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Colombia

Published on Wednesday 16th January 2019

    Actions prior to a formal proceeding

    • Colombia

      As a general rule, directors and officers may not be found liable for the mere fact of operating a company with financial difficulties. However, under Colombian law, a company will be liable for dissolution whenever it suffers losses that reduce its net worth below 50 per cent of its subscribed capital and in such cases, although no insolvency proceedings become mandatory, officers and directors must refrain from engaging in new operations, and they shall summon a shareholders’ meeting to inform this situation. Shareholders in their turn may either recapitalise the company or undertake a private liquidation, as opposite to a formal insolvency proceeding, which is not mandatory. 

      If directors and officers fail to give notice to the shareholders of said situation, or engage in new operations, they may be declared jointly and severally liable if damages are caused to the company, its shareholders or third parties.

      On the other hand, shareholders are not generally liable before creditors except when they have used the company in a fraudulent or abusive manner. However, for companies incorporated as a “limited liability company” (LTDA), its owners may be held liable for unpaid labour and tax liabilities pro rata to their ownership percentages in the event of the winding up of the company.

      Last verified on Thursday 13th December 2018

    • Colombia

      Creditors may initiate an executory proceeding (ie, a collection claim before a judge) to force debtors to perform a certain obligation, whether monetary or otherwise.

      In the course of such processes, creditors are allowed to request some precautionary measures, preventing debtors from divesting assets. Such measures may include a judicial order or even a seizure of property to prevent the debtor from selling or transferring its assets. 

      In addition to the foregoing, if a secured creditor has obtained security over a movable asset, such creditor may be entitled to directly foreclose the asset (ie, without a judiciary proceeding) to take it as his or her own property or to pay its credit with the product of the asset’s sale, depending on the rules set forth in the security agreement.

      Finally, informal (out-of-court) reorganisation procedures are available. In those events, according to the law, the agreement reached between the debtor and its creditors can be validated afterwards before the bankruptcy court acquiring the same legal status of a formal reorganisation proceeding. Prior to the validation of such agreement there is no stay of actions against the creditor, and that those type of agreements cannot be validated if the company is in liquidation.   

      Last verified on Thursday 13th December 2018

    • Colombia

      The answer to this question will depend on the nature of the collateral involved and on the time when the creditor will be exercising its powers (ie, before or after insolvency commences).

      Prior to insolvency: Whenever the obligation is guaranteed by means of a mortgage, which is only applicable to real estate, foreclosure will always imply a judicial proceeding, in the course of which it will always be necessary for the judge to order an auction to ensure that the sale or foreclosure generates the maximum possible value.

      Under this scenario, the collateral will be under control of a delegate appointed by the judge during the execution proceeding. Nevertheless, in matters of real estate property, creditors are forbidden to gain ownership over the collateral itself other than through a purchase in the auction on which they may offset the purchase price against the debt.

      Other types of guarantees may have a different treatment under Colombian law. For instance, whenever a trust is created (either with moveable property or with real estate assets) for security purposes, the trustee (which is a financial institution) will issue guarantee certificates to creditors, under which their credits will be secured with the underlying assets placed in trust. In case of default, the trustee will sell the asset privately in accordance with the rules set forth in the trust agreement, which will rarely imply judicial intervention. In this event, it is possible for the creditor to gain ownership over the underlying asset without need of an auction, by simply requiring the trustee to follow procedures set forth in the contract.

      In addition, for security interests created over movable property, there are certain rules generally applicable that allow lenders to take possession, control or even ownership over the assets under procedures set forth in the contract.

      Once insolvency commences: Stay of individual collecting actions (including those related to foreclosure and similar rights for secured creditors) occur when an insolvency proceeding commences, unless the assets involved are not necessary to run the debtor’s business in the ordinary course. If the insolvency proceeding is a judicial liquidation rather than a reorganisation, although no individual collecting actions can be pursued, creditors secured through a duly registered trust may take possession and even ownership of the underlying assets (thus, excluding them from the insolvency), provided that priority of pension credits is respected. 

      Last verified on Thursday 13th December 2018

    • Colombia

      Yes, but this is not automatic and depends on specific rights to be given to lenders under the security agreement. However, once insolvency commences, those rights cannot be used to sell assets, pay debts or make any sort of arrangements without previous approval from the bankruptcy court.

      Last verified on Thursday 13th December 2018

    • Colombia

      During the normal course of business (ie, without being in an insolvency proceeding), the debtor is free to sell the secured asset (unless it has been seized or if such option has been curtailed under the security agreement) to any person, even to the secured creditor. In this last case, payment of the purchase price could be offset against the secured debt. Nonetheless, Colombian law does not set forth any preference in favour of the secured creditor in order to purchase the relevant asset, and such sale can be revoked by the bankruptcy court under certain circumstances if the debtor enters into insolvency proceedings thereafter.   

      On the other hand, during the insolvency proceedings a creditor does not have credit-bidding rights explicitly set forth under Colombian law, but credit rights can be freely disposed by the creditors. Nonetheless, the distinction described below is to be highlighted to properly describe the possibility of offsetting credits with the transfer of the secured asset within a bankruptcy proceeding.   

      Under reorganisation proceedings, as general rule, any set-off or sale of assets conducted after the initiation of the proceedings must be previously authorised by the Superintendency of Companies, which is the bankruptcy court. Therefore, any credit-bidding operation shall be reviewed and decided upon by the Superintendency as bankruptcy court until the reorganisation agreement is confirmed. Once confirmation occurs, the rights of the debtor to freely dispose of its assets are reinstated unless otherwise provided in the reorganisation agreement. 

      Under a judicial liquidation, credits shall be covered with the product of the sale of the debtor’s assets. All outstanding assets and the product of the sold goods will be subject to an asset adjudication agreement, under which the debtor’s assets will be distributed among the creditors pursuant to the statutory credit priority ranking. In that scenario, any offset of debts against the debtor’s assets would be contrary to the equality and universality principles that govern Colombian bankruptcy law. Notwithstanding the foregoing, a secured creditor may take the asset as payment if the guarantee agreement is a duly registered trust, provided that the exercise of such right does not harm pensioners’ rights.

      Last verified on Thursday 13th December 2018

    • Colombia

      Normally not for a simple sale or foreclosure, provided that in the former case the sale is done at fair market value. Notwithstanding the foregoing, if as a consequence of the sale a purchaser (either the creditor or a third-party purchaser) acquires a company whose business is a competing business or within the same value chain of its own, then antitrust clearance may be required. Also, under certain circumstances the granting of a security by a debtor or even the re-payment of its debts (either upon the enforcement of security or otherwise) may be revoked if thereafter the debtor runs into insolvency proceedings. Finally, in some events owing to the nature of the asset to be acquired or the business carried out with that asset, certain regulatory approvals may be required.

      Last verified on Thursday 13th December 2018

  • Formal proceedings

    • Colombia

      Law 1116, 2006 (Law 1116) regulates general insolvency proceedings for legal entities in Colombia. Under the terms of Law 1116, there are two types of insolvency proceedings available for non-listed companies: reorganisation and judicial liquidation:

      • the reorganisation proceeding, which aims to preserve viable businesses and to normalise their credit and commercial relations by restructuring their operations, management, assets and liabilities; and  
      • the judicial liquidation proceeding, which pursues the prompt and orderly liquidation of a non-viable company, through the sale of its assets.

      Pursuant to article 2 of Law 1116, individuals who are professional merchants, are subject to the regime set forth thereof. Non-merchant individuals’ insolvency proceedings are governed by the provisions contained in Title IV of section III of Book III of the Colombian General Procedural Code and those contained in Chapter 4 of Title 4 of Book II of National Decree 1069, 2015.

      Debtors may also use an out-of-court restructuring proceeding, by means of which a debtor negotiates directly with its creditors without the intervention of the bankruptcy court but under similar grounds and majorities applicable to reorganisation proceedings. The purpose of this proceeding is to reach an agreement to reorganise its business. A bankruptcy court must validate the agreement for it to be enforceable with the same privileges of a formal reorganisation proceeding (stay of actions, enforcement against those who voted against if certain majorities are reached, and others).

      Furthermore, Colombian laws regulate special bankruptcy regimes for some entities, such as financial, special healthcare and public utility companies, which are subject to ad hoc precautionary measures to prevent their winding-up and to provide further proceedings for surveillance authorities to step in and take control of the company for its forced liquidation.

      Last verified on Thursday 13th December 2018

    • Colombia

      Yes, but what normally happens is that the government commences those proceedings ex officio under the form of a “forced liquidation”, which in general terms is the same insolvency proceeding used for financial institutions and many other debtors subject to special bankruptcy provisions. 

      Last verified on Thursday 13th December 2018

    • Colombia

      In general terms, the commencement of an insolvency proceeding shall be grounded on either (i) a “cessation of payments" or (ii) an “imminent payment default”.

      A company or individual will be in a cessation of payments whenever it is in default of at least two or more obligations with two or more creditors, for more than 90 days; or when two or more creditors have initiated two or more collection proceedings against such company. In each of said events, the amount of obligations must represent no less than 10 per cent of the debtor’s liabilities.

      The company will be in an imminent payment default whenever it can be demonstrated the existence of adverse situations in the respective market or in its organisation or structure, that materially affect or that will reasonably materially affect payment when due of its short-term liabilities (one year or less).

      The admittance into a reorganisation proceeding on the grounds of cessation of payments may be requested by the debtor, or by one or more creditors to whom the debtor has defaulted, or by the Superintendency that supervises the debtor or the debtor’s activities. 

      In the case of an imminent payment default, the reorganisation proceeding may be initiated by the debtor himself or a plural number of external creditors with no connection to the debtor or its shareholders. 

      The above are the grounds for either a voluntary or an involuntary proceeding. In case of an involuntary proceeding, there are no special risks or liabilities of any kind to the creditor or creditors that requested commencement of an insolvency proceeding on any given debtor, and no bond needs to be posted.

      On the other hand, a judicial liquidation procedure shall commence whenever there is a breach of the reorganisation agreement by the debtor, or if it failed to reach such agreement within the term set forth by law for the reorganisation procedure. Moreover, Law 1116 regulates the grounds for immediate judicial liquidation. Such grounds are: the abandonment of the debtor’s business or a request from: (i) the debtor acting on its own, (ii) the debtor along with  creditors that represent 50 per cent or more of the debtor’s liabilities, (iii) the authority that holds surveillance or control powers over the debtor, or (iv) a foreign representative or authority.

      Last verified on Thursday 13th December 2018

    • Colombia

      As a general rule, there are no immediate effects on the subsidiary or affiliate of a Colombian company if a filing for insolvency is made, and therefore affiliates are able to choose whether or not to join the process, being able to join only if the legal grounds for insolvency are also met by themselves. Nevertheless, the first exception to this rule is that, pursuant to article 105 of Law 1116, if a foreign company having a Colombian branch files for insolvency abroad, and such bankruptcy process is recognised under the Colombian cross-border insolvency regime, local bankruptcy proceedings may be initiated on its branch, or the foreign process against the main office can be recognised by the bankruptcy court in Colombia with respect to the assets, business and creditors of the foreign company in the Colombian territory. Also, whenever the insolvency of a company threatens to put any of its affiliates in a position of inability to satisfy its obligations as they mature, the Superintendency of Companies, as insolvency court, may order the commencement of an insolvency proceeding of the affiliate.

      Furthermore, whenever subsidiaries enter into a reorganisation process, there is a legal presumption whereby insolvency was caused due to its parent company’s decisions. However, in those cases the parent will have to demonstrate that insolvency of the subsidiary was caused by reasons different from the control exerted by it. Nonetheless, if such presumption is not undermined, the parent company shall result secondarily liable for its local subsidiary’s debts.

      A recommended action for eventually avoiding such a presumption, is for each subsidiary to keep a detailed record and produce periodic reports regarding all intercompany transactions conducted with the parent company and/or in its interest or that of its affiliates, as those to be annually prepared and approved by subsidiaries of a “corporate group” under Colombian law. This would ultimately allow the parent company to hold substantial evidence against such presumption, if indeed its actions did not derive on or influence insolvency upon the its subsidiary.

      Colombian law allows simultaneous filing for insolvency between related parties, as well as the possibility to request coordination between related parties’ insolvency procedures.

      Furthermore, when it comes to related parties, within a judicial liquidation the Superintendency of Companies can order the substantial consolidation of patrimonies belonging to companies under a same corporate group, provided that: (i) assets and liabilities of the corporate group subject to judicial liquidation are entwined in such a way that their separation would entail unjustified costs or delays; and (ii) if consolidation is required to rectify any fraud or unjustified activities that hinder or prevent the judicial liquidation. Such consolidation can either be decided upon in an ex officio manner or upon request from any member of the group, its corresponding insolvency judge or a creditor.

      Last verified on Thursday 13th December 2018

    • Colombia

      Insolvency proceedings do recognise the rights of all creditors, including bondholders.

      When the bankruptcy court admits a company into an insolvency proceeding, its legal representatives are required to inform the initiation of the proceeding to all of the company’s creditors. Furthermore, the bankruptcy court must inform the Tax Administration and the Ministry of Labour of the proceeding. The decision of the court admitting the debtor to insolvency must be made public by registration with the chamber of commerce of the debtor's domicile, and those corresponding to each place where the debtor has branches.

      Although in a reorganisation there is no legal requirement for the lenders to present their credits, when filing the request for insolvency the debtor is required to list each of its creditors. If any given creditor is not mentioned in said list, it is entitled to object the list in order to be accepted and included as creditor in the insolvency proceeding. In the objection the creditor must demonstrate with the relevant documents the pending obligations in its favour and their value.

      Finally, when insolvency is not aimed to reorganisation but rather to judicial liquidation, creditors must present their credits within the terms and the conditions set forth by Law 1116. Nevertheless, the insolvency court shall elaborate the list of creditors, if proceedings were initiated under “immediate” grounds or update the list prepared in the reorganisation stage, when liquidation is reached upon breach of the reorganisation agreement. In any case, notice of an objection to such a list of creditors would be governed by the same rules applicable to the reorganisation stage.

      Last verified on Thursday 13th December 2018

    • Colombia

      There are no differences between creditors. As it has been recognised by the Superintendency of Companies in its capacity as bankruptcy court, all credits – including contingent ones, regardless of whether they are outstanding – must be included by the debtor in its creditors’ list. Contingent creditors may object to the creditors’ list in order to be included in it as regular creditors are.

      Inter-company credits will be satisfied only after all third-party creditors have been satisfied. In addition, if the majority voting rights are vested in related parties, then a supermajority will be needed to approve a reorganisation plan. 

      Last verified on Thursday 13th December 2018

    • Colombia

      Once the reorganisation petition has been filed, the debtor cannot, without previous authorisation from the bankruptcy court: (i) amend its by-laws; (ii) grant collaterals or pay collateralised debts, including those under trust agreements; (iii) make payments, compensations or withdrawals within, or terminate, ongoing proceedings; (iv) settle obligations that arose before the filing of the reorganisation petition; or (v) transfer assets or enter into transactions that are not in furtherance of the debtor’s ordinary course of business.

      Immediately upon the court’s decision approving entry into a reorganisation proceeding, a stay on all collection actions and proceedings against the debtor will apply automatically. Such stay prevents the commencement or continuance of any enforcement action or collection proceeding pursued by individual creditors against the debtor.

      As a result of the automatic stay (i) all collection proceedings initiated prior to the commencement of the reorganisation will be suspended and all creditors shall bring their claims within the reorganisation proceeding; (ii) the debtor’s claims and objections in said collection proceedings shall be treated by the bankruptcy court as objections to the credits within the reorganisation process; (iii) any precautionary measures issued under said collection proceedings may be either maintained or lifted by the bankruptcy court, as it deems convenient for the purposes of the reorganisation process (without prejudice of possibly recognising priority to the credit “secured” with the precautionary measure); (iv) all creditors will be subject to the creditor ranking and priority of payment as generally set forth in Colombian bankruptcy and civil laws; and (v) no new collection proceedings may be initiated against the debtor outside the insolvency proceeding.

      Any act that breaches the aforementioned rules will have no legal effects, and the officers, directors and the debtor itself may be subject to fines by the insolvency court. Moreover, the creditor that is part of any of those acts will be sanctioned by losing any seniority of its credit, meaning that its payment will be postponed to the last priority order of payments.

      As a general rule, contracts cannot be unilaterally terminated by reason of the initiation of insolvency proceedings aimed to reorganisation, except in the event of a post-filing breach of contract. The debtors may request from the bankruptcy court termination of continuous performance contracts (but may not unilaterally terminate them) whenever they are found to be excessively onerous, prior to a cost-benefit study. This study shall include termination penalties and the study of the economic conditions of contracts of the same type.  

      Last verified on Thursday 13th December 2018

    • Colombia

      During the insolvency proceeding, certain acts or contracts performed by the debtors can be challenged before the bankruptcy court, whenever those acts (i) have caused harm to any of the creditors, (ii) have affected the priority order for payments, or (iii) have affected the property that constitutes the debtor’s assets in such a way that those assets are insufficient to cover the total amount of credits recognised in the proceedings.

      Therefore, the payment of obligations and, overall, any act that entails the transfer, disposal, constitution or cancellation of encumbrances, limitation or division of debtor’s property, carried out in detriment of its assets, or any lease or bailment that hinders the purpose of the process, that have been entered or performed within the 18 months prior to the initiation of the insolvency proceeding can be challenged when it appears that the relevant buyer, lessee or bailee, as applicable, has not acted in good faith.   

      Also, any gratuitous act or non-lucrative act conducted by the debtor within a period of 24 months prior to the initiation of the insolvency proceeding or any amendments to the by-laws agreed upon voluntarily by the shareholders that have been formalised and registered with the Commercial Registry within a period of six months prior to initiation of insolvency proceedings can be challenged, when those acts result in a reduction of the debtor's assets that harms the creditors, or in modifications to the shareholders’ liability regime.   

      Any revocation action can be filed by any of the creditors, the promoter of the reorganisation proceeding (who is a “facilitator” between the company and its creditors during a reorganisation), or the liquidator, in case of a forced liquidation, since the initiation of the process up to six months after the date in which the qualification and graduation of credits and voting rights becomes final. The action will be processed as a summarised procedure according to procedural laws, and the plaintiff bears the burden of proof.   

      The filing of these actions is most frequent in insolvency proceedings of greater relevance.  

      Last verified on Thursday 13th December 2018

    • Colombia

      The initiation of a reorganisation proceeding or mandatory liquidation process will interrupt all ongoing foreclosing processes against the debtor. Pursuant to Law 1116, all foreclosure processes must be interrupted and forwarded to the bankruptcy judge to protect the assets of the debtor and to ensure the compliance with the priority of credits. Furthermore, under Law 1676 of 2013, enforcement of guaranties over the goods can be authorised by the bankruptcy judge if such assets are not necessary for the continuity of the debtor’s course of business. 

      Therefore, liens and securities will lose their preferential treatment and their guarantees will be put on hold until the reorganisation plan is consummated; consequently they will not be able to seek remedies outside such plan, so long as the debtor is in compliance with it.

      Nevertheless, secured creditors will undoubtedly have an advantage in the creditors’ list, because they will be placed in priority ranking (second or third, depending on the nature of the guarantee), which must be respected for all purposes in the reorganisation plan.

      The effect of this provision is that if the reorganisation plan fails, securities will be re-established. If a mandatory liquidation follows, the ranking will be honoured in furtherance thereof.

      To make liens and guarantees effective in a reorganisation scenario, it will be necessary that the reorganisation plan specifically opens this possibility, and that the plan is approved by an absolute majority of admissible votes, including the vote of the secured creditor.   

      Under an “adequate protection” approach, Colombian law states that, if the secured assets are subject to depreciation, the debtor can request the promotor or the judge, as applicable, to adopt the measures required in order to protect the relevant creditor’s position, which may include the substitution of the secured asset for an equivalent good or periodic payments to the creditor to compensate him or her for the asset’s loss of value. 

      Last verified on Thursday 13th December 2018

    • Colombia

      Secured and unsecured creditors are treated equally in a reorganisation, except for the fact that if the process ends up being a mandatory liquidation, then secured creditors will keep their priority for payment according to legal priority rankings.

      In addition, the members or shareholders of the debtor company are considered as "internal creditors" within the creditor categories to vote for the approval of the reorganisation agreement.

      Equity holders will be entitled to recover after all external liabilities have been paid. 

      Last verified on Thursday 13th December 2018

    • Colombia

      Insolvency proceedings will not have, per se, any effect on current and retired employees. Employees’ credits will receive special treatment during reorganisation and will be placed as first-class creditors on the creditor ranking list, since their payments are considered administrative expenses, which will always have priority. 

      Last verified on Thursday 13th December 2018

    • Colombia

      No adverse consequence arises in principle. However, the company’s administrators and shareholders can be disqualified from exercising trade activities for up to 10 years, whenever they participate in certain events or conducts that are basically fraudulent. 

      Last verified on Thursday 13th December 2018

    • Colombia

      Priority orders in Colombia refer to five ranking classes of creditors: (i) First class, which includes, inter alia, labour and tax creditors and liabilities derived from administrative expenses (ie, those incurred in the day-to-day running of the business in its ordinary course while reorganisation is in process); (ii) Second class: pledge holders; (iii) Third class: mortgage holders; (iv) Fourth class: suppliers of raw materials for production or transformation of goods or for the rendering of services; and (v) Fifth class: all other external and unsecured creditors.   

      Although generally the effect of these priority orders is that creditors will be paid in an orderly manner if the proceeding turns out being a liquidation and that no creditor may be above employees and pensioners, claimants with lower priority may receive special treatment under a reorganisation plan only if the creditors accept such changes with a majority of 60 per cent and no harm is caused to creditors with a higher priority.

      Last verified on Thursday 13th December 2018

    • Colombia

      Within the four months following the decision of the bankruptcy court regarding the approval and recognition of existing credits, the creditors and debtor must submit to the bankruptcy court the reorganisation agreement duly approved either by:

      • a majority of creditor votes where at least (i) three out of five credit categories are represented by the affirmative votes, or (ii) if only two or three categories are involved in the proceeding, two of the credit categories are represented; or
      • otherwise 75 per cent of the total creditors’ votes, regardless of the creditor categories. For these purposes, creditors are not categorised by reason of priority but rather according to the type of credit involved. There are five credit categories or voting groups (labour, governmental, financial institutions, internal creditors and all other external creditors).

      If the majority of voting rights is vested on related parties, then an additional majority of 25 per cent of all other creditors will be needed.

      The reorganisation agreement must include all the debts recognised by the bankruptcy court in the proceeding and all creditors can be crammed down, but secured creditors can only lose their privilege if they agree to this.

      After the agreement is approved by the creditors with the above-described majorities, the bankruptcy court will schedule a hearing for the confirmation of the reorganisation agreement. In this hearing creditors may present their observations to the reorganisation agreement, and the bankruptcy court will decide on its legality. Such decision will be awarded during the hearing and is not subject to appeal. If the reorganisation agreement is not approved by the bankruptcy court, the debtor will have eight business days to correct it with the creditors’ approval. If the bankruptcy court does not confirm the reorganisation agreement, it will then declare the debtor dissolved and order its liquidation of the debtor, and (i) order the negotiation and execution of an asset adjudication agreement setting forth the manner in which the debtor’s assets will be assigned to the creditors and, (ii) the debtor will liquidate its operations.

      Last verified on Thursday 13th December 2018

    • Colombia

      The Superintendency of Companies is the specialised bankruptcy court for the insolvency proceedings regarding companies and branches of foreign entities, and its decisions are not subject to appeal. However, in extraordinary cases those decisions can be referred to the courts to ensure the constitutional protection in case of violations to due process. For non-merchant individuals, the bankruptcy court shall be the non-specialised civil court of the circuit from the debtor’s principal domicile, and its decisions can be appealed.

      The process promoter, has the role of a judicial assistant for facilitating the process, and is designated by the bankruptcy court at the commencement of an insolvency proceeding, from a list prepared by the Superintendency of Companies. According to a recent law, however, and with the view to save costs, the company’s manager or CEO may be appointed as promoter. The promoter is an individual who is in charge of coordinating the reorganisation proceeding but does not manage the debtor’s business, since directors and officers normally keep their posts during the process unless there is a just cause for removal, which normally refers to fraud. The promoter has duties such as examining and rendering its opinion on the reorganisation project, studying the company’s feasibility and directing creditors and debtors in finding the best option to attain the reorganisation proceeding’s objectives, among other functions. At any time, the debtor, in joint agreement with a majority of creditor votes, may replace the promoter designated by the Superintendency of Companies, by another picked from the list prepared by the said authority.

      The law provides that a creditors’ committee must be included in the reorganisation plan to be voted, and defers to the parties thereto to determine its actual functions, so long as such functions do not imply managment or co-management of the debtor.

      The insolvency proceedings under Law 1116 do not allow for competing reorganisation plans, as only one reorganisation agreement shall be presented by the debtor and it must be duly approved by the creditors in a hearing before being submitted to confirmation by the bankruptcy court. At this hearing, creditors may present observations to the proposed agreement, but not a new one.

      Last verified on Thursday 13th December 2018

    • Colombia

      Upon filing a request for reorganisation, and unless they have a prior, express and clear authorisation from the bankruptcy court, officers are further required to refrain from creating or making effective securities or guarantees or precautionary measures that encumber the debtor’s assets. However, new financial arrangements can be made during the process.

      The Law provides some preference and benefits to creditors granting such financing, consisting in the inclusion of said lenders as first-class creditors, and therefore, (i) they may share on a pro rata basis their credit position with tax authorities; (ii) they are meant to be paid before all other classes of creditors; and (iii) if there is a breach by the debtor, these creditors may ask for mandatory liquidation.

      Last verified on Thursday 13th December 2018

    • Colombia

      From the date of filing of a reorganisation petition, debtors and creditors are required to refrain from performing offsets, unless they obtain a prior, express and clear authorisation from the Superintendency of Companies acting as bankruptcy judge. There are no mechanisms allowing creditors to recover expenses generated by the bankruptcy process itself.

      Last verified on Thursday 13th December 2018

    • Colombia

      A debtor will be able to retain and use such losses after emerging from the reorganisation proceeding, as it will remain as the same individual or legal entity and thus it will be the same taxpayer, and therefore can benefit from the deductions and other advantages derived from its operation.

      Last verified on Thursday 13th December 2018

    • Colombia

      A reorganisation proceeding shall terminate upon (i) compliance of all obligations set forth in the approved reorganisation agreement; (ii) non-compliance (breach) of the agreement; (ii) failure to satisfy administrative expenses or social security payments; or (iv) any event that impedes to reach the reorganisation agreement or its approval within the term set forth in the law.

      Except for the case of compliance, termination of the reorganisation proceeding will entail the initiation of a judicial or mandatory liquidation. Discharge would occur only if after the debtor’s liquidation no further assets exist to cover pending liabilities.   

      There are no limitations to file for another insolvency proceeding after termination of a previous insolvency proceeding, provided that the initial termination did finalised in the liquidation of the debtor. Nonetheless, the bankruptcy court will consider the previous insolvency to evaluate the admittance of a new reorganisation plan, or if the debtor should go directly to liquidation.   

      Last verified on Thursday 13th December 2018

    • Colombia

      There is a deadline for submitting the reorganisation plan to the Superintendency of Companies, which has to be approved by the majority of creditors within four months from the definition of the credits admitted and their corresponding voting rights by such Superintendency. If no agreement is reached within this period, a debtor will be taken into liquidation and the Superintendency, acting as bankruptcy court, will award its assets to the creditors according to the five ranking classes explained above. 

      According to information that was recently published by the Superintendency of Companies in 2018, the average duration of a judicial insolvency proceeding in Colombia is of 1.5 years, while the OECD average is of 1.7 years from the initial filing up to the final approval of the plan, but there is no specific timeline set forth in the law for performing the agreement, which will finally depend on what is agreed between the creditors. Customarily, reorganisation agreements include provisions for payments to creditors from five to 20 years as from the date of the agreement.

      Last verified on Thursday 13th December 2018

    • Colombia

      There is an out-of-court restructuring proceeding that may be used, by means of which a debtor negotiates, under similar terms and conditions applicable to reorganisation proceedings, with a plural number of creditors equal to the majority required by the Law to enter into a reorganisation agreement, to design and agree on a reorganisation plan.

      This agreement shall be authorised by the Superintendency of Companies as bankruptcy court, whose main obligation is to review whether all requirements of a formal reorganisation agreement are included and, additionally that credits are classified accordingly. If as a result of the validation process, the Superintendency of Companies authorises the agreement, it shall have the same effect as the one granted to a reorganisation agreement.

      This out-of-court proceeding, or validation process as it has been conceived in the Law 1116, is not uncommon, but nowadays parties are being more inclined to formal proceedings. Its primary benefits are the avoidance of judicial proceedings and confrontation with the creditors. The major drawback is that, until the bankruptcy court validation, the negotiation is not subject to the same prerogatives of a reorganisation proceeding, and in particular, that the stay of actions will only operate at the end when the agreement is recognised. 

      Last verified on Thursday 13th December 2018

  • Additional considerations

    • Colombia

      Yes. Although the Superintendency of Companies acts as an bankruptcy court during the process, it is an administrative body, which is part of the government. As a specialised entity on these matters, the Superintendency usually sets guidelines and policies for the handling of insolvency proceedings, and this goes far beyond its role as bankruptcy court.

      Last verified on Thursday 13th December 2018

    • Colombia

      Colombia has adopted the Model Law on Cross-Border Insolvency promulgated by the United Nations Commission for International Trade Law (UNCITRAL), and this is contained on Title III of Law 1116. Regulations in said Title shall be applicable to cases where: (i) a foreign tribunal or a foreign representative requests assistance in Colombia pertaining to a foreign proceeding; (ii) assistance is requested in a foreign state concerning a proceeding carried out pursuant to Colombian regulations relative to insolvency; (iii) simultaneous Colombian and foreign proceedings are under way vis-à-vis the same debtor; or (iv) creditors or other interested parties located abroad are interested in requesting for initiation of proceedings, or to participate in ongoing proceedings, pursuant to Colombian regulations relative to insolvency.

      Therefore, the person in charge of the administration of the reorganisation proceeding in a foreign state may submit a request for recognition of an extraterritorial process. These proceedings will be recognised if (i) debtors are insolvent, (ii) the extraterritorial proceeding is currently in process and, (iii) the person in charge of the administration of the proceeding is duly authorised to represent the proceeding.

      It is possible to conduct parallel insolvency proceedings in both Colombia and another state. The difference will be whether the main proceeding is conducted in Colombia or in a different jurisdiction. If the main proceeding is conducted abroad, then there is an obligation for Colombian authorities to help coordinating the process by conducting hearings, preparing affidavits and controlling assets. Colombian authorities will also oversee the internal applicable proceedings.

      Last verified on Thursday 13th December 2018

    • Colombia

      Since the entry into force of Law 1116 in 2006 until October 2018, 33 per cent of the liquidation proceedings have commenced due to the failure and/or breach of a reorganisation plan or their equivalent under other or prior bankruptcy regimes (v.gr. concordato). Nonetheless, failed reorganisation agreements under the current regime that ultimately led to judicial liquidation only represent 9 per cent of all reorganisation proceedings conducted under Law 1116.    

      Therefore, the current insolvency regime has been highly successful in terms of preservation of viable businesses under reorganisation schemes. These results have been possible owing to the professionalisation and specialisation of the Superintendency of Companies as bankruptcy court. 

      Last verified on Thursday 13th December 2018

    • Colombia

      The insolvency proceeding carried out before the Superintendency of Companies is a single-instance process, therefore, its decisions are not (generally) subject to appeal but can be in extraordinary cases referred to the courts to ensure the constitutional protection in case of violation of due process and other constitutional rights involved in bankruptcy proceedings.

      Last verified on Thursday 13th December 2018

    • Colombia

      The Superintendency of Companies announced in 2017 that it was working on a bill to adapt current regulation vis à vis some setbacks that the implementation of Law 1116 has had so far, owing to the complexity of recent proceedings conducted before such entity. Nonetheless, no draft or project related to this initiative was published, and the new head of that entity has not announced further projects.

      Last verified on Thursday 13th December 2018

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