The statute of limitations in the liability of corporate directors

On April 30, the Superior Court of Bogotá, in a ruling by Justice Marco A. Alvares, issued an important decision on the statute of limitations in civil liability for directors. Without expressly stating so, the Court leans toward reaffirming the subjective nature of the statute of limitations in this area of law.

It is rightly pointed out that, given the confidentiality of information and the asymmetry that may exist between directors and the highest corporate body, the five-year limitation period should not be calculated from the occurrence of the harmful act (often completely hidden) but from the moment the shareholders’ assembly became aware or should have become aware of the wrongful conduct. By introducing this subjective element (not in mental terms, but in abstract conduct terms), the Court remedies potentially unjust situations that had been applied unrestrictedly by judges, declaring claims time-barred solely on the objective passage of time without considering the injured party’s conduct and their ability to access the courts.

It could not be otherwise if we accept that the statute of limitations carries a punitive bias, penalizing negligence, disinterest, and passivity by a given party. The Civil Code itself appears to recognize this particular situation by establishing in Article 2530 that the statute of limitations is suspended between “those who manage the assets of others as… representatives of legal entities, and the holders of those assets” (see Article 2541 ibid.).

Despite these accurate clarifications, in my respectful opinion, the Court makes a contradictory step (and a regression) by objectifying the limitation period, stating that in cases where directors misappropriate corporate resources and cause harm, the moment the highest corporate body should have known of these circumstances is the date of the ordinary year-end shareholders’ meeting. The logic is clear: in that meeting, preceded by the shareholders’ right of inspection, directors present management reports and financial statements to the highest corporate body, which is, apparently, the best opportunity to detect irregularities. The rule is as follows: if harm occurred in 2019, the period will begin to run on the day of the ordinary meeting in 2020, as it is presumed that such facts should have been minimally known at that time.

Two reasons why I disagree. First, many disloyal extractions of resources by directors are carried out in collusion with accounting staff, manipulating financial statements and making it impossible to detect such circumstances merely by presenting information. Often, it is an unexpected lack of liquidity or an external audit that uncovers the harmful acts and makes it possible to pursue any legal action.

Second—and this is the basis of this writing—when stating that the limitation period begins to run when the company knew or should have known of the harmful act, there must be reference to a true subjective analysis of conduct and not to the standardization of time markers with objective dates. Ultimately, it is in the evidentiary stage where the parties must prove the reasons why, at a certain point, the highest corporate body indeed should have known.

Written by: Juan Jose Alzate