Preference Rights vis-à-vis Shares or Equity Adjudications

Preference rights grant shareholders the privilege of precedence over third parties in acquiring any shares or equity in the company offered for sale or transfer. As explained by the Superintendence of Companies in its Concept dated March 30, 2015, this advantage granted to shareholders is not without limitation. As a matter of fact, preference rights are affected in the event of shares or equity adjudications.

The transfer of shares or equity through adjudication arising out of or deriving from liquidation of a company, succession upon death of legal titleholder or liquidation of community property, even if the latter was voluntary, shall not be governed by preference rights agreed upon by the shareholders. Thus, the scope of the said rights is substantially reduced. Superintendence arguments are based on the fact that share or equity transfers by adjudication are the result of a ruling, involving no prior negotiation, transaction or assignment between the titleholder and the grantee. Consequently, these transfers cannot be subject to any privileges granted under preference rights.

Now then, even though preference rights shall not apply to share or equity adjudications, the General Shareholders Meeting must approve admittance of any new third party to the company without prejudice to any existing preference rights.

Conclusion.
Companies and shareholders need to be aware of prospective limitations to preference rights. When shares or equity transfers by adjudication -i.e., by legal mandate- take place, privileges established or granted by preference rights shall not operate.