Temporary Insolvency Provisions.
On 15 April 2020, the Colombian Government issued Decree 560 of 2020, which temporarily introduces some special insolvency provisions in Colombia due to the emergency caused by Covid-19.
These special insolvency provisions will be in force for 2 years, from 15 April 2020 for the companies affected by the economic, social, and ecological emergency cause by Covid-19 as established on Decree 417 of 2020.
The following are some special insolvency provisions introduced by the Decree:
1. Fast access to reorganization mechanisms. The requirements to be admitted into reorganization proceedings have been reduced in order to speed up the admission procedure of the debtors.
2. An insolvent debtor would be allowed to make payments to small creditors that do not represent more than 5% of its total external liability. To this effect, an authorization from the insolvency judge would not be required. The debtor should present the liquidation within the following 5 days.
3. For the payment of these small accounts payable, the debtor may sell on commercial terms fixed assets which are not essential for the development of its corporate purpose. An authorization from the insolvency judge would not be required.
4. In addition, this decree introduces various financial reliefs for the insolvent debtor, such as:
- Capitalization of liabilities.
- Discharge of liabilities.
- Sustainable debts agreements that allow a creation of a flexible payment schedule and restructuring or re-profiling of financial debt.
- Incentives to finance the debtor.
5. Capital injection by creditors. To avoid the judicial liquidation of the debtor, they may manifest their interest in providing new capital.
Furthermore, an insolvent debtor would be allowed to obtain lines of credit during the negotiation of the reorganization agreement.
6. Emergency negotiation of reorganization agreements. It consists of a negotiation that will last 3 months. The agreement must be presented to the Insolvency Judge for confirmation during this period.
During the emergency negotiation of reorganization proceedings (up to three (3) months) the judicial proceedings to enforce guarantees, executive collection proceedings, or restitution of tenancy proceedings will be suspended.
7. In addition, the decree issued by the Government also created a special reorganization proceeding to be carried-out with the supervision of the Chambers of Commerce in Colombia.
The effects of this special reorganization proceedings are similar to the effects mentioned above in case of emergency negotiation of reorganization proceedings.
Tax incentives for debtors in reorganization
Companies admitted to reorganization proceedings or who have negotiated an insolvency agreement, since the issuance of this decree until 31 December 2020, will have the following benefits:
Temporary suspension of the following regulations for 24 months
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