Pursuant to the Chilean Law on Corporations No. 18,046 (the “Law on Corporations”), directors must employ in the exercise of their functions the care and diligence that people ordinarily employ in their own businesses and shall be jointly and severally liable for the damage caused to the company and to the shareholders by their malicious or negligent actions. Consequently, the board of directors must always watch out for the company itself, the shareholders’ interests and the effects that any crisis – such as the COVID-19 crisis – might cause them.
During the crisis, considering the difficult situation that many companies are facing, directors should specially pay attention to:
Employment redundancy: Directors should address employment matters taking into consideration the measures and provisions issued by the corresponding authorities and the impact of the COVID-19 crisis on the company’s business. In this regard, the board should take into account sanitary or internal security measures for the control of COVID-19. Accordingly, the Employment Protection Act No. 21,227 (“Ley de Proteccion al Empleo”) allows employers to suspend employment contracts if sanitary security measures put in place by the authorities lead to a cessation of activities in the country or in a certain territory that totally prohibits employees from rendering services, and also agree with employees a reduction of the working day under certain conditions and circumstances (see more here).
Insolvency: Directors of companies facing insolvency will need to give increased attention to certain duties. For example, the board of directors of a company that has ceased to meet one or more of its obligations or in respect of which bankruptcy proceedings have been declared (“procedimiento concursal de liquidación”) must convene a shareholders’ meeting to be held within 30 days following these events in order to provide the shareholders with ample information on the legal, economic and financial situation of the company. Furthermore, during insolvency directors must take care to maintain the company’s liquidity; hence, no dividend distributions may be approved for shareholders if the company has accumulated losses. Accordingly, directors must have updated information about the company’s liabilities available and how the crisis will affect its obligations towards third parties.
Sanitary risk of management decisions: Directors must adopt the necessary measures in order to ensure employees’ compliance with the international and local lockdown rules and social distancing.