Fiduciary tailoring as a framework to facilitate sophisticated investments in Latin America

Abstract

Fiduciary tailoring involves the modification of directors’ fiduciary duties through contracts between existing shareholders, investors and the corporation itself, usually finding a balance between investors’ interests and those of the corporation. This trend is widely accepted and debated in Delaware, where a functional framework for its use was created. For Latin America, however, the matter continues to be a field with little research. In this paper, we prove that, in fact, Corporate Law in several Latin American jurisdictions admits fiduciary tailoring and make a case for its utility to sophisticated investors in the region deriving in the form of ex ante covenants to create an appropriate legal and financial environment for the investment, with particular emphasis on its application in the face of sophisticated capital structures, shareholder activism, exits, and insolvency and financial difficulty, We conclude that a majority of Latin American jurisdictions, like Delaware, would derive important benefits should a framework of validity and enforcement of shareholders’ agreement that would permit the introduction and use of various forms of fiduciary tailoring by sophisticated investors be implemented.