Pollo Rey 2011–2012 Dividend Prescription Action Against Lisa Dismissed

I. Ordinary Proceedings and Preliminary Exceptions

Order

Pollo Rey, S.A. filed an ordinary action for extinctive prescription against Lisa, S.A. alleging that Lisa failed to collect dividends corresponding to the profits for the period from January 1 to December 31, 2011, as well as accumulated profits, decreed at the Annual Ordinary General Assembly of Shareholders of May 24, 2012, and that the right to collect had prescribed after more than five years under Article 1508 of the Civil Code. The lawsuit is part of a series of prescription actions filed by Avícola Group entities against Lisa to extinguish dividend obligations that the group entities themselves attached and prevented Lisa from collecting.

Lisa filed five preliminary exceptions through her special judicial representative. The incompetence exception invoked two grounds: lack of jurisdiction by reason of Lisa's domicile (an entity incorporated under the laws of Panama) under Article 12 of the Code of Civil and Commercial Procedure, and the twenty-fifth clause of Pollo Rey's articles of incorporation, which requires disputes between the company and its shareholders to be resolved through equity arbitration before the Conflict Resolution Commission of the Chamber of Industry of Guatemala.

The defective complaint exception argued that Pollo Rey failed to specify the amount of the obligation it sought to prescribe, did not submit the administration's reports on profits, and did not establish compliance with the assembly convocation and quorum requirements. Lisa emphasized that the sixteenth clause of the articles of incorporation assigns to the Board of Directors the obligation to determine the date and form of dividend payment, and that without evidence that the Board had set those terms, it was impossible to determine when the prescription period began to run.

The lack of standing in the plaintiff exception argued that Pollo Rey's judicial mandate requires prior written authorization from the Board of Directors for acts of disposition, and that an extinctive prescription action over dividends constitutes an act of disposition that suppresses a shareholder's rights, a competence reserved to the General Assembly of Shareholders under Article 137 of the Commercial Code, with the affected shareholder's consent.

The failure to fulfill a condition exception maintained that Pollo Rey breached its obligation to convert bearer shares to registered shares and deliver the corresponding certificates to Lisa under the Extinction of Domain Law, conditions whose non-fulfillment prevented the prescription period from beginning to run.

The failure to fulfill the time requirement exception argued that prescription was interrupted on two grounds: first, the 2011 resolution excluding Lisa as a shareholder instructed the administration to liquidate Lisa's corresponding share, expressly recognizing Lisa's rights without alleging prescription, constituting tacit acknowledgment under Article 1506(2) of the Civil Code; second, Pollo Rey and other Avícola Group entities obtained precautionary attachments on Lisa's dividends, preventing Lisa from collecting them, and were now seeking to declare prescribed a right whose exercise they themselves had blocked.

Pollo Rey opposed all five exceptions, arguing that the payment obligation was performable in Guatemala, the complaint met all legal requirements, its representative had sufficient authority, share conversion did not condition dividend collection, and none of the statutory grounds for interrupting prescription applied because Lisa never filed a judicial demand for payment or executed precautionary measures in its capacity as creditor.

The Eleventh Circuit Civil Court focused its analysis on the incompetence exception. It evaluated public deed number 23 of January 31, 2000 containing Pollo Rey's corporate charter, according it full evidentiary value under Article 186 of the Code of Civil and Commercial Procedure. The court verified that the twenty-fifth clause provides that disputes between the company and its shareholders shall be resolved through equity arbitration, determined that the dispute arises from Pollo Rey's corporate activities, and invoked the principle of pacta sunt servanda (Article 1519 of the Civil Code) and Article 11(1) of Decree 67-95 (Arbitration Law). Having sustained the incompetence exception, the court declined to rule on the remaining four exceptions under Article 121 of the Code of Civil and Commercial Procedure.

Practical effect. The extinctive prescription action was not analyzed on the merits. Pollo Rey's lawsuit, which sought to extinguish Lisa's right to collect dividends that the Avícola Group entities themselves attached and prevented Lisa from collecting, was referred to equity arbitration. Lisa's allegations regarding precautionary attachments, tacit acknowledgment of the debt, and interruption of prescription remain judicially unresolved.