see an impact?

    As a consequence of the revaluation of the Colombian peso, the prices of the assets in Colombia are increasing, which may lead to a lesser activity from PEF and more activity from strategic investors in the short-term. On the other hand, the increase to investment grade rating that Colombia has received has had an impact in our economy since Colombia is becoming more attractive to new investors.

    Finally, due to the fall in oil prices, there could either be an increase in M&A activity or a virtual halt of all transactions in the oil sector, depending on future trends. Big oil and gas players might go shopping for smaller oil companies to seek out significant discounts on oil assets.

  28. 28.

    Please describe any other regulations applicable to private equity funds and private equity investments not discussed in your answers to the above questions.

  29. 29.

    Please describe any other recent trends observed in your jurisdiction affecting how private equity transactions are conducted or how these investments are structured.

    International standards are increasingly being used for private equity transactions in the Colombian market. Multilaterals and PEFs have been the vehicles that have stepped up to provide financing and channel resources for private equity transactions.

  30. 30.

    Please describe any other relevant legal considerations or new developments related to private equity investments in your jurisdiction not discussed in your answers to the above questions.

    Decree 1,242 established the option for PEFs to issue different types of participation units for a single fund but involving different types of rights and obligations depending on the type of investor. In this regard, participation units may establish different amounts for management fees, different rules to attend capital calls, different procedures to request the redemption of participation units as well as the creation of participation units which redemption is subordinated to the prior redemption of other participation units.

    Finally, Decree 1,242 has established additional obligations applying to management companies to strengthen their fiduciary duties with the PEF. For example, management companies now have a stricter duty to: (i) deliver information to the SFC and the investors according to reporting standards established by law (i) establish procedures, policies and mechanisms to keep information confidential (iii) control that its employees comply with corporate governance and conduct rules as well as other obligations related to the management of PEFs (iv) set mechanisms to identify, control and manage conflict of interest situations according to relevant law and provisions set forth by the board of directors of the managing company and (v) exercise economical rights derived from assets under management and different to securities delivered to custodians.


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