The exhaustion of Instances by the State: A Problem in Intellectual Property

The administrative authority and one or more private parties intervene in the vast majority of administrative procedures regarding Intellectual Property. Once this stage has been exhausted, resolutions issued by the National Intellectual Rights Service (SENADI) can be judicially challenged before the competent Administrative Contentious Court. The processes culminate with the sentence that agrees with one of the parties. With its execution, the mission of imparting justice is considered accomplished. However, the experience in intellectual property matters is different.

Once the client obtains a favorable ruling from the Contentious Administrative Court, SENADI usually files a cassation extraordinary appeal to prevent the execution of the Court’s ruling. This attitude is not justified because it is a dispute between private parties, in which the resources of the State are not compromised.

The competence of the aforementioned institution to appeal adverse decisions is not questioned, since we understand that it wants its criteria to prevail, however, it is necessary to consider that the filing of these appeals by SENADI is not always motivated to protect public interests.

In terms of intellectual property, there is no justification for SENADI in all cases to try to nullify the sentence so that its legal criteria prevail. With this attitude, state resources are wasted because the Supreme Court must allocate time to address these challenges. Worse still, in cases in which SENADI files an extraordinary protection action before the Constitutional Court.

It is very difficult for Intellectual Property clients to accept this behavior from the administrative authority, which seems to be destined to hinder the timely exercise of the corresponding rights. This reality is even worse in the case of patents, whose validity is 20 years from the filing of the application, since the administrative and judicial procedures can consume half of that time and in some cases the full term.

The justice system is saturated in Ecuador; responsibility, effective judicial protection and legal security do not go hand in hand with the principle of opportunity. The exhaustion of resources and actions by SENADI should not become the rule, since this causes the processes to be delayed, the execution of the sentences postponed and greater public and private resources spent.

Ruth Holguín
Associate at CorralRosales
ruth@corralrosales.com

Employee Leave of Absence in Ecuador

employee-leave-of-absence-in-ecuador-lawyers

According to Ecuadorian law employees are entitle to 8 legal leaves of absence, as detailed below:

LEAVE OF ABSENCE REASON DURATION
Maternity Birth of a child (general rule) 12 weeks
Multiple birth 10 additional days
Child with disability or serious congenital diseases. 3 additional months
Paternity Birth of a child 10 days
Multiple birth or cesarean section 15 days
Premature children or in conditions of special care 8days additional
Birth of a child with a disease: degenerative, terminal, irreversible or with severe disability (75% or more) 25 days
In the event of the mother’s death during childbirth or while on maternity leave, the father is entitled to enjoy all, or as appropriate, the remaining part of the period of leave corresponding to the mother Up to 12 weeks
Unpaid leave for childcare After maternity or paternity leave employee may request a unpaid leave to care for the newborn 9 months in addition to maternity or paternity leave
Adoption Adoptive parents are entitled to a leave from the date the child is legally delivered to them. 15 days
Illness Medical rest for common or occupational illness Indeterminate
Child Illness Care for  hospitalized child or with  degenerative disease 25 days (annually)
Family leave for death Death of the spouse, common-law partner, relatives up to 2nd degree of consanguinity or affinity to the worker 3 days
Education Employees with more than 5 years in the company that obtain a scholarship for studies abroad, in fields related to work activity, will be entitle to a leave of absence.

* Applies to employers with 15 or more employees and the number of scholarship holders does not exceed 2%.

Up to 1 year, entitled to payment for 6 months.

Maternity and sick leave are subsidized by IESS, under the following conditions:

  • In case of maternity leave, IESS requires that the affiliate maintain at least 12 continuous contributions prior to childbirth and that the employer has not registered arrears during the mentioned period. In these cases,  IESS will pay the employee a cash allowance of 75% of the average remuneration the last 3 contributions paid to IESS, for the period of 12 weeks (the remaining 25% must be covered by the employer).
  • To access sickness allowance, according to the rest ordered by the physician, the affiliate must maintain at least 6 continuous contributions prior to the month in which the disability occurred and the employer must not register arrears during that period. If these conditions are met, as of the 4th day of disability, IESS will pay the employee a cash allowance for a period of up to 6 months, in the following proportions: (i) the first 70 days, employee will receive 75% of the average of the 3 last contributions; and, (ii) in the remaining period, 66% of the same average. The employer is only obliged to pay 50% of the remuneration during the first 3 days of disability.

The Labor Code also provides leave for domestic calamity or force majeure. Although the norm is not clear in which situations these types of leave should be granted, it gives the employer the power to qualify and authorize them. In this case, the worker maintains the right to receive his/her remuneration – or a percentage of it – for the duration of the leave.

Upon agreement of the parties, the employer may grant unpaid leave to cover different needs of the employee (e.g. studies abroad).

The main characteristic of this kind of leave is that the employment relationship continues and the employee does not lose his seniority in the company. Since the employee will not be receiving income during the leave, the obligation to make contributions to  IESS is not generated. Therefore, an exit notice must be filed in the Institution’s platform.

 

Marta Villagómez
Senior Associate at CorralRosales
mvillagomez@corralrosales.com

Auxiliary Services to Air Transport: What is behind a flight operation?

flight-operation-auxiliary-services-aviation-veronica-olivo

If we ask any passenger about their next trip, we find that most of them think that during the flight they are in the hands of the pilot and we tend to think the same way. Well, the truth lies in the fact that no flight crew can operate without a large team of people doing their groundwork.

Behind the operation of a flight there are providers of “Auxiliary Services to Air Transport” that are technical services specialized in supporting air transport operations. Ground handling addresses many services required for the aircraft; from the time it arrives at the terminal to the time it departs on its next flight. Speed, efficiency and precision are important in ground-handling services to minimize response time. This is the time during which the aircraft must remain parked in the terminal; these services include the following activities:

1. Operational Flight Dispatch

There is a team in the operations center of each airline, which monitors every minute of the flight.  They are called the eyes and ears of the crew. So much so that, when the pilot announces a change of route due to weather conditions, for example, it is likely that this decision was not made by the pilot in the cabin of the plane, but by the flight dispatcher in the center of ground operations that could even be hundreds of kilometers away from where the aircraft is located.

Dispatchers not only plan the flight, they monitor it and are ready to provide any information pilots require, at any time.

2 Ramp Service

These are services that are provided on the airport platform or runway and are directly related to all the activities that are carried out with the aircraft to execute the flight. Among the main ones we find:

  • Guide the aircraft in and out of the parking position, both at landing when it is routed to the passenger sleeves to disembark, and at takeoff when the aircraft is driven to the runway.
  • Load water for the toilets in the aircraft and drain.
  • Supply engine-starting units.
  • Handle the loading and unloading of luggage, generally by means of belt loaders and luggage carts.
  • Handle air cargo, generally through loading platforms and loaders.
  • Refueling, which can be done with a refueling tank truck or refueling pump.
  • Provide power on the ground (so that the engines do not need to be running to provide power to the aircraft on the ground).
  • Provide passenger stairs (used in place of a bridge or aerial stairs. Some airlines on a budget use both to improve response speed).
  • Provide wheelchair lifts, if passengers require them.
  • Supply hydraulic mules (units that provide hydraulic energy to an aircraft externally).
  • Provide de-icing equipment, which is the process of removing snow, ice or frost from the surface of the aircraft using chemicals that not only defrost, but also protect the surface and help delay the formation of ice during a certain period of time, or avoid ice adhesion to facilitate mechanical removal.

3. Passenger services

These services are carried out at the airport terminal and range from the passenger’s arrival at the airport to boarding the aircraft or leaving the terminal. Among the main tasks we find:

  • Provide counter services for the registration and billing (check-in) of each passenger prior to boarding the flight.
  • Provide assistance to passengers on arrival and departure at the boarding gate.
  • Staff the transfer and customer service desks.

4. Catering Service

It consists of loading and unloading food and beverages that will be served during the flight for both passengers and crew. The service is not limited to preparing food, but it must comply with sanitation standards, adequate forms of packaging, as well as waste management. This service should ensure, as far as possible, minimal preparation activities in the air, limiting them to heating the food when necessary.

5. Cleaning and disinfection of aircraft

The first step is cleaning the exterior of the aircraft, the fuselage. Care is taken in areas such as propellers, brakes and the surroundings of electric chargers to ensure that there are no elements that cause static. While the exterior cleaning is carried out, so is the cabin work, both cleaning and disinfection. For these activities, there are international standards that must be followed and are constantly updated.

It must be taken into account that the majority of airlines subcontract these auxiliary services and that their providers are generally the same airports, and assistance agents that are duly qualified by the aeronautical authority of each country or even another airline. According to the International Air Transport Association (IATA), it is estimated that airlines outsource more than 50% of ground-handling services to fulfill their operations at airports around the world.

Therefore, compliance with local regulations and excellence in the provision of these services make airlines opt to subcontract them, allowing operations to be carried out quickly and effectively. All this translates this efficiency into greater safety of operations and of course optimization and better profits.

 

Verónica Olivo
Associate at CorralRosales
volivo@corralrosales.com

Advantages of the simplified joint-stock company

simplified-joint-stock-company-corporate-milton-carrera-lawyers-ecuador

The main advantage of the Simplified Joint-Stock Company is its flexibility to adapt to the particularities of each business. Its formation process is very agile and its shareholders have ample freedom to establish the rules of its operation in the bylaws. Therefore, entrepreneurs can count on a legal figure that allows them to develop formal businesses that are entirely adapted to the will of the partners and the peculiarities of the businesses.

Small and medium-sized companies will be the most benefited by this new type of corporate association. Its main advantages are the following:

  1. Incorporation of the company: The creation of this company does not require a public deed, it is constituted by a private document, with the exception of those cases in which real estate property is contributed.
  2. It can be a single-member company: The company can be incorporated and exist with a single shareholder, natural or legal person.
  3. Flexible capital structure: There is no minimum capital and there is no percentage that must be paid at the time the company is incorporated. However, the term for the payment of the capital will not exceed 24 months.
  4. Multiple corporate purpose: The corporate purpose can be broad, that is, it can include many activities without being related to each other. If the corporate purpose is not specified in the act of constitution, it is understood that the company may carry out any lawful activity.
  5. Indefinite term: It is not mandatory to establish a term for the company. Failure to do so implies that it is indefinite.
  6. Principle of existence of the company: The existence of the company occurs with the registration of the contract or unilateral act of creation before the Registry of Companies of the Superintendence of Companies, Securities and Insurance. It is not required the registration before the Mercantile Registry, which simplifies the procedure and reduces costs.
  7. Free negotiation of the shares: The shares are freely negotiable unless the bylaws states the prohibition to do so. This prohibition may not last for more than 10 years.
  8. Change of control in the shareholder company: The bylaws can establish the obligation of shareholder companies to inform the Simplified Joint-Stock Company about any operation involving a change of control. In the event of a change of control, the general meeting of shareholders of the Simplified Joint-Stock Company may exclude shareholder companies in which such event has occurred.
  9. Shareholder agreements with binding force: Shareholder agreements on the transfer of shares, preference and restrictions to transfer them or to increase share capital, exercise of the right to vote, share´s representative at the meeting and any other lawful matter are mandatory for this type of company. To comply with this, such agreements must be kept in the offices where the administration of the company works. Otherwise, without affecting the force and effect between the parties, such agreements do not bind the Simplified Joint-Stock Company.
  10. Auditis optional: The existence of an audit body is not mandatory, but the bylaws may foresee its creation.

Milton Carrera
Senior Associate at CorralRosales
mcarrera@corralrosales.com

Public purchases in a state of emergency

public-purchases-in-a-state-of-emergency-ricardo-mancheno-lawyers-ecuador

By Ministerial Agreement No. 00126-2020 of March 11, 2020, the Ministry of Health declared a state of sanitary emergency in Ecuador due to the COVID-19 virus pandemic. Subsequently, by Executive Decree No. 1017 of March 16, 2020, the President of the Republic declared a state of emergency throughout the national territory. Consequently, various resolutions and administrative provisions have been established to regulate public management and the relations between the Public Administration and those administered.

In this context, the National Public Procurement Service – SERCOP issued the regulations applicable to the state of exception and emergency, in order to coordinate actions to fulfill its purposes and, in particular, guarantee the rights of suppliers to avoid discretion of contracting entities during public procurement processes due to emergencies.

The following is a summary of the regulations issued by SERCOP:

  • Memorandum No. SERCOP-SERCOP-2020-0012-C of March 16, 2020 contains the following recommendations for suppliers and contracting entities:
    • Procurement will be prioritized to guarantee the normal operation of public services and emergency procurement. Special service stations with health safety measures are established to receive offers.
    • In the case of non-priority procedures, it is recommended to cancel or declare them void, depending on the status of the procedure.
    • In the absence of conditions to carry out the pre-contractual stage of planned procurement procedures, entities are encouraged not to publish them.
    • If there are contracts in the contractual execution stage, the administrator must fully comply with the functions established in the respective contracts.
    • Although recommendations do not include it, the legal provisions on unforeseen events and force majeure are applicable to public contracts. The act of authority that declared the state of emergency in the territory of Ecuador, which suppressed and limited the rights of people, among them economic operations and activities and mobility, except in certain excepted cases, constitutes an event of force majeure. These acts of authority are spearheaded by Executive Decree 1017 but include others such as Ministerial Agreement 126-2020, which establishes the health emergency and the constant provisions of the National Emergency Operations Committee (“COE”). In turn, these force majeure events originate from an unforeseen event and its effects, which go beyond the decreed state of emergency, such as the COVID-19 virus declared by the World Health Organization as a pandemic, which has also been ratified by the government of Ecuador. These events constitute extraordinary and irresistible unforeseen events, which have placed the population of Ecuador (and the world) in an emergency situation, making it impossible for the normal development of the usual commercial and productive activities of the public and private. Likewise, they have placed current obstacles to the execution of contractual relationships, which clearly exceed the control and predictability of the parties, and which could be alleged as long as they generate real and verifiable effects with the purpose of exempting the fulfillment of contractual obligations or the termination of contracts according to each case.
    • SERCOP guarantees service for procedures, claims and complaints through telematic means. Face-to-face trainings will be rescheduled.
  • Memorandum No. SERCOP-SERCOP-2020-0013-C of March 17, 2020 establishes the guidelines for submission of offers during the health emergency, and provides that contracting entities in the different contractual procedures, in a compulsory way, will indicate in the field of observations in the form, that the offers and validations can be received by the following means: physical, Courier (regular mail) or email, also indicating in the form the institutional mailing address to receive them.
  • Resolutions Nos. RE-SERCOP-2020-0104 of March 19, 2020 and RE-SERCOP-2020-0105 of April 6, 2020, which reform Resolution No. RE-SERCOP-2016-0000072, of August 31 2016, which contains the Codification and update of resolutions issued by SERCOP. These resolutions, the main aspects of which are listed below, should apply to contracts in an emergency as of March 20, 2020:
    • The contracting entity must expressly declare that there is an impossibility to carry out common procedures to overcome the emergency situation, qualifying this situation through a motivated administrative act that must be published on the PUBLIC PURCHASES Portal, and that will constitute a requirement which enables to continue with the emergency contracts.
    • The term of the emergency declaration may not be greater than 60 days unless a new Executive Decree is issued extending the state of exception.
    • For the procurement of works, goods or services in emergency situations, including consultancy, a direct and objective relationship must be verified between the emergency situation and the urgency of carrying out a procurement procedure to supply a current and emergency need that has arisen as a result of the aforementioned situation. For all emergency procurement, prior certification of budget availability will be necessary.
    • Emergency purchase will be made through a selection of suppliers in an agile, fast, transparent, and simple way, seeking to obtain the best costs. For this purpose, the entity or central governing body may consolidate the demand of all bodies or entities of any nature to carry out a single selection procedure.
    • In emergency procurement for the acquisition of drugs, medical devices or supplies, biochemical or diagnostic reagents, and other strategic goods in health, or the provision of health services or funeral; The analysis of the market offer will be considered fulfilled when the contracting entities publish their contracting needs on their institutional website; and, based on the proposals they receive, select the ones that best suit institutional interests. For these contracts, the supply and demand that exists on the market at that date will be considered as an indispensable parameter.
    • In emergency procurement carried out directly by the contracting entity (acquisition of goods abroad), verification of the absence of national production or supply will not be required, nor will import authorization by SERCOP.
    • All contracts, purchase orders or invoices generated within the framework of the emergency declaration must be done in writing through physical or electronic means. Contracting entities may improve the instruments using transmission of data messages in accordance with the provisions of the Electronic Commerce, Electronic Signatures and Data Messages Act. When in emergency contracts is impossible to access to notarial services, the contracting entity, in an exceptional and provisional manner, will endorse with administrative officials those enabling documents necessary for the signing of the contracts. The establishment of consortiums by private means will be allowed, which will be formalized by public deed once the notarial services have been restored. The contracts that by provision of the law require to be protocolized will be executed from their subscription and will be protocolized later. Currently, some notaries may protocolize these contracts.
    • For contracts in an emergency, SERCOP may, at any time, initiate the necessary control actions to guarantee compliance with the issued regulations.
    • The norms that regulate the temporary association to make corporate purchases between contracting entities will not be applicable to cases of centralized (corporate) purchases of emergency.
    • In the event of emergency declarations issued and published by the contracting entities until before the validity of the Resolutions, they will be forced to comply with and adapt to their provisions.
  • Memo No. SERCOP-SERCOP-2020-0014-C of March 26, 2020 reiterates, within the framework of the regulations issued by the state of emergency and health emergency, the obligation of the contracting entities to implement electronic signature in public procurement procedures; which will allow the opening of a new way of communication with citizens in a more agile way and will reduce the processing time of the procurement procedure, safeguarding and guaranteeing the safety of citizens.

Additionally, SERCOP maintains on its website an updated list of products and services needs in the state of emergency along with delivery conditions. They can be found in the following link:

https://www.compraspublicas.gob.ec/ProcesoContratacion/compras/EMG/EmgRegistros.cpe

It is essential that SERCOP efficiently apply in practice the provisions of the regulations issued and carry out the necessary control management for its effective compliance.

Ricardo Mancheno
Senior Associate at CorralRosales
rmancheno@corralrosales.com

Procedure for the Exchange of soon-to-be-expired Medicines

medicines-procedure-for-the-exchange-mario-fernandez-lawyers-ecuador

Article 175 of the 2006 Health Law required medicines suppliers  to exchange products that are about to expire in accordance with “… with what the corresponding regulation establishes.”[1]

Almost 13 years after the aforementioned law entered into force, Ministerial Agreement No. 00015-2019 published in Official Registry No. 30 on September 2, 2019 issued the “Soon-to-be-expired General Medicine Exchange Regulations” (hereinafter, the “Regulations”), which are mandatory for all health establishments and warehouses of the institutions of the National Health System.

Due to the time it took to issue the regulation, doubts have arisen about theirs application. This article summarizes and clarifies the implemented procedure.

The procedure[2] for the exchange  of medicines in general, biological medicines and medicine kits containing medical devices (hereinafter and collectively, “medicines”), which are about to expire, has the following stages:

  1. Periodically, the person in charge of the information system of the pharmacy, medicine cabinet and / or warehouse of the institution of the National Health System will send the head of the requesting unit the stock of those medicines that are about to expire and subject to exchange.
  2. The technical manager of the pharmacy or warehouse and the staff in charge of the medicine cabinet of the institution will carry out the physical verification along with the warehouse keeper who will draw up the list of medicines subject to exchange.
  3. The head of the institution´s requesting unit will prepare the technical report of the medicines to be exchanged, taking into account the information sent by the technical manager of the pharmacy or warehouse or the staff in charge of the medicine cabinet and will request the supplier the respective exchange.
  4. The supplier will notify the head of the requesting unit of the date, information and quantity of the medicines to be exchanged.
  5. The head of the requesting unit will notify the technical manager and the warehouse keeper of the exchange to be executed.
  6. Once the technical manager and the warehouse keeper have been notified, the medicines that are about to expire shall be placed in the warehouse withdrawal area for the respective exchange.
  7. The person in charge of the warehouse will deliver the medicines that are about to expire to the supplier. Then, a reception delivery document[3] will be drawn up and signed between the person in charge of the warehouse, the head of the requesting unit and the supplier.
  8. The supplier will deliver the “new” medicines to the warehouse manager for the corresponding technical and administrative reception, in which the quantity and technical specifications of the medicines will be verified in accordance with the internal procedures that each institution of the National Health System has for this purpose.
  9. A record will be drawn up and signed[4] for the receipt of the “new” medicines between the person in charge of the warehouse and the supplier. Said act must be verified and signed by the head of the requesting unit.
  10. The institution must prepare the complete file on the exchange. The responsibility for filing said files shall be laid down in the instructions drawn up by each institution.

Regarding the procedure, the following requirements must be taken into account:

  • Supplier must withdraw the medicines subject to exchange up to one month before the expiration date.
  • Medicines that are about to expire must be exchanged for medicines with the same technical specifications and a shelf life of at least twelve months.
  • Withdrawal of medicines that are about to expire and the delivery of the “new” medicines may be carried out at different times, subject to an agreement between the parties, provided that the provisions of the Regulations are complied with.

Here are some details regarding doubts that may arise in the application of the Regulation:

  • Exchange of medicines that are about to expire is regulated regardless of the date on which they were purchased. Therefore, it also applies to the exchange of medicines that were purchased before the Regulation entered into force.
  • A maximum of one exchange for each acquisition will be accepted[5]. In addition, for exchanges involving the health establishments of the Comprehensive Public Health Network – RPIS, it must be taken into account that:
    • The percentage of exchange cannot be greater than fifteen percent (15%) of the total volume of the medicine purchased in each acquisition process.
    • In purchases through corporate reverse auction or other joint mechanisms, the indicated percentage will not be applied, but the provisions of the specifications prepared by the Commission of Public Purchases. In no case may they contemplate a percentage higher than ten percent (10%).

Although the Regulation does not expressly[6] indicate it, it is considered that these percentages would apply only to the replacement of the medicines and not to their withdrawal, in accordance with the provisions of article 175[7] of the Health Law. Therefore, the supplier would have the obligation to withdraw all the medicines that are about to expire, but their replacement will be limited to the percentages established in the Regulation.

  • In the case of vital[8] medicines or medicines that are difficult to access for rare or orphan
  • [9] diseases, which are about to expire, the Regulation establishes that the supplier must carry out the number of exchanges that are necessary, without considering the percentage of medicine to be replaced in each exchange.
  • If the supplier justifies that it cannot make the exchange with the same products, the Regulation allows it to be carried out with other medicines with an equivalent economic value. If this is not possible, the supplier, in agreement with the buyer, must reimburse the institution the respective value.

In conclusion, while the Regulation for the exchange of medicines is welcome, it is necessary for the authority to clarify rules that may lead to confusion, without waiting for conflicts to arise from  different ways of interpreting and applying the Regulation by the acquiring institutions.

Mario Fernández
Associate at CorralRosales
mfernandez@corralrosales.com


[1] Art. 175.- Sixty days before the expiration date of the medicines, the pharmacies and medicine cabinets will notify their suppliers who have the obligation to withdraw said products and exchange them in accordance with the provisions of the corresponding regulations. (highlighted out of text).
[2] Ministerial Agreement No. 00015-2019, Official Registry 30, September 2, 2019, Art. 9.
[3] In accordance with number 6 of article 9 of the Regulation, based on this act, the institution will generate the release of the medicines in the inventory control information system that it has.
[4] In accordance with number 8 of article 9 of the Regulation, based on this act, the institution will generate the entry of the “new” medicines in the inventory management system that it has.
[5] Art. 1 of the Regulation defines the acquisition of medicines as “… the process by which medicines are purchased in general, biological medicines or medicine kits that include sufficient medical devices to meet the expected demand, according to the corresponding contracting mechanism and based on the approved schedule. ”
[6] Ministerial Agreement No. 00015-2019, Official Registry 30, September 2, 2019, Art. 12.
[7] Art. 175.- Sixty days before the expiration date of the medicines, the pharmacies and medicine cabinets will notify their suppliers, who have the obligation to withdraw said products and exchange them in accordance with the provisions of the corresponding regulations. ” (Highlighted out of text).
[8] The Regulation defines vital drugs as those indispensable or irreplaceable drugs to safeguard the life or alleviate the suffering of a user / patient or a group of users / patients. Each health establishment will define its list of vital drugs, through the Pharmacotherapy Committee or whoever takes its place
[9] The Health Law defines rare or orphan diseases as those potentially fatal, or long-term debilitating, low prevalence and highly complex diseases.

 

Compliance as a business culture

compliance-business-culture-maria-isabel-torres

Strict compliance with legal and ethical standards is a requirement for all companies today. To that end, each company must develop a culture of prevention through a regulatory compliance program, known as “compliance”. Compliance applies to all actions, relationships and procedures of the company and, therefore, all actions of managers and employees must be subject to this culture.

Keep in mind that not complying with legal obligations, not only could bring economic sanctions to those who act in this way, but could even cause criminal charges not only for the people who committed such acts but also for the companies themselves that are active subjects of the crime as stated in the Comprehensive Organic Penal Code that came into force in 2015.

The adoption of a compliance program is not simple, since it implies changing the culture of a company, not only by its partners, shareholders, managers and workers, but also by customers and suppliers.

Here are some of the key steps to adopt an effective compliance program:

  1. Start at the head of the institution: any change in the culture of a company starts at the top; therefore, the first step is for managers to have precise knowledge of what compliance entails, such as corporate culture and the willingness to adopt it. Therefore, it is up to them to transmit the adoption of the program to all levels, which implies the necessary commitment of everyone to strictly comply with it.
  2. Prevention and analysis: it is necessary to carry out a diagnosis regarding the approach that the program will have, this approach must be adapted to the individual characteristics of each company. For example, an organization that performs public procurement must implement a different compliance plan, compared to a company that mostly sells to the private sector. Once the areas of greatest risk have been identified, the necessary resources will be assigned to make the changes.
  3. Education: education is essential to achieve culture change. It is essential that all or at least the absolute majority of workers understand the scope of compliance. This ensures that any non-compliance that could harm the company is reported on time. Education programs must be continuous (at least every 6 months), personalized for each role, and must provide information on the legal framework for compliance.
  4. Communication: Internal regulations of companies contained in a code of conduct must be clear, affordable, and permanently communicated to their workers. It should include topics such as: corruption, blackmail, bribery, conflicts of interest, tax evasion, money laundering, among others. In addition, it must establish who is responsible for the compliance program and the mechanism through which employees can report or consult a case where a breach could happen.
  5. Relevance: the importance of the program must be determined, and the personnel and resources required for its implementation must be assigned to it. Otherwise it could become “dead letter” without any significance for the company that adopts it.

The additional costs that implementing a compliance program may eventually demand are fully justified if, with its deployment, the company achieves an unblemished reputation for strict compliance with the law and ethics in its business relationships with shareholders, customers and suppliers. This behavior will translate into better positioning in the market and the consequent increase in sales.

María Isabel Torres
Associate at CorralRosales
mtorres@corralrosales.com

The re-domiciliation of ecuadorian companies

re-domiciliation-of-ecuadorian-companies-corporate-milton-carrera

In today´s globalized economy, it is necessary for countries to provide a legal framework that allows companies to conduct their businesses in the jurisdiction that is most convenient to their interests. The re-domiciliation of a company, that is, the transfer of the registered office to a foreign country while maintaining its legal personality and therefore its assets, rights and obligations, allows it to fulfill this purpose.

In Ecuador, no legal rules have been developed that expressly regulate the process of re-domiciliation to a foreign country, so it is necessary to find alternatives that allow its implementation within the rules of the Companies Law.

The domicile of a company is not only a requirement for its constitution, but it grants it a national identity and therefore membership in a legal system. The re-domiciliation of companies is a figure currently recognized by many legislations, precisely in order to allow companies to develop their businesses with wide freedom and without affecting the rights of third parties. In order to facilitate re-domiciliation, it is necessary that the law of the country where the company intends to transfer its domicile accepts it, recognizing its pre-existence and assets acquired in the country of origin. By transferring the registered office to another country, the company adopts the nationality and legal system of the host country. Although the Companies Law does not contain specific rules that govern the re-domiciliation process, it does provide for the change of address without making a distinction whether it is carried out within or outside the country, from which it is concluded that both are allowed and are subject to similar formalities.

Once the re-domiciliation has taken place, the Superintendence of Companies, Securities and Insurance will be responsible for ordering the cancellation of its registration in the Commercial Registry without the company being liquidated, precisely because it maintains its legal personality, assets, rights and obligations, in the receiving country.

The cancellation is the registry operation that has the sole and exclusive purpose of leaving the original registration without effect and make it public.

In conclusion, we consider that under corporate law, the change of address of an Ecuadorian company to another country is valid and legal, assuming that the legislation of the receiving country allows it; therefore, the re-domiciled company will maintain its legal personality, assets, rights and obligations. However, in order to expedite this operation, the re-domiciliation process must be expressly regulated as soon as possible.

Milton Carrera
Senior Associate en CorralRosales
mcarrera@corralrosales.com

Negotiable commercial invoices in Ecuador

negotiable-commercial-invoices-commercial-ramon-paz-y-mino

The most frequent criticisms to the Commercial Code (C. Com.) might be over-regulation, lack of dissemination and discussion. Composed of 1348 articles, 3 general provisions, 1 transitional provision, 5 derogatory provisions and 1 final provision, the Commercial Code (C. Com.) entered into force on May 29, 2019. This was the awakening of a new set of norms that regulate a significant portion of the commercial activity in Ecuador. However, the legislator, irresponsibly, failed to grant a transition period prior to its entry into force, as done with other regulatory bodies. This, in one way or another, prevented traders and businessmen from having a reasonable period of time to inform themselves adequately about the new contract types and to anticipate the impact that it could generate in the development of their business.

Negotiable commercial invoices (FCN, for their acronym in Spanish) are not new. Article 201 of the 1960 Commercial Code, as subsequently amended, provided that: “Commercial invoices containing an unconditional payment order, acceptance of which is signed by the purchaser of goods or his delegate, with the express statement that these have been received satisfactorily, shall be called “negotiable commercial invoices” and shall have the nature and character of securities.”

But, in market practice, few traders issued FCNs, possibly out of ignorance, because they considered them to be too stringent (in terms of their issuance requirements) or impractical.

In recent years, some traders have used the issuance of FCNs as a mechanism to obtain liquidity, including for trading through the country’s stock exchanges. Reports from the Quito Stock Exchange show that FCNs have acquired importance in the local market. According to the information of said institution, in 2018, US$271,777,234 FCNs were traded, as of June 2019 this amounted to US$184,297,068 and in January 2020 US$115,066.25.

Currently, FCNs are (i) sales vouchers, (ii) negotiable and executive securities when they contain an unconditional payment order, acceptance of which is signed by the purchaser of goods, interests or services or his delegate, with the express statement that these have been received satisfactorily, or that have been tacitly accepted” (Art. 203 C. Com.)

FCNs can be issued in physical, electronic or dematerialized form. If in physical form, 3 copies must be produced, namely, the original for the buyer or purchaser, and two copies for the issuer. Only the first copy is negotiable; the others contain the phrase “NON-NEGOTIABLE”.

For electronic issuance, the issuer shall mandatorily “send or make the electronic voucher available to buyers or purchasers under the conditions, in the timing and by the means established by the country’s internal tax administration entity. Not sending these vouchers, their unavailability or inaccessibility are equivalent to withholding them.” (Art. 204 C. Com.)  The dematerialization of FCNs must be done in accordance with the provisions and regulations of the securities market. This implies a book entry in a system for the registration or booking of the securities. In other words, there is no cardboard representation of the document, as it will be supported by electronic accounting records.

Please note that physical and electronic invoices are traded by endorsement, while for dematerialized invoices the transfer is perfected with registration in the respective bookkeeping system and that, in addition to the requirements determined in the tax regulations, the FCNs must compulsorily contain the following:

  • Be identified as “NEGOTIABLE COMMERCIAL INVOICE”
  • The payment date and place. If payment by installments is established, the number of installments, the due date and the amount to be paid for each of them, as well as the unpaid balance, shall be indicated. The term of payment may not exceed 360 days from the issue of the invoice. (short term security)
  • The unconditional order to pay a certain amount of money
  • The clear specification, in figures and in writing, of the amount to be paid and the currency in which it will be done
  • The express statement by the buyer or purchaser to receive the goods, interests or services to his or her full satisfaction
  • The physical or electronic signature of the issuer of the invoice or of the respective delegates
  • The physical or electronic signature of the buyer or purchaser of the goods, interests or service or their respective delegates
  • The signature of the acceptor contained in the invoice or attached document, except in the case of tacit acceptance, which we will review later.
  • In the case of a physical commercial invoice, information on the endorsements with the identification requirements will be incorporated on the back of the document or attachment

With regard to the acceptance, the Commercial Code will facilitate claims, providing that the buyer-purchaser, his delegate or agent must expressly accept the contents in writing, either in the same document or in a physical or electronic attachment, which must include the date of receipt. In accordance with the provisions of the previous Code, the FCNs will be considered to have been tacitly accepted if, within 8 days of the date of receipt, no claim has been made regarding its contents.

What is important and new is that the Commercial Code recognizes 3 complaint procedures, which must be proven by whoever intends to benefit from this:

  1. The possibility of returning the invoice without acceptance, with the text “cancelled” or with the acceptance tested.
  2. Expressly claim its contents by letter, together with the return of the invoice without acceptance or with the acceptance tested or with the request for the issue of a credit note.
  3. In case of an electronic or dematerialized invoice, the claim will be made through the request for issuance of a credit note or cancellation of the invoice.

On the other hand, in the case of a legal collection action for non-payment events, a claim must be filed in executive proceedings provided that the following requirements are met:

  1. The invoice has not been returned or claimed by any of the mechanisms referred to above.
  2. Its payment is currently due, and the executive collection action has not prescribed.
  3. The obligation is clear, pure, determined and liquid.

In conclusion, the contribution of the Code of Commerce is valuable regarding the regulations that govern FCNs, as it benefits commercial practice and inserts dynamism into businesses. This has become an attractive business strategy to obtain greater liquidity and to have highly liquid securities.

 

Ramón Paz y Miño
Senior Associate at CorralRosales
rpazymino@corralrosales.com

Measures to mitigate the effects of COVID-19 on labor issues

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The arrival of COVID-19, cataloged as a global pandemic, and the measures that Governments have adopted to mitigate its effects, have brought a deep economic crisis that affects directly both employers and workers.

According to ILO’s (International Labor Organization) official data, it is estimated that COVID-19 could cause the loss of 25 million jobs worldwide.

In Ecuador, the President of the Republic declared a state of emergency and suspended on-site labor activities from March 17th to April 12th. This period may be extended according to the development of the pandemic.

Those entities that perform activities within health, safety, airports, financial, food, pharmacies and exporting sectors and its supply chain are authorized by the Government to operate.

Entities belonging to other sectors are able to operate if services they provide and the activities carried out by their workers can be performed from home through “emergency telework”, as the authority has called it.

Some emergency measures have been established with the purpose of protecting employment and guaranteeing the health of workers, but also with the objective of preserving the financial stability of the employer. These measures are described below:

1. Suspension of work maintaining payment rights

For those entities that are required to suspend all or part of their activities as a consequence of the Government’s measures, the following should be considered:

  • Employer must pay its workers during the period on which activities are suspended.
  • Employer and its workers may agree on a payment schedule of the salaries accrued during the period on which activities are suspended.
  • Employer has the right to recover the period on which activities were suspended, increasing the working schedule up to 12 hours a week and 8 hours on Saturdays.
  • If worker does not fulfill with recovery time, employer may deduct from any future salary payments what employee had received during the suspension period.

In order to introduce suspension of work, employer must fulfill the online process implemented by the Ministry of Labor.

2. Reduction of working hours (work schedule)

Employers may reduce the working hours temporarily or permanently and reduce proportionally worker´s remuneration – including teleworkers – under the following scenarios:

  • With worker’s consent

According to article 82 of the Labor Code, it is possible to agree with worker to permanently or temporarily reduce their working hours and their remuneration proportionally. For its implementation, it will be necessary to enter into an addendum to the employment agreement and file such addendum with the Ministry of Labor and the Ecuadorian Institute of Social Security (“IESS”).

  • Without worker’s consent

According to article 47.1. of the Labor Code and Accord MDT-2020-077 issued by the Ministry of Labor, the latter may authorize the reduction of working hours. Such reduction will be mandatory for workers, under the following conditions:

  1. Working hours may not be reduced to less than 30 hours per week.
  2. The measure can be applied for up to 6 months, renewable for an additional 6 months.
  3. Employer contribution to IESS must be paid based on the full remuneration corresponding to 8 hours of work per day.
  4. In the event that during the reduction of the working hours the labor relationship is terminated without cause, severance shall be calculated based on the last monthly remuneration received by worker before the working hours reduction.
  5. If the company generates profits in the fiscal year in which the measure was applied, it will not be entitled to distributing dividends without first paying workers the balance they stopped receiving as a result of the reduction in working hours.

In order to introduce suspension of work, employer must fulfill the online process implemented by the Ministry of Labor.

3. Emergency vacation planning

During the health emergency, employer may require its workers to take any pending paid vacation time. Employer may also agree with its workers for them to take advance vacation time.

4. Work leave with or without payment

Additionally, employers may resort to the following alternatives in order to maintain employment and at the same time preserve the financial status of the company: 

  • Leave without payment

With worker’s consent, a “leave without payment” may be agreed. In order to apply such leave, an agreement must be entered between the parties. Under this alternative, the employment relationship does not end, worker holds his/her seniority in the company.

An exit notice for “leave without payment” must be registered in IESS online system. Therefore,  worker will not be covered by Social Security during the leave period.

  •  Leave with partial payment

With worker’s consent, a “leave with partial payment” may be agreed. In order to apply such leave, an agreement must be entered between the parties. Under this alternative, employer recognizes the worker a percentage of his/her remuneration during the leave period.

Contribution to the IESS will be made on the amount actually paid to the worker, but it may not be less than 50% of the statutory minimum wage (currently US$400.00).

5. Modification of working conditions

Employer and workers may agree on work alternatives established in the existing regulations, due to conditions arising from the COVID-19 pandemic, such as mobility restrictions, preventing infection risks and employer’s financial situation. All these must not imply a waiver to workers’ rights. For example, parties could modify the type of agreement or take health and safety measures such as workers’ remaining in suitable places inside the employer’s facilities, among many others.

6. Termination of the employment relationship

If it is not possible for employer to maintain its workers or part of them, company will be able to unilaterally terminate the employment contracts by paying the corresponding severance determined by law. Government has not established the intangibility of employment contracts due to the pandemic, except for those specific cases already provided by law.

Some lawyers have expressed their opinion that labor contracts may be unilaterally terminated without severance payments under these circumstances due to force majeure (restrictions imposed by the government). We do not agree with these criteria, due to the social nature of labor law, pro operario principle, and consequently, the possible risks employer would assume now and in the future.

Finally, it shall also be considered that workers who lose their jobs due to causes beyond their control and who meet the conditions established by  IESS – 24 accumulated monthly contributions and at least 6 continuous contributions immediately prior to termination – will be able to access “unemployment insurance” for a maximum period of 5 months, once 60 days have elapsed without employment.

 

Marta Villagómez
Senior Associate at CorralRosales
mvillagomez@corralrosales.co