The business insolvency regime in Colombia is regulated by Law 1116 of 2006 and aims to protect credit, as well as the recovery and preservation of the company, considering that it is a unit of economic exploitation and a source of employment generation.
Within the current business insolvency regime of the Colombian State, there are two processes with different purposes: the first is called the reorganization process, and the second is the liquidation process.
The reorganization process seeks to achieve, through an agreement between debtor and creditors, the preservation of viable companies and the normalization of commercial and credit relations. To achieve this, the entrepreneur, the company, or the individual merchant must carry out both operational and administrative restructuring.
As for the judicial liquidation process, its purpose is aimed at achieving a prompt and orderly liquidation, seeking the utilization of the assets that make up the debtor's estate.
Given the above and in order to analyze the insolvency regime in its two variables, we will begin with a look at the reorganization process contained in Law 1116 of 2006, which determines two admissibility assumptions that open the door for companies to avail themselves of it.
The first admissibility assumption in which the entrepreneur may find themselves is cessation of payments. This occurs when they fail to pay for more than 90 days on 2 or more obligations incurred in the development of their business, or have at least 2 execution claims filed by 2 or more creditors seeking payment of overdue obligations. In either case, the accumulated value of the obligations must represent no less than 10% of the total liabilities owed by the debtor.
The second admissibility assumption is directly related to the experience and knowledge that the entrepreneur has of the business, the sector in which it operates, and the economy. It could be said that the entrepreneur anticipates events and, given their track record in the market, proves circumstances that could reasonably and seriously affect the normal fulfillment of their obligations with a maturity date equal to or less than one year. This assumption has been named Imminent Inability to Pay.
It is important to note that the insolvency regime developed by Law 1116 of 2006 can be availed of not only by legal entities that are not [1]excluded by it, but also by individual merchants. However, the same law establishes that the admissibility assumption of imminent inability to pay does not apply to individual merchants, and that for the purposes of cessation of payments, alimony obligations and the execution proceedings derived from such obligations will not be taken into account.
Those with standing to request the initiation of the reorganization process when it concerns the cessation of payments assumption are the debtor, creditors of unpaid obligations, or it may also be requested ex officio by the Superintendency exercising supervisory functions over the respective debtor.
If, on the contrary, the reason for seeking to avail oneself of a reorganization process is the imminent inability to pay, the initiation of the process must be requested by the debtor or by a plural number of its external creditors without any connection to the debtor or its respective partners.
It is important to keep in mind that to initiate the reorganization process as a debtor or to intervene as a creditor, one can do so directly or through an attorney.
Within the insolvency process developed by Law 1116, the Superintendency of Companies is assigned jurisdiction to act as the bankruptcy judge when it concerns corporations, sole proprietorships, and branches of foreign companies, and concurrently if the debtor is an individual merchant. In other cases, jurisdiction falls to the Civil Circuit Judge of the debtor's principal domicile.
The second variable introduced by Law 1116 of 2006 was the judicial liquidation process, which will be initiated due to non-compliance with the reorganization agreement, the failure or non-compliance with the concordat or a restructuring agreement regulated by previous bankruptcy legislation, i.e., Law 550 of 1999, or due to one of the [2]grounds for immediate liquidation developed in Law 1116 itself.
When it concerns a judicial liquidation process, the debtor must be in the same cessation of payments situation as previously defined, and in this case, the request to initiate the liquidation process may be made by the debtor or by the debtor and a plural number of its creditors.
Business insolvency, as already stated, has the dual purpose of protecting both the company and credit, in accordance with the spirit of the law that seeks to safeguard those companies that have the possibility of recovering from the crisis they are going through, coupled with an attempt to protect the state economy.
[1] Excluded persons (art. 3 of Law 1116 of 2006): health promotion entities, stock and agricultural exchanges, entities supervised by the Financial Superintendency, entities supervised by the Solidarity Economy Superintendency, public capital companies and Industrial and Commercial Enterprises, public law entities, public utility companies, non-merchant individuals, and other legal entities subject to a special regime...
[2] Art. 49 of Law 1116 of 2006: when the debtor requests it directly or when it fails to comply with the obligation to deliver the documentation required in the reorganization process at the request of creditors, when the debtor abandons its business, upon request of the authority supervising the company, by reasoned decision of the Superintendency of Companies, at the joint request of the debtor and its creditors holding no less than 50% of the external liabilities, express request of a foreign authority, having overdue obligations for pension payments, mandatory withholdings in favor of tax authorities, deductions made from workers, or contributions to the Comprehensive Social Security System.