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Corporate Insolvency Law Revisions – Translation

December 19, 2010

Here is my unofficial translation the revisions to the Corporate Insolvency Law, contained in the new Law of First Employment, for study purposes. DISCLAIMER: Do not rely upon this translation – consult your Colombian insolvency lawyers or check with me for a referral. 

Simpler Trade Procedures
Article 24. Determining the Cause of Dissolution of a Company. When dissolution requires a declaration by the General Assembly of Shareholders or the Board of Directors, the requisite majority of members thereof established by statutes or by law must declare the company dissolved and the particular cause thereof, and record the declaration in the commercial register.

The members may avoid the dissolution of the company by adopting measures correcting the declared cause that occurred, provided that the protocol containing the measures adopted is registered in the commercial register within eighteen months following the occurrence of the cause.

When the means provided by law or contract for the appointment of a liquidator are exhausted and the liquidator has not been appointed, any of the members may apply to the Superintendent of Companies to appoint the liquidator. The designation by the Superintendent shall proceed immediately, even where the bylaws contain an arbitration clause.

That appointment of the liquidator shall be in accordance with the regulations adopted for the purpose by the National Government.

Article 25. Private liquidation of companies with no external liabilities. In those cases in which, once an inventory of assets is made under the law, it is evident that the company has no external liabilities, the liquidator of the company will immediately convene a meeting of the General Assembly of Shareholders or Board Members, to submit for their consideration that inventory as the final account of the liquidation.

If it is found that, contrary to what was noted in the inventory, there are obligations to third parties, partners will be jointly and severally liable to creditors.

This responsibility shall extend up to a term of five years from registration in the commercial register of the document containing the inventory and final account settlement.

Article 26. Deposit of unclaimed credits. When a creditor fails to claim payment, the liquidator is entitled to make a judicial deposit in the name of the creditor in the amount of the obligation reflected in the inventory of assets.

Article 27. Additional Adjudications. If new assets of a company appear after the end of the process of voluntary liquidation, or after the liquidator has ceased to allocate inventory, there shall be an additional adjudication in accordance with the following rules:

1. The additional allocation will be the responsibility first of the liquidator that conducted the liquidation of the company, but if five (5) years have passed from the approval of the final account settlement or if the liquidator cannot reasonably advance the process, the Superintendency of Companies shall determine who will make the additional allocation.

2. Any creditors listed in the inventory of assets may submit a claim by a document that describes the new assets and provides such evidence as may be appropriate.

3. Once the liquidator has established the value of the new assets, he or she shall award them to the unpaid creditors in the order established in the inventory of assets. In the event there are no creditors, the liquidator shall award the property among those who appear as the final members [shareholders], according to the percentage of their rightful share in the capital of the company.

4. The document signed by the liquidator shall record the description of the assets adjudicated, the value thereof, and the identification of the person or persons to whom they were awarded.

5. Expenses incurred for the additional adjudication, shall be borne by those to whom assets are awarded.

Article 28. Actions against members and liquidators in voluntary liquidation. The Superintendency of Companies, exercising judicial functions shall hear actions for damages against members and receivers according to legal norms.

All of these actions will be brought under one single petition under the verbal summary procedure governed by the Code of Civil Procedure.

Article 29. Reactivation of Companies and Branches in Liquidation. The General Assembly of Shareholders, the Board of Directors, the sole shareholder or holder of foreign company branches in Colombia may at any time after the initiation of liquidation, agree to reactivate the company or branch of a foreign company, provided that external liabilities do not exceed 70% of corporate assets and that the distribution of the remaining assets to members [shareholders] has not commenced.

The revival may coincide with the transformation of the company, provided that the requirements of the law are satisfied.

In any case, to transform the company into a simplified stock company, the determination will requires the unanimous vote of all members.

To reactivate, the liquidator of the company shall submit for the consideration of the General Assembly of Shareholders or Board Directors a proposal containing the reasons for reactivation and the facts that satisfy the requirements of the preceding article [Ed. Note: sic – probably “this article”].

The liquidate should also prepare special financial statements in accordance with the provisions of existing rules, dated not more than thirty days before the date of the notice of the meeting of the highest corporate body.

The decision to reactivate shall be taken by the majority provided by law for transforming the company. Absent or dissenting partners may exercise the right of withdrawal under the terms of the law.

The document containing the determination to reactivate the company shall be entered in the commercial register at the headquarters of the Chamber of Commerce . The determination shall be reported to the creditors within fifteen days from the date of the decision by written notice addressed to each of them.

Creditors have the right of judicial opposition under the terms provided in Article 175 of the Code of Commerce. The action may be brought within thirty days after receipt of notice described in the previous paragraph. The action shall proceed before the Superintendency of Companies to be resolved through the verbal summary procedure.

Article 30. Article 10 of Law 1116 of 2006 is amended to read as follows:

Article 10. Other Costs of Admission. The request to initiate the process of reorganization must be filed, accompanied by documents evidencing, in addition to the costs of default or imminent inability to pay, the satisfaction of following requirements:

1. The time set by law shall not have expired to weaken the grounds for dissolution, unless measures have been adopted to address them.

2. Regular accounts of the business prepared in accordance with legal requirements.

3. If the debtor has a pension liabilities, the actuarial calculation must be approved and the company must be current its in payment of monthly pensions, bonds and pension requirements.

Obligations due to these concepts caused during the [reorganization] process and payments due arising prior to the commencement of the reorganization process shall be paid in preference, even over other administrative expenses.

Article 31. Common Provisions Relating to Private Liquidation. In private liquidation process, the liquidation documents provided in paragraph 3 of Article 247 of the Commercial Code shall not be required.

Any company in private liquidation may be part of a merger or division.

During the liquidation period, companies in private liquidation are not obligated to renew their commercial registration.

Article 32. Without prejudice to criminal or other purposes as may be appropriate, liabilities for mandatory deductions for tax authorities, deductions made to employees or to contribute to the social security system shall not prevent the debtor from accessing the reorganization process.

In any case, at the time of filing the debtor will inform the judge about the existence and present a plan to satisfy these liabilities, which must be fulfilled no later than the time of confirmation of the reorganization agreement. If by that date this condition is not satisfied, the judge may not confirm the agreement presented.

Such obligations which arise after the start of the process will be paid as administrative expenses.

Article 33. The first and third paragraphs of Article 13 of Law 1116 of 2006 shall be amended to read as follows:

1. The five (5) basic financial statements for the three (3) financial years and the reports, if any, signed by a Certified Public Accountant or Auditor, as applicable, unless the debtor has previously furnished the Superintendent such financial statements in the given conditions, in which case the Superintendent shall secure them for the relevant purposes.

3. An inventory of assets and liabilities at the same date as in the previous section, duly certified, signed by a public accountant or auditor, as appropriate.

Article 34. Two paragraphs shall be added to article 17 of Law 1116 of 2006, which shall read as follows:

Clause 3. From the time of the submission of the application for reorganization until the acceptance thereof, the debtor may only make payments in the ordinary course of business, such as labor, tax and suppliers.

Paragraph 4. In special cases, the bankruptcy judge may authorize the advance payment of small debts, i.e., those that collectively do not exceed five percent of external liabilities of the debtor.

Article 35. Role of the Promoter in the Reorganization Process. The functions of the Promoter provided under Law 1116 of 2006 shall be fulfilled by the legal representative of the corporate debtor or the individual natural person commercial debtor, as appropriate.

Exceptionally, the bankruptcy judge may appoint a Promoter when justified the judgment of the judge it is justified in light of the circumstances, for which the judge shall take into account such factors as the size of the enterprise, the amount of its liabilities, the number of creditors, the international character of the operation, the existence of accounting anomalies and breach of statutory duty by the debtor.

Any number of unrelated creditors representing at least thirty percent of the total external liabilities at any time may request the appointment of a Promoter, in which case the bankruptcy judge shall designate one immediately. The request may be made from the beginning of the process and the percentage of votes will be calculated based on information submitted by the debtor with the request [for admission to reorganization].

Similarly, the debtor may request the appointment of the Promoter from the beginning of the process, in which case the bankruptcy judge shall proceed with such appointment.

In cases where a Promoter is appointed, the Promoter shall comply with all functions under Law 1116 of 2006.

Article 36. Article 29 of Law 1116 of 2006 be amended to read as follows:

Article 29. Objections. The proposal submitted by the Promoter to recognize and prioritize liabilities owed and voting rights shall remain in the office of the bankruptcy judge for a term of five (5) days.

The debtor can not object to liabilities included in the list of liabilities filed by the debtor with the petition to start the reorganization process. For their part, managers may not object to the obligations of external creditors that are included within the debtor’s application.

Immediately preceding the expiration of the term above, the bankruptcy judge shall retain the objections for a term of three (3) days for the objected-to creditors to respond, providing documentary evidence as may be appropriate.

After that term has expired, there shall run a term of ten (10) days intended to bring about the settlement of the objections. The objections which are not settled shall be decided by the bankruptcy judge at the hearing provided for in the next article.

The only admissible evidence for the processing of objections will be documentary, which must be provided with a statement of objections or the response to them.

If there are no objections, the bankruptcy judge will recognize credits, establish the voting rights and set a deadline for agreement by ruling that will not appeal.

Article 37. Article 30 of Law 1116 of 2006 shall be amended to read as follows:

Article 30. Determination of Objections. If objections are filed, the judge shall proceed as follows:

1. Accept the documentary evidence submitted by the parties.

2. Sign a decree convening a hearing test to resolve the objections, which shall take place within five days.

3. In the event the judge decides the objections the court will recognize the liabilities, assign the rights to vote and set deadlines for concluding the agreement. Otherwise, only the remedy of reinstatement may be presented at the hearing.

In any case the hearing may not be suspended.

Article 38. Article 31 of Law 1116 of 2006 shall be amended to read as follows:

Article 31. Term to Conclude the Agreement of Reorganization. In the event that the credits are recognized, there will be four months to conclude the reorganization agreement, unless the parties agree to a shorter term. The term of four months may not be extended under any circumstances.

Within the time for concluding the agreement, the promoter, on the basis of the reorganization plan of the company and the cash flow available for the payment of obligations, shall file with the bankruptcy judge, as may be the case, a reorganization agreement duly approved by the favorable votes of a number of creditors representing at least an absolute majority of votes allowed. This majority must additionally comply in accordance with the following rules:

1. There shall be five (5) categories of creditors, consisting of :

a) The holders of labor claims;

b) Public entities

c) Financial institutions, national and other entities subject to inspection and supervision of the Financial Superintendency of Colombia, private, public or mixed, and foreign financial institutions;

d) internal creditors and

e) Any other external creditors.

2. There must be favorable votes from at least three (3) categories of creditors.

3. If there are only three (3) classes of creditors, the majority must comply with affirmative votes from creditors belonging to two (2) of them.

4. If there are only two (2) categories of creditors, the majority must comply with affirmative votes from both classes of creditors.

If a properly approved reorganization agreement is not presented in the period provided in this Article, then a term shall immediately commence to conclude an agreement to adjudicate the case.
The reorganization agreement approved by the affirmative vote of a plural number of creditors representing at least seventy-five percent (75%) of the votes will not require voting classes of creditors established in the rules contained in the preceding paragraphs.

Paragraph 1. For the purposes specified in this law internal creditors are the partners or shareholders of the corporation, holders of shares or shares in a sole proprietorship, and holders of any other legal entity. In the case of commercial natural person, the debtor will have the this status.

For purposes of calculating the votes, each internal creditor is entitled to a number of votes equal to the value obtained by multiplying the percentage of equity by the number that results by netting from shareholders equity the profits in kind and amount of the shareholders capital account, having been recapitalized in accordance with the balances and information in court at the time of admission to the insolvency process. When the equity is negative each shareholder shall have one vote.

Amendment of the reorganization agreement must be adopted with the same percentage of votes required for approval and confirmation. To that end, the votes will be deducted from those debts originally selected which have been extinguished in implementing the reorganization agreement, keeping the votes of the internal creditors equal to those calculated for the first determination, based on the date of commencement of the process.

Paragraph 2. When internal or linked creditors hold a majority decision-making in the reorganization agreement, it may specify in the agreement or a term reforms to the attention of foreign liabilities unrelated creditors more than ten years from the date of the agreement except that most foreign creditors consent to the granting of a longer period.

Article 39. Article 37 of Law 1116 of 2006 shall be amended to read as follows:

Article 37. Term and Confirmation of the Adjudication Agreement. After the term for filing a reorganization agreement has expired, and it has not been confirmed it, the judge shall proffer a ruling taking the following decisions:

1. Appoint a liquidator, unless the reorganization process has proceeded with a Promoter, in which case the Promoter shall act as liquidator.

2. Set the deadline for submission of the value of the inventory, and

3.Order a current statement of the costs incurred during the reorganization process.

There shall be a period of three (3) days to object to the valuation of assets and the costs of reorganization. To present objections, the procedure provided for the reorganization process shall be applied. After resolving objections or no objections are present, there shall be a term of thirty (30) days to present the award agreement.

During the previous term only perishable goods of the debtor that are at imminent risk of deterioration may be disposed of, depositing the proceeds of the sale to the bankruptcy judge’s order. Other property may be sold if authorized by an absolute majority of creditors in any case authorization must be confirmed by a judge.

The award agreement will be agreed and will be awarded as the debtor’s assets, paying off the obligations due after the commencement of the insolvency process, then those contained in the approved classification and qualification. In any case the procurement rules set out in this law shall be followed.

The award agreement must be approved by the majority and in the manner provided in this Act for approval of the reorganization agreement, always respecting the priority of law and, in particular those relating to pension liabilities. To this end, the debtor shall credit the current statement of administrative expenses and the requirements for implementation of the agreement and form of payment, while respecting their priority.

If the settlement award is presented to the bankruptcy judge within the period specified in this law, the creditors accept the Superintendent or the judge awarded the debtor’s assets, according to the rules of procurement of goods covered in this law.

For confirmation of the award agreement, the same standards shall apply as for confirmation of the reorganization agreement, meaning that if there is no confirmation of the award, the bankruptcy judge shall proceed to adjudicate the debtor’s assets under the terms stated in the preceding paragraph.

The adjudication shall occur at the latest within fifteen (15) days of the confirmation hearing of the award agreement when the same has not been confirmed or the deadline has passed for submission within the parameters established in this law. There shall be no recourse against the act that decrees the award of the goods.

Paragraph 1. In any case, the bankruptcy judge shall order the payment of the taxes attach to foreclosed assets, including the most extensive.

Paragraph 2. For assets which are not part of the capital to be adjudicated, the disposition shall be determined under the provisions of this Act for goods excluded from the process of liquidation.
Clause 3. The effects of the settlement award will be, in addition to those mentioned in Article 38 of Law 1116 of 2006, those contained in Article 50 of the Act.

Article 40. Electronic Media. The use of electronic means in handling insolvency proceedings is permitted in accordance with the provisions of Act 527 of 1999 and for the formalities with the Commercial Register, nonprofit entities and to the National Register Bidders Delegates at the Chambers of Commerce.

In cases where personal appearance is required, such requirement is satisfied by the digital signature mechanism. Where the law requires the submission of an original value title, electronic means may not be used.

Article 41. Article 123 of Law 1116 of 2006 shall be amended to read as follows:

Article 123. Advertising of commercial trust agreements for security purposes consisting of a private document. Commercial trust contracts for security purposes consisting of a private document must be entered in the Register of the Chamber of Commerce have jurisdiction in the domicile of the settlor, subject to the registration or registration, according to the kind of act or with the nature of the goods, must be in accordance with the law.

Article 42. Exclusion of personal presentation of the powers to further proceedings before the Superintendency of Industry and Commerce. The powers to be conferred to further proceedings before the Superintendency of Industry and Commerce and Chamber of Commerce. The powers granted to further proceedings before the Superintendency of Industry and Commerce, relating to registration of distinctive signs and new creations will not require personal appearance.

The minutes of the governing bodies and management of companies and nonprofit entities, and their extracts and copies authorized by the Secretary or by the Representative the respective legal person, who must register with the Chambers of Commerce, are presumed authentic until proven otherwise by competent authority statement. Therefore personal appearance is not required for these papers with the secretary of the Chamber of Commerce in question, judge or notary.

Article 43. The numbers 4 and 7 of Article 85 of Law 222 of 1995 shall be as follows:

4. Order the removal of directors, Auditor and staff, as necessary, for breach of the orders of the Superintendency of Companies, or the duties prescribed by law or bylaws, ex officio or upon request by Providence reasoned that appoint a replacement to the lists drawn up by the Superintendency of Companies. The removal ordered by the Superintendency of Companies will involve an inability to engage in trade, up to ten (10) years from the date of the administrative act accordingly.

From submission to control, prohibiting managers and employees the provision of securities that fall on the company’s own assets, disposals of assets or operations not related to the ordinary course of business without prior authorization from the Superintendency of Companies. Concluded or executed any act in contravention of the provisions of this Article shall be ineffective and void.

The recognition of the budgets of inefficiency under this Article shall be the responsibility of the Superintendency of trade companies in the exercise of administrative functions. Likewise, the parties may apply to the Superintendent recognition through verbal summary of the process.

7. call on society to the processing of an insolvency process, whether it is caught by a situation of default.

Article 44. Article 121 of Act 1116 of 2006 shall read as follows:

Article 121. Contributions. The resources needed to cover operating costs and investment required by the Superintendency of Companies will come from the contribution payable by the Company under its supervision or control, as well as rates referred to in this article.

The contribution will consist of a rate to be calculated on the total amount of assets, including adjustments for inflation, to register the company at 31 December of the previous year. This contribution will be settled according to the following rules:

1. The total contributions shall be the amount of investment and operating budget that requires the Superintendent in the respective annual term, net surplus from contributions and fees from the prior year.

2. Based on total assets of the companies monitored and controlled at the end of the previous annual period, the Superintendency of Companies, by order, establish the rate of contribution receivable, which may be different depending on whether the companies active in period preoperative, in the concordat, the reorganization or liquidation.

3. The rate that is fixed may not exceed one per thousand of the total assets of the companies monitored or controlled.

4. In any case, the contribution to charge each company may exceed one percent of total contributions, or less than one (1) current monthly minimum wage.

5. When society taxpayer does not monitor or control remain throughout the term, its contribution is proportional to the period under supervision or control. However, if the fact that one or more companies do not remain under the supervision or control during the entire period, it generates a defect remedied required budget, the superintendent may require liquidation and other contributors the corresponding amount at any time during the corresponding effect.

6. The contributions will be settled for each company annually based on total assets, multiplied by the rate set by the Superintendency of Companies for the corresponding fiscal period.

7. Where a company fails to provide timely cut balances at 31 December of the previous year, the Superintendent will make the corresponding settlement based on the assets recorded in the balance last stand in the archives of the entity. However, after receiving financial statements for the prior year shall be based on the reassessment of the contribution.

8. Where a company this product balances for the reassessment, they may be applied first to outstanding obligations to the institution and, secondly, to be deducted from payment of the fiscal year in progress.

The Superintendence of Companies may charge to non-monitored or controlled or other entities or persons, fees for services they provide, depending on the costs that each service involving the entity, determined based on the remuneration of personnel engaged in activity, in proportion to the time required and the cost of their displacement in terms of travel and land and air transportation, when necessary any place, and administrative expenses such as postage, photocopies, certified and experts.

The amounts for taxes or fees for services that are not canceled within the deadlines set by the Superintendency, cause the same penalty interest applicable to tax and supplementary income.

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