Law 1676 of 2013, colloquially referred to as the Collateral Security Interests Law, brings with it several agile and useful dynamics to access credit easily and safely. Legally speaking, since it provided legal certainty that any movable asset susceptible to economic valuation or economic expectation can be used as collateral for the fulfillment of obligations or contracts, what was previously known as a pledge, this legislation updates it and is now known as a Security Interest in Collateral. However, this Law has brought various applications and interpretations in its implementation, especially regarding the enforcement of the security interest (execution of the pledge) in special proceedings such as Reorganization or Abbreviated Reorganization.
Such interpretations and application of the Security Interest in Collateral in Reorganization proceedings, regardless of whether it is the general rule or the abbreviated one, will depend on whether it meets the legal requirements for it, on the nature of the asset subject to the security interest, and also on the interests of the parties, given that said security interest has special situations in its application within these reorganization proceedings.
Therefore, we will examine the requirements for the constitution of a Security Interest in Collateral and how it has effects in favor of secured creditors within a Reorganization proceeding:
Constitution:
For the creation of the Security Interest in Collateral, we must consider that Article 9 of the aforementioned Law indicates that this security interest is constituted through a contract, which has as its purpose or element to secure the fulfillment of an obligation by providing a movable asset as support, having for its effects the elements of the contract defined in Article 14 of said Law.
On the other hand, for the security interest to meet credit priority situations, it must be registered in the respective registry, for those assets that have such special registration, such as vehicles (Traffic Secretariats), industrial property rights (Superintendency of Industry and Commerce), and shares of a company (the company holding such shares).
Finally, Article 12 indicates that the Security Interest in Collateral may have effects as an enforceable title in itself (title to be judicially demanded), which must be registered in the Collateral Security Interests Registry with the entity Confecámaras.
Now, once the general terms for the constitution of a Security Interest in Collateral have been exhausted, it will have the following prerogatives within a reorganization proceeding, which we will determine as follows:
- Credit priority in the reorganization proceeding.
As we indicated earlier, the Security Interest in Collateral is now considered the evolution of the pledge as a security interest, and therefore, it acquires in whole and in part all its elements, benefits, consequences, registrations, and, for what concerns us, the due priority of credits established in Article 2497 of the Colombian Civil Code. Therefore, if a creditor is secured in its obligation by a security interest in collateral, it will have priority over other claims recognized within the credit classification and graduation project, and must be graded and paid within the second class.
- Effectiveness of the Security Interest in Collateral in reorganization proceedings.
The Security Interest in Collateral by itself already brings advantages to creditors holding the security interests. However, these advantages, which correspond to the execution of the pledge (process to appropriate or sell the movable asset), come into play carefully when the debtor who offered the security interest is admitted to a Reorganization proceeding (ordinary or abbreviated), since the commencement of this type of proceeding, governed by Law 1116 of 2006 and Decree 772 of 2020, prescribes that once the respective proceeding has commenced, any collection or enforcement proceeding on the debtor's obligations in favor of the secured creditor is suspended. Therefore, this creditor cannot continue or initiate the prerogative of keeping the asset or selling it in accordance with Law 1676 of 2013, since doing so would expose it to respective sanctions and violation of insolvency rules.
However, the law did not leave the secured creditor unprotected and therefore included within its regulatory framework Article 50, which, although the enforcement proceedings of the security interest were suspended, they are subject to whether they correspond to assets necessary for the development of its economic activity or that, if excluded, primary creditors (alimony, salaries, and social benefits) are not affected by the loss of an asset that could cover such first-class debts.
Thus, those creditors whose secured asset involves situations different from the ordinary course of their business, or that these do not affect in any way the general pledge of creditors and especially first-class creditors, it is feasible for said creditor to request authorization from the bankruptcy judge, so that once the elements we indicated earlier are analyzed, the judge authorizes the creditor to extract the secured asset from the debtor's estate and pay itself with the proceeds thereof without having to continue with the Reorganization proceeding.
For all the foregoing, it is prudent to indicate that the security interest in collateral under Law 1676 of 2013 is a mechanism that grants advantages to secured creditors. However, these advantages will be limited when a debtor enters a Reorganization proceeding, where once the insolvency has commenced, the creditor must suspend its collections or enforcement of the security interest and request the respective authorization from the bankruptcy judge to carry out the enforcement of the security interest outside the insolvency proceeding.
Luis C Ramirez. – AZC CONSULTING ATTORNEY