The First Chamber of the Supreme Court of Justice of Mexico has stated that the control of a stock corporation “can be actualized by the holding of a certain patrimonial power or by a power of managerial (administrative) direction”, and held that the plurality of types of control can be classified, depending on its cause or origin, in two groups:
(i) Corporate control derives from the holding of a certain percentage of shares of capital stock, which allows its holders to exercise the right to vote at shareholders’ meetings to impose decisions on the shareholders’ meeting, the board of directors, appoint and remove directors or direct the company’s corporate policies.
(ii) Arrangements between shareholders contained in shareholders’ agreements, the company’s bylaws or any other internal regulatory document of the company, which result in certain shareholders, regardless of whether they are minority shareholders, directing the company’s strategy or major policies.
On the other hand, according to the Supreme Court, the change of control of a stock corporation can also be distinguished, depending on whether or not it has the collegiate approval of the shareholders and the governing bodies of the company, into friendly or desired and hostile or undesired.
In order to ensure that takeovers are desired by the corporate governance bodies of the companies, Article 48 of the Securities Market Law establishes the possibility that the bylaws of publicly traded corporations may stipulate measures to prevent the undesired or hostile acquisition, by third parties or by the shareholders themselves, of shares that grant control of the company, subject to the following requirements:
The extraordinary general shareholders’ meeting has approved such measures, without 5% or more of the capital stock represented by the shareholders present having voted against them.
Do not exclude from the economic benefits resulting from the measures, shareholders other than the persons seeking to acquire control of the company.
Do not restrict takeover absolutely.
Do not contravene the provisions of the Securities Market Law regarding takeover bids.
If they do not comply with the above requirements, the measures set forth in the bylaws will be null and void.
In addition, in terms of Article 48, in order to preserve the principle of non-discrimination and the protection of minority rights, stock corporations are prohibited from introducing certain provisions foreseen for investment promotion corporations, specifically those contained in Sections I, II and III of Article 13 of the Securities Market Law, in the understanding that, in the event such prohibition is not respected, the National Banking and Securities Commission may authorize the adoption of such clauses.
In analyzing the constitutionality of Article 48 of the Securities Market Law, the First Chamber of the Supreme Court of Justice of Mexico held that the measures of protection against the loss of corporate control derived from a “hostile” purchase of shares, established in such legal provision, are compatible with the economic freedoms recognized in Article 5 of the Mexican Constitution, since, among other matters, such measures “empower individuals to associate in order to voluntarily restrict their own contractual freedom in the face of the risk of sales of shares, are compatible with the economic freedoms recognized in Article 5 of the Mexican Constitution, since, among other matters, such measures “empower individuals to associate in order to voluntarily restrict their own contractual freedom against the risk of sales of shares that may jeopardize the control of the company”, without incurring in absolute prohibitions.
As a result of this analysis of constitutionality, the First Chamber issued the thesis entitled: “SOCIEDADES ANÓNIMAS BURSÁTILES. ARTICLE 48 OF THE SECURITIES MARKET LAW, WHEN REGULATING THEIR POWER TO PROVIDE IN THEIR BYLAWS FOR MEASURES TO PREVENT THE ACQUISITION OF SHARES THAT GIVE CONTROL OF THE COMPANY TO THIRD PARTIES OR TO THE SHAREHOLDERS THEMSELVES, DOES NOT VIOLATE THE FUNDAMENTAL FREEDOMS RECOGNIZED IN ARTICLE 5 OF THE CONSTITUTION”.
Roberto A. Altamirano Fuentes
Counsel
