Indemnity of Directors Appointed by the State

In this article we will describe the provisions of Decree 196/2015 issued on February 10, 2015, in order to determine the changes that would apply to the regime provided by Decree 1278/2012 which is still in force.

1. Background

As a result of the nationalization of the pension funds (“AFJPs”) in 2008, the National State acquired the shares and stock participations of several publicly traded companies previously administered by such AFJPs.   As holder of such shares and stock participation the National State acquired the right to appoint directors, statutory auditors and other representatives in those companies.

In order to improve the administration of these shareholdings and stock participations the National State enacted Decree 1278/2012, which among other measures provided special rules applicable to state appointed representatives. For more information regarding the Decree 1278/2012 please see our article “New Regulations applicable to Directors appointed by the National State” published in Marval News #120 on August 31, 2012.

2. Decree 196/2015

The Decree 196/2015 complements the provisions of the Decree 1278/2012, mainly extending indemnity and legal assistance coverage to representatives that had previously not been included.

a. Scope of Coverage

The scope of coverage is increased to all the state appointed officers and representatives.  Article 1 starts defining as "public officers" (funcionarios públicos), in order to delimit their liabilities, the Directors, Statutory Auditors, Advisers and/or Representatives appointed by or proposed by the National State or any of its entities in the board of companies or corporations in which it has equity participation. 

The Decree 1278/2012 granted coverage only to directors and other representatives appointed by the National State as a consequence of the equity participation acquired by the ANSES from the nationalization of the funds of the AFJPs.

b. Indemnity and Legal Assistance

Article 2 defines the type of coverage to be granted by the National State and its entities basically consisting of two types of coverage: (i) the obligation to indemnify; and (ii) the obligation to provide specialized legal assistance.

Obligation to Indemnify

Article 2 provides the obligation of the State to indemnify without limitations.  It provides that the National State guarantees the indemnity of the representatives who while in office or after termination of their mandate are sued, summoned, required, charged or accused as a consequence of the exercise of their duties.

Other parts of the Decree do contain provisions that could be interpreted as limitations to the obligation to indemnify.  The recitals of the Decree 196/2015 provide that the indemnity will not apply in the event of gross negligence or willful misconduct, or whenever the representatives did not follow the directives given by the applicable authorities.  Article 3 also provides that the indemnity obligation would not apply in the cases of exclusion of legal assistance (which are the same cases previously mentioned of gross negligence or willful misconduct or not following the directives of the competent government authority).  Therefore, it could be interpreted that the indemnity obligation would be limited in these cases even if such limitation is not expressly included in Article 2. 

The Decree 1278/2012 also grants a broad indemnity providing as sole requirement for the coverage that the performance of the representative be based on the directives and recommendations of the Secretary of Economic Policy (Article 5 in fine of the Rules).  The Decree 1278/2012 does not include a limitation of coverage in the event of gross negligence or willful misconduct.

Obligation to provide Legal Assistance

The Decree 196/2015 requires the State to provide legal assistance to representatives except in the event they are found to have acted with gross negligence or willful misconduct, or not complying with the directives given by the National State or applicable entity.[1] 

c. Responsible Entity or Organization

Article 3 provides that the officers or representatives shall be indemnified by the state entity that appoints or office that controls each of them.

d. Retroactive Effects

Article 4 provides that the provisions of Decree 196/2015 shall have retroactive effects, given that they will apply to notices, requirements, complaints, criminal claims, accusations or judicial claims related to events or acts occurred prior to the date of the Decree.  Decree 1278/2012 did not expressly provide its retroactive application.

[1] Decree 196/2015, Article 2º, second paragraph, when referring to the limitations provides that: “No assistance shall be granted…” making reference to the assistance mentioned in the first paragraph, but not to the indemnity also mentioned in the first paragraph.