Directors’ Duties in Paraguay

>> Liabilities in Paraguay

Directors are jointly and severally liable before the entity, the shareholders and third parties for improper performance of their duties, for violation of the law and the bylaws, and for any damage caused by fraud, abuse of power or gross negligence.

A director that did not participate in the decision is exempted from any liability as is the one that left a written record of his disagreement and gave notice to the corporate syndic.

Nonetheless, directors will not be liable before the entity when they have acted in compliance with decisions of the shareholder’s meeting that are not against the law or the bylaws. They will not be liable either when their decisions have been approved by the shareholder’s meeting, or when the shareholder’s meeting decides to waive an action or to settle a dispute, as long as liability does not arise from violation of the law or the bylaws and there is no opposition from shareholders that represent at least one fifth of the capital.

The decision to bring a liability action against the directors should be taken by the shareholders’ meeting, even if the entity is in liquidation.

The decision regarding the liability of the directors could be taken at the time of discussing the financial statements, even if such issue is not in the agenda, as long as it is a direct consequence of a decision on a matter that is included in the agenda. The decision on liability will entail both the removal of the directors and their replacement.

If the action is not brought within three months since the decision to file it was taken, any shareholder can file it, regardless of the liability that arises from the failure to comply with the decision. The action can also be brought by the shareholders that opposed to the resignation or to the settlement.

The directors are liable before the entity’s creditors for their failure to comply with their obligation to preserve the capital of the entity.

The action may be brought by the creditors when the capital of the entity is insufficient to collect their credits.

In case of insolvency, the action shall be brought by the corporate syndic. The fact that the entity waives the action does not prevent the creditors of the entity to file it. They can only contest the transaction by filing the revoking action.

Latest version updated 4th April 2018

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