Theory of contractual subordination : insights and challenges imposed by the existence of a shadow controller

Abstract

The takeover of a company is one of the most important tools to create business groups and gain market power. Therefore, acquiring a business outlines several challenges, not only for the parties involved in the transaction, but also to the market and the economy. Those are some of the reasons for the existence of anti-trust and business integration regulations. Nonetheless, legal tools created for the protection of the market and stakeholders involved in a change of control transaction, are useless in cases of the so-called “Contractual Subordination Theory” where the controller is unnoticed or, alternatively, is a shadow controller. This research project contrasts the meaning of a “controlled entity” under the United States and Colombia’s legal system. In doing so, this investigation sheds lights on the importance of the concept of “Contractual Subordination” since this theory can be labeled as a takeover method that potentially avoids the enforceability of regulations and procedures that were created in order to protect the market and the parties involved in a change of control transaction. Finally, this research then considers several challenges that the figure imposes with respect to the Colombian law, and some possible legal instruments that can be used by Colombian authorities to address the threats created by the theory.