Actualidad Peru

Related party transactions, control and transactions requiring authorization from the Board of Directors

SMV Resolution N° 029-2018-SMV/01

On 10th October, the Securities Market Authority published its provisions regulating clause c) of article 51 of the Securities Market Law.

We should remember that this article 51.c sets out that it is incumbent on the Board of Directors to authorize beforehand those actions or contracts involving at least 5% of the issuing company's assets, those undertaken with natural or legal persons with links to their board members, directors, and those involving shareholders who represent, whether directly or indirectly, more than 10% of the company capital; as well as putting the terms of the transactions out  for review by an external auditing company to the issuing company, in cases where the parties doing the legal business are subject to the same controlling shareholder.

Scope of application

The resolution applies to all companies having at least one type of share that entitles holders to voting rights in proportion to the equity capital filed in the Public Securities Market Register. This can include listed companies set up abroad whose securities are treated as though they were domestic, unless they report their decision not to be subject to the regulation.

Related parties and control

The Resolution defines the scope of "linkage" to the listed company's board directors, senior managers and shareholders and refers back to the Regulation on Indirect Ownership, Linkage and Control, passed under Resolution SMV 019-2015-SMV/02, determining indirect ownership and control.

Prior authorization from the Board of Directors

In addition, it specifies those actions or contracts that require prior authorization from the Board of Directors, which include:

  • Those undertaken with natural or legal persons with links to the listed company's board members, directors or shareholders
  • Those in which the listed company's controlling shareholder is also the legal person involved as the counterparty

In the above scenarios, those board members with links to the counterparty in the action or contract should refrain from taking part in the deliberation and from voting in the session held to decide whether to enter into the legal business in question. If it is not possible for the Board of Directors to come to a decision about the action or contract and it needs to be decided, it will be brought up for consideration at the General Shareholders Meeting.

External auditors

Turning to the regulations over the participation of external auditors, the law indicates that auditing companies that are registered and licensed in any of Peru's Professional Chartered Accountants' Colleges may act as such. They must be chosen by the listed company's board of directors, who will verify that they meet the requirements established in the law. Similarly, the external auditors will produce a report with their reasoned opinion, laying out the analysis, form of practice or methodology used to measure and evaluate the assets, liabilities or other matters in the action or contract. This report must take a position as to whether the price or the consideration is made at fair value.

Approval by the Board of Directors or the General Shareholders Meeting to enter into an action or contract, the choice of the external entity and the receipt of their report should all be reported in Relevant Event filings.