On September 20th, the Argentine Supreme Court (hereinafter the “CSJN”) declared inadmissible four extraordinary appeals filed by the Office of Companies of the City of Buenos Aires (hereinafter the “IGJ”) against rulings issued by different National Courts of Appeals on Commercial Matters (hereinafter, the “Court of Appeals”). The rulings dealt with different cases on which IGJ exceeded its powers, arrogating to itself competences that exceeded it, both on the matter and on the magnitude of its control powers.
Three of the four cases under analysis [1] arose from an investigation initiated ex officio by IGJ with respect to companies whose purpose was the care of the elderly (geriatric homes). The origin of these investigations was triggered by a massive Covid-19 infection among the elderly residents of said institutions.
IGJ, based on public interests’ protections, such as health, life, and the elderly’s proper care, initiated an investigation ex officio, basing its decision on section 301, subsection 2 of the Argentine Company Law (hereinafter the “LGS”). For such purpose, it ordered an audit on Apart Incas S.A., Cedefa S.A., Vismeg S.R.L., Finosa S.R.L., Medical View S.R.L., Megall S.R.L., Residencia Incas S.R.L., Ancient S.R.L., and Residencia Cullen S.R.L. for a period of 180 days, in order to verify their real and effective activity, as well as the compliance with their corporate purposes, legal duties, and the identification of their members and corporate bodies. For such purpose, it was granted the power to request information, documentation, examine the books and companies’ documentation, subject to the investigation, request reports from their authorities, officers, personnel, and third parties.
Likewise, IGJ publicly disclosed information about the companies’ shares, whose corporate purposes are related to each other, in order to prove the existence of a corporate group managed by the same individuals.
The companies in question appealed the decision, indicating that IGJ was exceeding its powers, adopting competences that did not correspond, since its function is to carry out a corporate control, and not a sanitary control, a matter that corresponds exclusively to the Ministry of Health, and/or in its case to the Judiciary. They also argued that sharing partners with other companies does not authorize permanent control nor allows the assumption of fraudulent maneuvers, nor imply a relationship with the public interest that IGJ intended to protect.
The Court of Appeals partially annulled IGJ’s resolution, considering that IGJ decided to supervise corporations such as Apart Incas S.A., identified by the Court of Appeals as “a closed corporation that is not included in any of the cases provided by the LGS in Section 299” (permanent state supervision), and therefore, since it is not included in the list provided by the corresponding Section, its control is limited. The Court of Appeals also stated that “the controlling authority may exercise oversight functions in corporations not included in Section 299 when requested by shareholders representing ten percent (10%) of the subscribed capital -or when required by any trustee- or when it deems it necessary, according to a well-founded resolution, to safeguard the public interest”.However, the supervision provided for by the LGS, explains the Court of Appeals,
“is for the protection of savers who, proceeding in isolation, are unable to act for their own protection“, in other words, the intervention of IGJ is only for essentially economic purposes, therefore, IGJ’s aim to protect health and life of the elderly,“are not precisely the values that the law entrusted IGJ to protect”. IGJ’s supervisory power is solely and exclusively related to the corporate police power, identified by the Court of Appeals as “a) the system through which the State carries out activities of limitation against corporate expressions with the purpose of preserving the existence of assets considered as common; b) its state powers are not absolute or unlimited, but have legal limitations aimed at avoiding arbitrariness in their exercise; c) IGJ exercises two types of powers, registration powers and those in which the corporate police power is at stake and which are based on general interest, aimed at affirming the principle of transparency and loyalty in the commercial traffic and the protection of the general public within the business order, always involved in the development of the commercial companies subject to state control“.[2]
Likewise, the Court of Appeals emphasized that IGJ may not act over private entities, such as commercial companies, and in case it does so, as it did in the cases under analysis, it would be exceeding its functions and powers. It was well indicated that it is not competent to interfere with third parties, shareholders, and related companies, and that it emphasized that only if it considered its intervention pertinent for reasons of public interest, it could request the intervention of the Judiciary through the appropriate channel, arguing a reasonable justification of the request, the explanation of the case, and an adequate identification of the entities involved.
On the other hand, with respect to limited liability companies[3], the Court indicated that “they are not subject to the supervision of the public registry beyond the registration of the corporate contract and its amendments, and that (…) it is the law itself that prohibits IGJ from proceeding against an LLC invoking the powers granted in the LGS: 301″.”. Finally, the fourth case in question was also initiated by an ex officio investigation of IGJ, due to the fact that the Boswil S.A. (hereinafter the “Company”) incorporated in the Oriental Republic of Uruguay, returned a real property acquired by the Company to its former owner, in accordance with the Argentine Tax Clearance Law No. 27,260.[4]
[1] COM 5826 / 2020 INSPECCION GENERAL DE JUSTICIA c/ CEDAFA S.A. s/ORGANISMOS EXTERNOS COM 5816/2020 INSPECCION GENERAL DE JUSTICIA c/ APART INCASS.A. s/ORGANISMOS EXTERNOS COM 5826/2020 INSPECCION GENERAL DE JUSTICIA c/ CEDAFA S.A. s/ORGANISMOS EXTERNOS
[1] “Inspección General de Justicia c/ Green Salud S.A. s/ Organismos Externos” Cuerpo
[3] 5827/2020 INSPECCION GENERAL DE JUSTICIA c/ ANCIENT S.R.L. Y OTRO s/ORGANISMOS EXTERNOS
[4] La Cámara en recientes fallos referidos a la fiscalización de IGJ sobre las sociedades de responsabilidad limitada indicó “la
Posibilidad de fiscalizar a las sociedades de responsabilidad limitada no se halla prevista legalmente y en ese sentido la “potestad” (competencia) del órgano administrativo se encuentra limitada”, en el mismo orden de ideas continuó manifestando que “…como regla, las sociedades de responsabilidad limitada no están alcanzadas por la fiscalización del Registro Público más allá de lo propio de la registración del contrato social y sus modificaciones” (COM 9991 / 2020 INSPECCION GENERAL DE JUSTICIA c/ REMAX ARGENTINA S.R.L. s/ORGANISMOS EXTERNOS)
Finally, the fourth case in question [1]was also initiated by an ex officio investigation of IGJ, due to the fact that the Boswil S.A. (hereinafter the “Company”) incorporated in the Oriental Republic of Uruguay, returned a real property acquired by the Company to its former owner, in accordance with the Argentine Tax Clearance Law No. 27,260.
IGJ declared the Company irregular and ineffective for administrative purposes and ordered it to comply with the Argentine law, pursuant to Section 124 of the LGS. Therefore, “both its personality and its actions – that is, the real estate transfer it had made in favor of Mr. Niro – should be considered unenforceable”. Accordingly, it ordered the Company to comply with local regulations and to register with the Public Registry of IGJ.
The Company appealed the Resolution, stating that it lacked grounds, and affirmed ““that the purchase of a real property cannot be considered a regular activity in the terms of Section 118, third paragraph of the Corporations Law and that they are not before a company susceptible to be included in Section 124, since such property has already been transferred to its true owner and it is not the intention of the entity to carry out any activity in the country. They also state that IGJ is not competent to act in the way it did, since the challenged act was an act of tax reconciliation adopted within the framework of Law 27.260 and subject to the competence of the Federal Administration of Public Revenues, (…)”.”
La Cámara al resolver indicó que (i) “The Court stated that (i) “IGJ is not competent to judge the personality of any company as unenforceable nor, therefore, to do the same with its acts, much less with respect to acts between individuals”; (ii) IGJ manifestly violated the principle of legality provided in the National Constitution, since it resolved an issue without even giving the Company the opportunity to make use of its right of defense; (iii) in order for IGJ to initiate an ex officio investigation as it intended to do, it must indicate the public interest it intends to protect by doing so, which was impossible for IGJ to sustain, since it based its entire analysis on “potential third parties“, without channeling a concrete current interest; (iv) the fact that IGJ has permanent control of a company does not imply that it has the power to declare“irregular and ineffective for administrative purposesany of its acts; (v) “IGJ does not have jurisdictional competence”, competence that falls to the competent judge according to sections 252 and 302 of the LGS; therefore,“[i]f the LGS did not grant IGJ jurisdictional powers, its decisions cannot have the coercive characteristics of a judicial pronouncement”;(vi) Section 124 of the LGS provides that“…a company incorporated abroad which has its headquarters in the Republic or whose main object is intended to be accomplished in the Republic, shall be considered as a local company…”,therefore the Company must be considered and treated as a local company, with all the requirements that this implies, but under no circumstances may it be deprived of its status as a legal entity, or be rendered unenforceable as IGJ intended to do.
In view of the Court of Appeal’s resolutions, IGJ filed extraordinary appeals in each of the files, which, due to their rejection, were submitted to the CSJN, which resolved the rejection in limine pursuant to section 280 of the Civil and Commercial Procedure Code.
[1] INSPECCION GENERAL DE JUSTICIA c/ BOSWIL S.A. s/ORGANISMOS EXTERNOS
