, Nicaragua: Accountability from the Board of Directors and executives of Nicaraguan corporations during the COVID19 pandemic

Nicaragua: Accountability from the Board of Directors and executives of Nicaraguan corporations during the COVID19 pandemic

Many colleagues at CENTRAL LAW have written pertinently about the legal effects that various areas of law may have on a company, regarding the COVID19 pandemic, such as in labor, tax, social security, intellectual property, contractual matters, as well as a constant report of the governmental measures adopted by the Central American governments where our firm has a presence.

In this sense, we must emphasize that those who by legal mandate have to lead and make decisions in a company, are both the members of its Board of Directors and its main executives. Therefore, in this post, we are going to address the accountability to which these people are exposed, in accordance with Nicaraguan legislation, particularly with regard to corporations (in Spanish “sociedades anónimas”).

Thus, we begin by pointing out that, in Nicaragua, the Board of Directors of a Corporation operate according to article 244 of the Nicaraguan Commercial Code (“CCom”) under the legal figure of the mandate -unlike other jurisdictions that see this entity as an internal body of the corporation- and as such, the rules of the aforementioned figure will be observed, both in the execution and in the non-fulfillment of its functions.

Thus, we find article 243 of the CCom, which states that The administration of corporations will be entrusted to a Board of Directors. Additionally, article 245 addresses the responsibility to which those who make up the Board of Directors will be exposed, when it states that The Directors of Corporations (Sociedades Anónimas) do not incur any personal or joint and several obligations for the obligations of the corporation; but they will respond personally and in solidarity with it and with third parties, for the non-execution of the mandate and for the violation of the Bylaws and legal precepts. Exempting from the foregoing are those Directors who either do not form part of the decisions adopted or record their objection to them. Likewise, article 250 establishes that the Manager will be equally responsible as the Directors for the same precepts, without differentiating the hierarchical nature of management, being able to be a CEO, CFO, COO, etc.

From the above we can extract that both Directors and the managers are exposed to accountability- of a civil, criminal or administrative nature – before both the decisions they make and their omission. The responsibility may be both contractual (when it violates the rules of the Mandate or the corporate Bylaws) or non-contractual (when provisions of Nicaraguan law are violated). On the other hand, it is important to emphasize that our legislation does not sanction decision-making per se, but rather sanctions decision-making (or absence thereof) that contravenes corporate duties, bylaws, mandates or legal provisions.

We must also point out that the degree of diligence that is required of the proxy (in this case the Directors or managers) will be that of minor guilt, since article 3309 of the Civil code provides that The proxy will take care as a good parent of compliance of your order.

As an example, let us consider the Board of Directors of a corporation that orders the suspension of employment of the corporation and sends its workers home unilaterally, or the manager who decides not to comply with the corporation’s tax obligations, citing force majeure or fortuitous event. Although both situations could in principle be duly justified by the context of the pandemic, certain steps must be observed to materialize, such as obtaining the consent of the worker or duly justifying to the tax authority the reason for their non-compliance. In both cases, the decision makers are exposed to accountability for the damage caused, both to the corporation and to its various stakeholders (workers and the treasury in this case). Another daily example is that company that is negligent in observing its environmental obligations and ends up causing damage to the environment by the decisions of its management and administration team.

Based on the foregoing, it is important that those who occupy a decision-making position in a Nicaraguan corporation, are duly advised regarding the legal duties that come with their charges, in order to prevent unnecessary sanctions or damages.

At CENTRAL LAW we have an experienced team of lawyers who will be able to advise you in the most diligent and comprehensive manner, in the face of the legal effects that the COVID19 pandemic may have on your company.

If you require more information in this regard, you can contact CENTRAL LAW at the following email address: info@central-law.com.

Please remember to observe all sanitary measures directed by the authorities, in order to take care of yourself and your loved ones.

Avil Ramírez Mayorga

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