Due to the current situation that not only our country but the entire world is going through, the Government has been timely in regulating and modifying the processes that are ongoing and that commence under the current insolvency regime. To this end, it has issued Legislative Decree 560 of 2020, which adopts special transitional measures regarding insolvency proceedings within the framework of the State of Economic, Social, and Ecological Emergency referred to in Decree 417 of March 17, 2020.
Through this transitional regulation, the aim is to protect the company as a unit of economic exploitation and a source of employment generation. It is directed at those companies that have been affected by the declaration of the State of Economic, Social, and Ecological Emergency that the country is currently undergoing. These measures will apply from the entry into force of the decree and will last up to two (2) years counted from its effectiveness.
Among the advantages that this new regulation brings, we find the flexibility to make early payments to labor creditors and unaffiliated suppliers who hold small claims subject to the ongoing process, provided that in their entirety they do not exceed five percent (5%) of the total external liabilities, without requiring the judge's authorization, only with the recommendation of the promoter.
Now, within the framework of reorganization agreements of affected debtors, payments of obligations may be made more flexible, payments to creditors of different classes may be made simultaneously or successively, and financial relief mechanisms that promote business reactivation may be implemented. For this, companies must comply with conditions such as capitalization of liabilities, discharge of liabilities, and finally, a sustainable debt agreement.
The new decree also contemplates the provision of "Incentives for debtor financing during the negotiation of a reorganization agreement" such as obtaining credits by the debtor for the development of its ordinary business operations between the start of the process and the confirmation of the reorganization agreement of the affected debtors. It is possible that the desired financing may not be obtained; in such cases, the debtor may request the judge's authorization to obtain it using the following mechanisms:
- Backing the credit with guarantees on its own assets that are not encumbered in favor of other creditors or on newly acquired assets.
- Granting a second-degree lien on assets previously encumbered with a guarantee.
- Granting a first-degree guarantee on previously encumbered assets, with the prior consent of the secured creditor that will be subordinated.
WHAT HAPPENS IF MY COMPANY IS IN A STATE OF IMMINENT LIQUIDATION?
In this case, any creditor may avoid the liquidation of an affected debtor if it expresses its interest in contributing new capital, all with the sole purpose of safeguarding the company and its productive unit, and with the sole condition that the debtor's equity is negative.
WHEN?: The opportunity to express such interest will be once the order declaring the termination of the reorganization process and ordering the commencement of the liquidation process is issued, within the term to file appeals during the hearing or during the enforceability of the written order that decrees liquidation due to failure to present the reorganization agreement.
HOW MUCH?: The economic offer must correspond, at a minimum, to the amount to be paid for all first-class credits, labor severance payments for early termination without just cause, normalization of pension liabilities, administration expenses of the reorganization, credits in favor of secured creditors, and other credits with payment priority, in accordance with the inventory of assets.
REQUIREMENTS:
- That the debtor's equity is negative.
- That the interested party or parties have made the deposit of the full amount of the transaction.
Once the transaction is approved, payments will be made in favor of all first-class credits and subsequently the remaining credits with payment priority, including administration and reorganization expenses, as well as credits in favor of secured creditors.
BENEFITS THAT DECREE 560 OF 2020 OFFERS US:
DEFERRAL OF MATURITIES:
In order to preserve both the company and jobs, the installments of reorganization agreements in execution corresponding to the months of April, May, and June of 2020 will not be considered due until July of the same year.
Likewise, non-compliance with the obligations of the agreement will not lead to its termination unless it extends for more than three (3) months and is not remedied.
EMERGENCY NEGOTIATION:
Due to the current situation, the authority has designed mechanisms that allow companies to promptly face the crises they are experiencing as a result of the health emergency. To this end, it has established the emergency negotiation of reorganization agreements, for which, prior to its commencement, the debtor must submit a notice to the bankruptcy judge, as well as comply with any of the admissibility requirements contained in Article 9 of Law 1116 of 2006, that is, cessation of payments and/or imminent inability to pay.
DURATION: Maximum three (3) months from the admission of the request.
The agreement reached must be presented to the Bankruptcy Judge for confirmation before the expiration of the negotiation term, and must meet the same majority and content requirements of the reorganization agreement established in Law 1116 of 2006.
During this period, enforcement proceedings, coercive collection, restitution of possession, and enforcement of guarantees against the debtor will be suspended; likewise, payments of obligations for administration expenses that the debtor deems necessary will be deferred.
BUSINESS RECOVERY BEFORE CHAMBERS OF COMMERCE:
By virtue of the speed we must have within these processes, the Chamber of Commerce with territorial jurisdiction at the debtor's domicile, through its conciliation center or directly, through mediation and with the participation of a mediator from the list prepared for that purpose, may carry out business recovery procedures for subsequent judicial validation; a useful advantage that allows the search for an expeditious solution in favor of the preservation of affected companies.
Finally, the Decree also establishes measures on the tax aspects of processes and agreements in execution, establishing, for example, that companies undergoing or having reorganization agreements in execution will not be subject to withholding or self-withholding at the source for income tax purposes until September 31, 2020.
Similarly, this will apply to the presumptive income of such companies, which will not be obliged to calculate it for the taxable year 2020.
There are also changes regarding VAT withholding at the source, since withholding agents that acquire goods or services from affected companies will apply a fifty percent (50%) withholding until December 31, 2020.
Finally, we reiterate that most of these benefits and new procedures must have the prior authorization of the bankruptcy judge, who will evaluate their viability in favor of the speed of the process and taking into account the preservation of employment and companies.
To take into account:
- Requests for access to reorganization mechanisms submitted by debtors affected by the COVID-19 emergency will be processed expeditiously by the competent authorities, taking into account available resources.
- The well-known audit of the content of the documents provided or of the financial information or compliance with accounting policies will not be carried out, but be careful, since the responsibility for the accuracy of what is provided will fall on the debtor and its accountant or statutory auditor, as applicable, and an extension, adjustment, or update of such information may be requested.
- The debtor may sell, under commercial market conditions, fixed assets that do not affect the operation or ordinary course of business, provided that they do not exceed the value of the claims subject to payment, all without requiring authorization from the bankruptcy judge, provided that no precautionary measure is imposed on the asset.
- Emergency negotiations may be conducted with prior authorization from the bankruptcy judge, which will have a maximum duration of THREE (3) months.
- Chambers of Commerce may carry out business recovery procedures for subsequent judicial validation.
- Tax benefits were established regarding withholdings and income.
Author: Ana María Silva Z. l Attorney Consultant AZC