Notes[ref]“Where the Law does not distinguish, neither ought we to distinguish,” a well settled Roman law principle, commonly accepted by common and civil law jurisdictions (Black’s Law Dictionary, Fifth Edition, 1979, page 1363).[/ref][ref]In the preparation of this paper, the author recognizes the contributions, amongst other friends, of the following professionals: Antonio Alonso Avila, Esq., well-known jurist, who has facilitated the majority of the substantive Cuban legal material (through 1960) mentioned in this paper; Avelino J. González, Esq., a law school graduate of the Havana University and the University of Miami, recentlyadmitted to the Florida Bar. Mr. Gonzalez has provided invaluable information also regarding the post-1959 Cuban legislation, generously cooperated in the research and prepared the first version of the accompanying translation of this paper to Spanish; and Dr. José Domingo Acosta Sotolongo, a Cuban attorney who practiced through 1960 as an expert on tax law with a reputable firm there, participating also in the drafting of Cuba’s 1959 Reforma Tributaria. Mr. Acosta has confirmed that the Reforma Tributaria contained no provision penalizing with confiscation, with its effect indicated herein, any Entity which did not file tax returns or paid taxes in Cuba on a timely basis.[/ref]
This paper evaluates the effect of the legislation subsequent to January 1, 1959 regarding the continued viability of legal entities organized or doing business in Cuba then, primarily corporations and limited liability companies (hereinafter referred collectively as the “Entities”) as well as its possible utilization presently.[ref]Regarding the certainty of the research supporting this paper, it must be considered that Cuba ceased publishing around 1964 theLegislación al Día and Jurisprudencia al Día, two West-like publications that enabled to do serious legal research. After that date, laws, regulations and some court decisions were published somewhat lackadaisically in the Gaceta Official. Therefore, in Cuba there is always the possibility of unpublished and unforeseeable “phantom” legislative measures and court decisions. For the last years, Cuban court decision are published, somewhat sporadically, in the Boletín del Tribunal Supremo Popular.[/ref]
The post-1959 legal measures affecting such Entities, expressed in order of severity— and not chronologically — were of the following nature:
CONFISCATIONS
Following the advent of Fidel Castro and the abrogation of the 1940 Cuban Constitution by the so called Ley Fundamental de la República of February 7, 1959 (Gaceta Oficial of the same day), as amended by Ley de Reforma Constitucional of December 22, 1959 (Gaceta Oficial of the same day),The 1959 Cuban Constitution as amended is hereinafter referred as the “Ley Fundamental,” which later was superseded by a constitution promulgated on February 24, 1976, later reformed by Cuba’s Parliament on July 10, 11 and 12, 1992.[/ref] although its Article 24 proclaimed that the confiscation of property was prohibited, it immediately excepted from such protection the properties of the following individuals, as well as the Entities that such individuals allegedly controlled:
- President Batista and his collaborators;
- Individuals and Entities responsible for crimes against the national economy or its treasury;
- Other individuals or Entities illicitly enriching themselves in the exercise of Public Authority;
- Individuals sanctioned for felonies that the Law qualified as being counterrevolutionary; or
- Individuals who, in order to evade sanctions by Revolutionary Tribunals, abandoned the nation al territory or, having abandoned it (for any other purpose), may have participated in conspiratory activities against the Revolutionary Government.
Sanctioned by this exceptional constitutional provision, the Cuban government proceeded to confiscate, amongst other, the properties of the following individuals — and in some cases certain Entities — listed in the applicable laws:
1. Those of President Batista and his so-called collaborators, including principally his ministers, senators, representatives, governors, members of his Consultative Council, presidents of the National Bank of Cuba and other state banks, and members of the Supreme Court (Law 112 of February 27, 1959 as amended by Law 151 of March 17, 1959).
Such confiscation comprised “all the assets” of President Batista and, regarding other individuals mentioned above, their assets were confiscated if they had misappropriated public property or had illicitly enriched themselves in the exercise of Public Authority, as determined from time to time by the tribunals or the Ministry for the Recovery of Misappropriated Property (later replaced by the Ministry of Finance and, upon the dissolution of the latter in 1966, as determined by the Ministry of Justice).
Although this law[ref]It must not be forgotten that in most jurisdictions the possibility of organizing legal entities and granting to them legal personality different from its shareholders/members is a privilege or statutory “fiction” which the incorporating state has the quasi-absolute right to give, enlarge or even withhold or deny at its discretion, being commonly said in the United States that legal entities are “creatures of the statute” and are at their mercy.[/ref] contained no specific provision affecting the good standing of Entities controlled by the individuals mentioned above and, therefore, at first impression it appears that Ubi Lex Non Distinguit… may apply, we believe that, in the event that all, or at least a controlling portion,[ref]Although according to the Commercial Code persons organizing legal entities were free to determine what constituted control, for corporate action, as a general rule a majority (51 percent) vote of the persons interested in the capital carried all motions unless otherwise expressly provided in their charter (hereinafter referred as “Estatutos”).[/ref] of the shares of stock or units of participation issued by such Entities were registered in the name of any of the individuals named in the applicable measures, that provided no compensation in favor of the respective Entities or their shareholders or unit owners, following its confiscation by these measures the respective Entities by merger of rights de facto became confiscated in favor of the Cuban government, and the remaining shares of stock or units of participation, owned by individuals, other than those named in the applicable measures, for all practical purposes became worthless.
2. Regarding measures applicable to individuals or Entities that may have illicitly enriched themselves in the exercise of Public Authority, Law 438 of July 7, 1959 (Gaceta Oficial of July 13, 1959) declared the confiscation of the assets of a group of prominent government contractors and business leaders close to President Batista, together with a multitude of Entities listed after their respective names (supposedly controlled by these individuals).
It is interesting to note that this Law not only confiscated the assets of these individuals and those of their Entities, but its Article 3 specifically ordered that, as a consequence of the accompanying confiscation of its assets and, accordingly, the exhaustion “of its capital that such measure entail, (the listed Entities) (we)re declared dissolved for all legal purposes in conformity to the provisions of paragraph 2 of Article 221 of the Commercial Code[ref]The great majority of the provisions of this nineteenth century commercial law, as amended through 1959, has continued to be in force through date, having been expressly declared supletorily applicable to joint ventures with foreign investors by Law-Decree 50 of September 15, 1982, including the following important provision regarding the dissolution of Entities organized thereunder (which translated liberally to English reads as follows): “A corporation, whatever its class, shall totally dissolve for the following causes: 1) Theexpiration of the term expressed in its charter or the conclusion of the enterprise which constitutes its object; 2) The total loss (emphasis added) of its capital; 3) The bankruptcy of the Company.[/ref] or paragraph 2 of article 1700 of the Civil Code, if applicable.”[ref]The reference to Article 1700 of the Cuban Civil Code dealing with the dissolution of Entities, appears at first impression superfluous considering that Article 221 of the Commercial Code promulgated subsequently superseded this prior dissolution provision. However, it is possible that the legislator, apprised that Cuban corporate law distinguished between “civil” and “commercial” Entities, may have referred also to Article 1700 of the Civil Code (dealing with dissolution of legal entities organized thereunder), to declare dissolved the civil Entities, in the event Article 221 of the Commercial Code was not deemed applicable to them.[/ref]
3. As to individuals who were sanctioned for counter-revolutionary felonies as well as to those who abandoned the national territory to evade its sanctions, Law 664 of December 23, 1959 (Gaceta Oficial of same date) ordered the “total confiscation of their assets,” which were to become the property of the State.
Although this law contained no specific provision affecting the good standing of Entities controlled by the individuals mentioned above and, therefore, at first impression it appears that Ubi Lex Non Distinguit… may apply, we believe that, in the event that all, or at least control, of the shares of stock or units of participation issued by such Entities were registered in the name of any of the individuals named in the applicable measures, that provided no compensation in favor of the respective Entities or their shareholders or unit owners, following its confiscation by these measures the respective Entities by merger of rights de facto became confiscated in favor of the Cuban government, and the remaining shares of stock or units of participation, owned by individuals other than those named in the applicable measures, for all practical purposes became worthless.
4. Under Law 688 also of December 23, 1959 (Gaceta Oficial of December 24, 1959) it was ordered that, in the event that any of the individuals sanctioned with the confiscation of their assets had passed away, his/her estate were confiscated
Although this law contained no specific provision affecting the good standing of Entities controlled by the individuals mentioned above and, therefore, at first impression it appears that Ubi Lex Non Distinguit… may apply, we believe that, in the event that all, or at least control, of the shares of stock or units of participation issued by such Entities were registered in the name of any of the individuals named in the applicable measures, that provided no compensation in favor of the respective Entities or their shareholders or unit owners, following its confiscation by these measures the respective Entities by merger of rights de facto became confiscated in favor of the Cuban government, and the remaining shares of stock or units of participation, owned by individuals other than those named in the applicable measures, for all practical purposes became worthless.
5. Based on the above, even if under some measures Ubi Lex Non Distinguit… at first impression would appear to apply, considering the penal nature of confiscatory measures and de facto merger in favor of the State of the assets of the individuals comprised with these measures, including any shares of stock or other units of participation in the capital of their Entities, no right to compensation being provided in those measures in favor of the Entities or to the individuals controlling them, it can be conclusively argued that, in the majority of cases, the capital — present or expectant— of the Entities has been exhausted and that, according to Article 221(2) of the Commercial Code, “the total loss of its capital” has occurred and these Entities “shall (have been) totally dissolve(d).”
NATIONALIZATIONS
The Cuban Government, to assure that its Marxist Leninist agenda took root as well as, in some cases, in retaliation for economic measures of the United States, proceeded to nationalize the assets of individuals and Entities not covered by the confiscatory measures referred above, as expressly authorized by Article 24 of the Ley Fundamental. To this effect, it must be noted that this constitutional provision regarding nationalizations also provided the following:
No other natural or juridical person may be deprived of his property but by order of competent court authority, for justified reasons of public utility or social interest, and always prior payment of the corresponding indemnification in cash, determined by the court. The non-compliance with this provision shall determine the right of the expropriated to be protected by the court, and in its case, his property returned to him. The certainty of the cause of public utility or social interest and the need of the expropriation shall be decided by the courts on appeal.” (emphasis added)
In the majority of the nationalizations, no compensation was ever paid to the Entities themselves or to its shareholders/members. Therefore, we anticipate that a multitude of claims will be filed in a democratic Cuba seeking the restitution of the nationalized assets or their equivalent. The following nationalizations occurred:
- The assets or enterprises[ref]This term does not refer to a type of legal entity owning Cuban assets but to the business (enterprise) that is the object of the legal entity. It is synonymous to the business activity in which the legal entity engages.[/ref] owned by individuals or Entities of the United States of North America or the Entities in which such individuals have any interest or participation, whether or not organized under Cuban law, following Law 851 of June 6, 1960 (Gaceta Oficial of same day) and Resolution 3 of October 24, 1960, which further provided the immediate intervention of the respective Entities and that any due compensation for the taking of its assets or enterprises was made contingent upon the restoration to Cuba of its share in the sugar quota allocated to Cuba by the United States, which had been canceled previously.
- A multitude of sugar mills, distilleries, liquor and beverage producers, soap and perfume manufactures and many others (practically all industrial enterprises in the island) were nationalized by Law 890 of October 15, 1960 (Gaceta Oficial of the same day), which:
a) ordered that all titles, “rights and interests of the enterprises mentioned…, are adjudicated to the Cuban State, … together with their assets and liabilities and, therefore, it is declared that the State is subrogated in lieu of the natural or juridical individuals that owned the (above) mentioned enterprises;”
b) declared that justified reasons of public utility or social interest of the nationalizations existed;
c) set out that “the means and forms of payment of the indemnifications corresponding to the natural or juridical individuals affected by the nationalization” ordered by this Law, shall be provided in a subsequent law” (which were never enacted!). To that effect, “the Central Planning Board[ref]The powers granted to this Board by Law 890 of October 15, 1960 were extended to the Ministry of Finance by Law 1144 of January 23, 1964, to be exercised concurrently with said Board; and by Law 1188 of April 25, 1966 (Gaceta Oficial of April 29, 1966), upon the dissolution of the Ministry of Finance by said Law 1188 of 1966, such power was transferred to the Ministry of Justice.[/ref] shall submit to the Council of Ministers in the most brief period possible, the proposed bill;” and
d) further stated that regarding enterprises … which may be currently intervened and not comprised amongst those listed in the present Law, the Central Planning Board was authorized to nationalize those which it deems that correspond to the principles of this Law or, instead, to order that the interventions cease. This law contained no specific provision affecting the good standing of Entities controlled by the individuals mentioned above. Therefore, Ubi Lex Non Distinguit…
- The provision of banking services was declared exercisable solely by the State and, accordingly, all banks operating in Cuba were nationalized, with the sole exception of the Canadian banks, and the National Bank of Cuba was declared expressly subrogated as to all its assets and Law 891 regarding banks contained the following express provision regarding the applicable legal entities engaged before in this business:
“As a result of … the assumption by the National Bank of Cuba of all the assets and liabilities of the juridical individuals or companies affected by this Law, the same are declared dissolved and extinguished to all legal effects.”
The Law also provided that the members or shareholders of the dissolved Entities were entitled to compensation following Article 24 of the Ley Fundamental, such compensation to be payable by the National Bank of Cuba after the close of 1960 with a maximum down payment of ten thousand Cuban pesos ($10,000 Cuban pesos) and the balance by bonds to be issued by the National Bank payable in 15 years bearing 2 percent annual interest. To the best of the author’s knowledge, no such compensation was ever paid disbursed, a ground for the possible challenge of the nationalization of the banking Entities and request its restitution to its owners as it clearly infringes the provisions of Article 24 of the Ley Fundamental.
HYBRIDS
Law 989 of December 5, 1961 (Gaceta Oficial of December 9, 1961) granted to the Ministry of the Interior the authority to issue new permits to Cuban citizens to enter or depart from the national territory and ordered conclusively that “if the return does not occur within the period for which the departure has been authorized, it shall be considered that (the Cuban citizen) has abandoned definitively the country” (Article 1).
This Law also provided that, regarding individuals who may have “abandoned definitively the country,” that “all their movable and real property of any nature, rights, shares and valuables of any type[ref]It can be argued that other legal entities like limited liability companies (“sociedades de responsabilidad limitada”), general (“sociedades regulares colectivas”) and limited (“sociedades en comandita”) partnerships, although none have “shares,” the proprietary interests of its members are valuables which may be affected by the provisions of this Law.[/ref] shall be considered nationalized by confiscation[ref]The Cuban legislator, who in the past did not exhibit much refinement in the selection of the terms used to appropriate property, this time promulgated a measure labeled nationalization by confiscation. Since Article 24 of the Ley Fundamental authorizes the confiscation of property in the event of persons “who, in order to evade action by the Revolutionary Tribunals, abandoned in any manner the national territory or, having abandoned it, participated abroad in counter-revolutionary activities against the Revolutionary Government,” it can be argued that these hybrid takings may be in the nature of confiscation and the owners thereof may not be entitled to any compensation under the above mentioned Article 24 of the Ley Fundamental.[/ref] in favor of the Cuban state ….”
In case of individuals who may have “abandoned the country before September 14, 1961 (day of publication in the Gaceta Oficial of the Urban Reform Law) holding permits used by the Superior Council of Urban Reform or any of its officers,” the Law authorized that these individuals could request the extension of their exit permits by the Ministry of the Interior to allow them to return to Cuba.
It is debatable whether, the individuals who abandoned the national territory before September 14, 1961,[ref]As probably was the case for the majority of the members/shareholders of many Entities operating in Cuba, since a preponderance of the country’s entrepreneurial class left the national territory before this date.[/ref] when there appeared to be no such legal requirement under Cuban law to enter or leave the national territory, are subject to the above-referred nationalization by confiscation and, of course, that neither their Entities have been dissolved nor the shares of stock of these Entities correspond to the Cuban government. Accordingly, we opine that such Entities remain in “good standing” provided that none has incurred in any of the causes of dissolution mentioned in Article 221 of the Commercial Code. In the case of individuals who may have left after September 14, 1961 with a valid permit, following the expiration of its term, although their Entities may continue to be in good standing, following this Law 989, such person’s interest in the capital of any Entity may have been confiscated in favor of the Cuban government and these measures, being also in the nature of a confiscation, by merger of rights may have resulted, as expressed above, in the de facto dissolution of the pertinent Entities.
INTERVENTIONS
Pursuant to Law 647 of November 24, 1959 (Gaceta Oficial of November 25, 1959), the Minister of Labor was authorized to order the intervention of those Entities or work places that “ostensively alter the normal development of production,” in the event of the occurrence of:
- Lock-outs or closings, temporary or permanent, that entail the idling of the work places;
- Grave labor conflicts;
- Non-compliance with Court orders or decisions or resolutions of the Minister of Labor as a result of a labor conflict.
This Law also provided that interventions were to be ordered for a term not to exceed six months, to be extended by an express order of the President of the Republic, at the request of the Minister of Labor; the intervenors being authorized, under its Article 5, to exercise “all powers necessary to administer and govern the enterprise or work places, … and all those other (powers) which corresponded to its officers, being subrogated in lieu of the employer”; the resolutions designating the intervenors specified the scope of the intervention and powers to be enjoyed by the intervenors.
Although the great majority of the Entities intervened were eventually nationalized following the above mentioned legal measures, exceptionally Entities engaged in the tobacco industry appear to have continued as “intervened” through the date of this paper. By Resolution 20260 of September 15, 1960, certain individuals were designated as intervenors of tobacco industry Entities and as such were expressly vested with the full powers of the board of directors[ref]It is interesting to note that neither Cuba’s Commercial Code then in force nor the decisions of its courts had ever determined that boards of directors have inherent powers. Following such Code and court decisions, the parties who organized Entities enjoyed almost absolute discretion to determine the terms and conditions of their charter (its “Estatutos”) including provisions for meetings of its shareholders, the appointment of officers by the shareholders and the powers enjoyed by such officers. The Estatutos seldom provided for the creation of a board of directors, except in the case of banks, insurance companies and public companies, where in practice the directors were named solely for “show” and enjoyed minimal powers, and the Entities were managed by its officers and shareholders. Therefore, the granting to certain intervenors, for example those of the tobacco industry, the “powers of the board of directors,” appears to denote the participation of foreign attorneys, who were not well apprised of the traditional Cuban corporate practice, in the drafting.[/ref] of the respective Entities.[ref]It is interesting to note that some of the Entities intervened were limited liability companies and, following the Commercial Code then in force, such Entities had no “board of directors” but of members, it being questionable what powers, if any, its intervenor enjoyed following applicable Cuban corporate law.[/ref]
This Resolution cited the following reasons justifying the intervention of these Entities: (a) guarantee tobacco supply to Cuba’s traditional markets, producing tobacco of the quality that has characterized Cuban exports; (b) normalize (?) the situation created in the cigarette tobacco industries; and (c) assure stability for their personnel in its work, and production in general.
The anomalous situation of the Entities in the tobacco industry has been perpetuated through the current date by the following legal measures:
- Under the authority granted by Law 843 of June 30, 1960, the Ministry of Labor was authorized to promulgate resolutions extending the duration of interventions as deemed necessary (without any limit as before) for the fulfillment of its (above-cited) purposes.
- By Resolution 123 of the Minister of Labor dated May 24, 1966, new intervenors were designated and specifically granted these additional powers: (i) to grant powers of attorney; (ii) to collect any funds due to the intervened Entities and issue receipts in full satisfaction thereof, nationally and abroad; and (iii) to authorize Industrial Property Agents worldwide to extend and protect the cigar brands of the intervened tobacco
CONTINUED GOOD STANDING OF THESE ENTITIES
Except with regard to Entities that may have been confiscated as expressed above, including those controlled by individuals declared to have illicitly enriched themselves, the nationalized banks, and perhaps the hybrids described above, no other declaration of nationalization or intervention of the Cuban government includes any express provision ordering the dissolution of pertinent legal Entities.
Therefore, it appears certain that these Entities are in good standing, applying the axiom of Ubi Lex Non Distinguit…
In support of the good standing of the Entities, the following should be considered:
- Except in the event that the duration of any such Entities has expired or they have been declared bankrupt, it cannot be argued (except regarding the banking industry) that the capital thereof has been exhausted, and they “shall dissolve” under Article 221 of the Commercial Code,[ref]As indicated above, it can be argued that the text of this nineteenth century legal measure, as amended from time to time through 1959, continues to be in full force and effect in Cuba today, having been modified partially as to the legal entities for foreign joint ventures by Law-Decree 50 of September 15, 1982, the text of the latter superseded by the Foreign Investment Law of September 5, 1995, which currently governs such joint ventures.[/ref] measures nationalizing them provided for adequate compensation as required by article 24 of the Ley Fundamental then in force. Such contingent right to compensation is undoubtedly an intangible asset and its possession defeats the possibility that the Entities’ capital may have been totally exhausted as required for its dissolution under the Commercial Code.
- It is highly improbable that the “enterprise” that was the sole purpose for which the Entity was organized may have been terminated (an issue never raised in any of Cuba’s measures), another cause of dissolution referred in paragraph 1 of Article 221 of Cuba’s Commercial Code.
- Particular consideration should be given to the traditional Cuban corporate practice to include in the Estatutos of the Entities, even if established with a specific purpose, that they could engage in any other business of legitimate commerce or
- It is interesting to note that Cuba never required that American-style annual reports be filed with an equivalent of our Secretary of State or any similar supervisory governmental body, with the penalty of the potential Dissolution by Proclamation of the Entity in the event of the non-filing of any such annual report. Likewise, these Entities continue to be in good standing even if they had not timely filed tax returns or paid taxes which may have been due, according to reiterated decisions of Cuban Supreme Court.[ref]Decisions No. 31 of July 15, 1929, and No. 38 of March 10, 1937, cited by Cuba’s renowned legal commentator, Dr. Mariano Sánchez-Roca, in his Leyes Civiles y su Jurisprudencia, Vol. II (Commercial Code), page 96.[/ref]
- If these Cuban Entities continue to be in good standing, a careful review of their Estatutos is recommended for various purposes, including but not limited to calling and holding a shareholders/members’ special meeting[ref]Traditional Cuban corporate law did not require that such shareholders/members meetings be held in Cuba, unless otherwise provided in its Estatutos, and in the majority of cases can be held here in Miami, Florida, for example. A responsible effort should be made to reach all shareholders/members and to call the meeting by certified or registered mail, if possible.[/ref] following the applicable Estatutos. The agenda for this meeting should expressly cite, amongst the matters to be discussed and acted, the following: (a) possible updating of the Estatutos; (b) consideration of the “continuation” of the Entity; (c) in the event of shareholders/members who have passed away, ratify and accept the transfer of shares/ units of participation to their heirs to the satisfaction of a majority of such shareholders/members at the meeting, avoiding probate of last wills and testaments, intestate proceedings and other expensive and delaying procedures. Of course, it is advisable that the persons recognized as successors of deceased shareholders/members execute appropriate indemnification agreements in favor of the Entity and other shareholders/members in the event that their sworn statements supporting their claim to succession prove to be incorrect or invalid for any reason; (d) by majority vote elect new officers and grant to them such powers as may be required. If the Estatutos of the Entity provide for the designation of directors, consideration may be given to their election; and (e) for Helms-Burton Act[ref]Common name of the Cuban Liberty and Democratic Solidarity Act of 1996, signed by President Clinton on March 12, 1996.[/ref] purposes, hopefully accomplished before the enactment of the Act with the advice of legal counsel, consideration should have been given to the following alternatives: (i) filing claims on behalf of the Cuban Entities continued in the United States (i.e., under Delaware’s General Corporation Law, Section 388), eliminating the need to contribute the shareholders/members’ interests in claims to other national legal entities as they, and even foreign citizens, could have done before the enactment of the Act; (ii) recapitalize the Entity, if possible, by issuing all its common stock to United States citizens and represent the interest of non-United States nationals with debentures or other form of Entity debt, consideration being given to issuance of common or preferred non-voting stock, even convertible to voting common after a number of year (e.g., ten); and (iii) assign all right, title and interest to the Entities’ Cuban assets, including any rights to claims under the Act, to individual United States citizens and compensating the non-United States citizens as indicated above.
- Likewise, in a democratic Cuba, the shareholders/ members of these Entities whose assets were nationalized by the Castro regime, can deal through these legal Entities with the government authorities then in force in furtherance of return of the property(ies) of which they have been deprived without due compensation as required by Article 24 of the Ley Fundamental then in force or seek equivalent compensation therefor.
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