Like most Latin American countries (and other emerging markets), the corporate structure in Chile presents high ownership concentration characterized by the presence of family-owned conglomerates.1 This structure could eventually create in some cases conflicts of interest between the controlling shareholder and minority shareholders. The controlling shareholder usually obtains control through the acquisition of the majority of the company's shares, and in other cases in order to maintain control of the firms that are part of the business conglomerate it uses pyramidal schemes and dual class stocks. Considering the foregoing, minority shareholders may eventually be affected if the controlling shareholder benefits from asymmetry of information or discrepancies between the controlling shareholder and minority shareholders necessarily lead to the prevailing interests of the latter.
Global and local corporate and accounting scandals have shown related party transactions (RPT) to be a major corporate governance problem. In 1997, the Chilean market was affected by a scandal that consisted in the takeover of a large listed energy company, where several of its key executives were found to have acted with a serious conflict of interest by cutting sweat deals for themselves to the detriment of the company's minority shareholders. Since then, Congress has passed several corporate governance laws in view of strengthening minority shareholder rights. In 2010, the Corporate Governance Law (Law No. 20,382) came into force, and made substantial improvements strengthening the corporate governance regime, and included, among other things, the addition of an entirely new chapter on RPTs for listed companies to the Corporations Act (Law No. 18,046).
In this article, we shed light on corporate mergers in Chile and its interplay with the RPT rules. In particular, we examine a recent Court of Appeals' resolution that has provided a guideline on how mergers between related companies must be treated.
Related Party Transactions under the Corporations Act
Legal definition of RPT
In Chile, Chapter XVI of the Corporations Act is the law of RPTs of listed companies and their subsidiaries. Article 146 of the Corporations Act defines RPTs as any negotiation, act, agreement or transaction entered into by a listed company with any of the following persons: (i) one or more related persons of such listed company, as such term is defined by article 100 of the Securities Market Act (Law No. 18,045)2; (ii) board...