D&O liability regime reform

Published 14 August 2018

Colombia is drafting a new Bill, which will significantly modify the current responsibilities of company executives. If approved, the ensuing legislation will have a clear impact on D&O insurance in the country.

Changes have been observed to:

1. The definition of the individuals subjected to the liability regime. The Bill establishes an organic criterion (regarding the structure of the company) as well as a functional criterion (relying on an examination of the company's administrative and management functions).
   
   
2. Establish duties of:
   
   a. Care. The applicable conduct standard will be that of a "prudent executive" depending on the circumstances of each decision taken; and
   
   b. Loyalty. This will involve a change to the conflicts of interest regime that grades sanctions according to the level of authorisation that each executive has had in the decision making process.
   
   
3. Exonerate directors and officers from liability when they make decisions that harm the company while acting in good faith and on the basis of recommendations provided by a technical committee.
   
   
4. Introduce a "business criterion", by virtue of which judges may only intervene in the business decisions of company management when there is a conflict of interest between the executives or illegality. This is similar to the Business Judgment Rule in common law.
   
   
5. Provide freedom to agree D&O arrangements and limits of liability in the by-laws, except when in reference to harmful acts or conflicts of interest.
   
   
6. Oblige companies to reimburse the defence costs of directors and officers for the legal actions brought against them in exercising their duties. It is expected that such amendments will pave the way for Side B D&O policies to be underwritten in Colombia.

Click here to to read the Spanish article