Liability of the Directors of a Mexican Company and need for internal controls

The Members of the Board of Directors, the Chief Executive Officer and the other management bodies of the company are jointly and severally liable for the misdemeanors and offenses incurred by the company. However, the protection of the individuals behind the company and the prevention of imputation of liabilities is possible. 

 

Article 422 of the National Code of Criminal Procedure (Código Nacional de Procedimientos Penales) sets forth a catalog of consequences for non-compliance by legal persons with their own personality, which includes pecuniary sanctions or fines, confiscation of instruments, objects or products of the crime, publication of the sentence and dissolution of the company. In order to determine the degree of individualized guilt of the individuals involved, the same Code in paragraph a) of the mentioned article will consider the magnitude of the non-compliance with the due control of their organization and the enforceability of conducting themselves in accordance with the regulations, understanding due control as the regulatory compliance in the area in which the fault or offense has been found.  

 

The law also provides that the penalties listed above may be mitigated by up to one fourth, if prior to the alleged act, the legal entities had a permanent control body in charge of verifying compliance with the applicable legal provisions to follow up on the internal crime prevention policies that were implemented before or after the alleged act. 

 

Up to this point, criminal legislation classifies regulatory compliance as a mitigating factor in individualized liability in the case of criminal actions such as fraud, theft or tax offenses, however, in the case of any executive member of the company, however, some local criminal legislations exclude the company and its management body from liability provided that it is proven that the natural person who committed the crime did so through deceit even in spite of the correct implementation of the company's rules, policies and regulations.  

 

In addition to the foregoing, the General Law of Business Entities (Ley General de Sociedades Mercantiles) allows those affected by those found liable to claim for the damages and losses caused to them. 

 

In addition to the aforementioned, there are other areas of regulatory compliance that the company must take into consideration, because although they do not entail repercussions such as the dissolution of the company or criminal consequences involving deprivation of liberty, they do entail fines and pecuniary or restrictive sanctions. An example of this is the requirements recently established by the reforms in labour law, as well as with respect to the issue of licenses according to the line of business of each company. A good regulatory compliance in terms of crime prevention and corporate governance should mainly include: 

 

In conclusion, establishing internal controls and adhering to best practices in corporate governance are essential steps for Mexican companies to navigate the complexities of business operations while safeguarding directors from potential liabilities. In this regard, take proactive steps to fortify your company's defenses, from appointing adept Managing Directors to instilling Codes of Ethics and Rules of Procedures, every decision counts. At Roedl & Partner, we offer tailored solutions to empower your company's governance and compliance journey. Let's collaborate to secure your company's future prosperity.