Insolvency Law at Colombia
In Colombia, Insolvency Law is primarily governed by the Statutory Law 1116 of 2006 (the Insolvency Law), which applies to both individuals and companies. The law aims to provide a legal framework for the restructuring and liquidation of insolvent entities, allowing them to either be rehabilitated or dissolved in an orderly manner.
Key Features of Insolvency Law in Colombia:
1. Types of Insolvency Procedures:
Restructuring (Reestructuración): Aimed at companies or individuals in financial distress but capable of restructuring their operations and financial obligations to avoid liquidation. The procedure involves negotiating with creditors to create a payment plan.
Liquidation (Liquidación): If restructuring is not feasible, the company or individual may undergo liquidation, where assets are sold to pay creditors, and the business is dissolved.
Simplified Liquidation (Liquidación Simplificada): A simplified liquidation process for smaller companies with fewer than 10 employees and lower levels of debt. This process is faster and involves fewer formalities.
2. Initiating Insolvency:
Insolvency proceedings may be initiated either by the debtor (voluntary petition) or by creditors (involuntary petition) who are owed significant debts.
The court plays a central role in overseeing insolvency proceedings, appointing liquidators or restructuring managers to manage the process.
3. Reorganization Procedure (Reorganización):
Under the restructuring procedure, the debtor seeks to negotiate new payment terms with creditors, including a reduction in debt or a longer payment period.
A Reorganization Plan (Plan de Reorganización) must be approved by creditors and the court. This plan typically includes debt rescheduling, asset sales, and cost-cutting measures.
4. Liquidation Procedure (Liquidación):
If the business cannot be restructured, liquidation proceeds. A liquidator is appointed to sell off the company's assets and distribute the proceeds to creditors according to their priority.
Creditors are paid in a prescribed order:
Secured creditors (those with collateral).
Employees (for unpaid wages and severance).
Unsecured creditors (such as suppliers and lenders without collateral).
Shareholders or owners (only after all creditors are paid).
5. Role of the Insolvency Judge:
An Insolvency Judge is responsible for overseeing the entire process, ensuring the legal framework is followed, approving reorganization plans or liquidation actions, and protecting the rights of creditors and the debtor.
6. Cross-Border Insolvency:
Colombia is not a member of the UNCITRAL Model Law on Cross-Border Insolvency, but the country has provisions for dealing with international insolvency cases through its national laws. The Supreme Court of Justice may recognize foreign insolvency judgments or cooperate with foreign jurisdictions on a case-by-case basis.
7. Effects of Insolvency:
Once an insolvency proceeding is initiated, the debtor is protected from most legal actions by creditors, including foreclosures, lawsuits, and asset seizures. This protection lasts for the duration of the insolvency procedure.
In the case of restructuring, this protection allows the debtor to continue operations and try to recover financial stability.
8. Personal Insolvency (Persona Natural):
Individuals in financial distress may also apply for insolvency under the law, although the procedure is less common for individuals than for companies. Individuals may attempt to negotiate with creditors or, if necessary, go through liquidation.
Key Points to Remember:
Insolvency Law in Colombia is primarily designed to offer companies and individuals a way to avoid bankruptcy through reorganization and restructuring.
The court system plays an important role in overseeing the process, and creditors are treated according to their level of secured interest.
Liquidation is the final option, undertaken if restructuring or reorganization isn't possible.
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