Due to the economic, social, and ecological contingency caused by Covid-19, companies have been severely affected in their operations and therefore in their cash flow. In view of this, the State has sought to mitigate the extension of these effects in order to protect the company as an economic unit and a source of employment.
Thus, through Decree 560 of 2020, various modifications were incorporated into Law 1116 of 2006, generating extraordinary rescue and recovery mechanisms through expeditious procedures, flexibility in the payment of obligations, reduction of terms, relief mechanisms, and tax benefits.
Firstly, this decree introduces flexibility in the proceedings, allowing early payment without authorization from the bankruptcy judge to labor creditors and non-related suppliers, provided that these debts do not exceed 5% of the external liabilities. It also allows the sale of assets not necessary for the business operations, also without the judge's authorization, in order to pay such debts.
If these two operations are carried out, it will suffice to inform the bankruptcy judge of the sale and subsequent payment, accompanied by supporting documentation and the list of debts paid.
Likewise, Decree 560 of 2020 introduced the emergency negotiation procedure, which has a maximum term of 3 months and can be carried out before the Superintendence of Companies, before the conciliation centers of the Chambers of Commerce, or even through a registered mediator. The negotiation will be conducted directly between the debtor and its creditors.
In this procedure, it will be sufficient to present the agreement reached before the bankruptcy judge, so that in a hearing the disagreements raised during those three months can be resolved. If the creditor does not appear or does not substantiate their disagreement at the hearing, it will be considered withdrawn.
Thirdly, business relief mechanisms are presented through i) capitalization of liabilities, ii) discharge of liabilities, and iii) sustainable debt agreements, also covering the acquisition of credits for business operations, with such credits being paid with the preference corresponding to administrative expenses.
Another change brought about by Decree 560 of 2020 involves tax benefits for companies affected by the contingencies caused by Covid-19 that are admitted to, in the process of, or executing the reorganization procedure, as they will not be subject to income tax withholding or self-withholding, will have a 50% VAT withholding, and will not be obliged to calculate presumptive income for the 2020 tax year.
Finally, it is important to highlight that this decree will be in force for two years, during which time imminent inability to pay and liquidation by adjudication are suspended as grounds for insolvency and business intervention proceedings, thus providing strategies to mitigate the business impact caused by the social, economic, and ecological emergency declared in March 2020.
Author: Vanessa Sanclemente – Consulting Attorney