Environmental law
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Official regulatory framework for hydrocarbon exploration and production

Last March the Department of Energy and Mines informed that, after 60 years, the Dominican Republic adopted an official regulatory framework for the exploration and production of hydrocarbons which will allow to attract investment and to develop local industries.

The Department of Energy and Mines revealed that such regulations were published in the official journal dated March 7th 2016 as part of Executive Order 83-16. These regulations are essential for the organized exploitation of the country´s hydrocarbon potential. (more…)

International comparative legal guide for project finance

Once again law firm Quiroz Santroni is part of the 4th edition of the International Comparative Legal Guide to Lending & Secured Finance 2016, a publication of the International Comparative Legal Guide (ICLG), a London-based series which distributes specialization guides in 39 areas of legal practice.

The ICLG series provide knowledge and practical insights of lawyers from each country regarding different legal frameworks, in this edition, about loans and financing with real guarantees. (more…)

Liabilities of the ultimate parent following acquisitions of Dominican entities.

In the event of an acquisition, particularly of holdings in a Dominican corporate entity, whether it be through a direct purchase of the shares or quotas of such entity, or of an upstream holding company, an often question posed by purchasers in this type of transactions revolves around the potential liabilities for the ultimate resulting parent, including labor and environmental liabilities of the local corporate entity, or its subsidiary in the Dominican Republic.

Traditionally, at least for the more common business associations and corporate vehicles used in the Dominican Republic, our legal regime has provided for companies to have separate legal capacity (as a legal person) and assets and liabilities different and separate from those of its shareholders, members, directors, officers and employees. Dominican corporate law recognizes the so called principle of separate legal capacity of companies and partnerships, except in the case of businesses carried out by sole proprietors and partners in general or limited partnerships, forms of business associations provided under Dominican law, in which the partners may each be liable for all the debts of the business (unlimited liability).

Our system follows accordingly the legal assumption of a “corporate veil” and that actions of the corporation are not the actions of its shareholders; therefore, in principle, shareholders have no individual liability for the corporation’s actions. Their liability is limited to the sums that they have contributed to the company’s capital stock, that is, to the extent of their investments in shares or quotas of such company or partnership. In the absence of fraud or other deceptive practice, there is no personal recourse against shareholders for the obligations of the company. Thus, in principle, the corporate entity will protect the shareholders from liability beyond their investments, i.e. shareholder’s liability is limited to the amount individually invested.

The abuse of the principle of separate legal personality is however penalized in the Dominican Republic, though the departure from the principle of separate legal capacity is very rare. A departure from the general principle could emerge, and thus the corporate veil could be pierced, when the legal capacity of the corporate vehicle has been used to protect fraud or defend crime. In principle, unless there is a fraudulent intention, none of the shareholders is personally liable for the operations of their company.

In addition to the general rules provided under our current business associations law in connection with the above, other Dominican statutes expressly include the possibility that the corporate veil may be pierced, as in the case of rules provided under our labor laws, tax laws, banking laws and cases of bankruptcy, provided fraud to the law or the existence of a wrongful act is being prosecuted or sanctioned either by ordinary justice or administrative authorities. That is to say, to judicially impose individual liability on corporate officers, directors and shareholders for the corporation’s wrongful acts, it is necessary that they had been personally involved in the violation of the law or malpractice.

In conclusion, the liability of a shareholder may only be inflicted if the willful misconduct of said shareholder is proven before a qualified judicial court, or following other applicable proceedings.

Despite the foregoing it’s important to consider the following provisions set forth in our environmental, labor and tax legislation:

a) Environmental matters: as per the provisions set forth in our General Environmental and Natural Resources Law (“Law 64-00”) “the consequences of environmental disasters originated by the negligence shall be of the exclusive responsibility of the persons or entities which have caused the same, which shall restore the areas or resources destroyed or affected, if possible, and shall respond criminally and civilly for caused damages” [Article 76]; additional, Law 64-00 provides that “notwithstanding the sanctions provided by the law, anyone who causes harm to the environment or to natural resources, shall have strict liability for damages that may occur, in accordance with this law and other supplementary provisions of law. Also, shall be compelled to materially repair, at its expense, if possible, and to indemnify in accordance with the law the environment” [Article 169].

In this same order of ideas, when an infraction under Law 64-00 is committed by more than one person, everyone participating in said infraction shall be jointly and severally liable for economic damages. The foregoing derives from the provisions set forth in Article 172 of Law 64-00 which also provides particularly that “in the case of legal persons, liability provided in this article shall be established when the direction or administration corporate bodies of the same have authorized the acts which caused the damage”.

Civil liability hence to a shareholder of a company which has caused damages to the environment or its natural resources may only be established in principle if such shareholder has participated directly in either the commission of the pertinent actions or has authorized the same. The foregoing rule does not apply entirely however, if the shareholder, despite being a corporate vehicle, also acts as a manager of the company or subsidiary, represented for such purposes by an individual (as required by law in such cases) in which case said individual and the corporate vehicle appointed as manager, are jointly and severally liable with respect to the obligations deriving from its role as manager or director.

Criminal liability of a shareholder, as per the provisions set forth in Articles 174 and 186 of Law 64-00 may only be established upon such person’s willful misconduct or criminal intent.

b) Labor matters: in accordance with Article 13 of the Dominican Labor Code (“Law 16-92”) “in any case where one or more enterprises, despite each one of them having their own legal capacity, were under the direction, control or administration of others, or in any way related in a manner upon which they constitute an economic group [affiliates] for the purposes of the obligations undertaken with their employees, such enterprises shall be jointly and severally liable, when fraudulent maneuvers have taken place”.

Following the above, a shareholder of a company operating locally, or ultimate parents of such shareholder of a local company, may be held liable under Article 13 if an employee proves before the qualified labor court the existence of an economic group (affiliation between said entities and shareholders) and the existence of fraud or fraudulent maneuvers in the detriment of said employee. The latter is an indispensable prerequisite for such liability to be established upon the shareholder, as has been determined by our Supreme Court of Justice [February 11, 1998, B. J. 1047, p. 342-348; December 17, 1997, B. J. 1045, p. 556-562; and July 8, 1998, b. M. 1052, p. 629-637].

It is not uncommon however for lower courts to assert such liability on affiliates of the local company and actual employer, and to determine the existence of fraudulent maneuvers. To evidence the existence of affiliation, employees will usually resort to documentary evidence, including letterheads of their employer when such makes reference to other companies affiliated to the same and similar documentation.

c) Tax issues: Finally, as provided under Article 11 of the Dominican Tax Code (“Law 11-92”) shareholders or partners of a company operating in the Dominican Republic, may be held jointly and severally liable for the latter’s fiscal obligations, but only in scenarios of liquidation of said local company.

Hipolito Garcia
Quiroz Santroni

QUIROZ SANTRONI ABOGADOS CONSULTORES ANNOUNCES NEW PARTNER FOR THE FINANCING AND BUSINESS PRACTICE

Dominican Republic, June 2014.-

Quiroz Santroni Abogados Consultores is pleased to announce Mr. Hipólito García as new partner.

Mr. Garcia will coordinate the Banking and Financing Practice Group, with emphasis on corporate finance, Project finance and Mergers and Acquisitions. His vast experience on finance and insurance law, mergers & acquisitions, taxes, foreign investment, bankruptcy and business law in general, allowed him to participate in several of the most important transactions in the country. Special mention to his participation as attorney in the financing of one of the biggest investments in the Dominican mining sector, known as the “Mining Deal of the Year– Project Finance” by Latin Lawyer, as well his involvement in the merger of two of the major commercial banks in the country.
He has additionally assisted many of the most important international finance institutions, including development and multilateral banks, in the structuring of numerous corporate finance transactions for major energy and road infrastructure projects in the Dominican Republic, characterized by the complexity of syndication, the use of trust and collateral agency schemes and the intricacy of regulated sectors.
Mr. Garcia has been recognized by important international directories as Latin Lawyer and IFLR1000. His clients describe him: “He is very well prepared and defends very well his points and arguments. You always feel well represented when working with him.”

He studied law at the Pontificia Universidad Católica Madre y Maestra PUCMM, graduating with honors in 1999. He was recipient of the Fulbright Scholarship, and later obtained the degree of Master of Laws (LLM) from Tulane University (USA) in 2002, where he focused in financial law, payments systems and insurance law.

Before entering Quiroz Santroni, Mr. Garcia was partner at Headrick, Rizik, Alvarez & Fernandez.

The integration of Mr. Garcia is in line with Quiroz Santroni´s growth and development strategy, as well as it reflects our commitment to provide highly sophisticated legal and consulting services in one of the most growing countries as it is the Dominican Republic.