CMS Expert Guide to restructuring and insolvency law

A global overview

1. What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?

The primary legislation governing insolvency and court-sponsored financial restructuring proceedings in Slovenia is the Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act (Zakon o finančnem poslovanju, postopkih zaradi insolventnosti in prisilnem prenehanju, hereinafter “ZFPPIPP”).

There is no special law or regulation governing out-of-court restructuring of financial obligations. There are only informal guidelines. 

After the start of the financial crisis in 2008 there was a period involving a number of financial restructurings in Slovenia. Based on that experience and know-how:

  • in 2011 the Managers’ Association of Slovenia adopted Principles on Restructuring of Corporate Debt 
  • in 2014 the Bank Association, in cooperation with the Bank of Slovenia and the Ministry of Finance, prepared Slovenian Principles of the Financial Restructuring of Corporate Debt. 

Out-of-court financial restructuring agreements are purely a result of negotiations and agreement between the parties. 

The primary legislation governing business insolvency proceedings (restructuring and liquidation) in Colombia is Law 1116 of 2006 (“Law 1116”).  This primary regulation applies, generally, to:

  • individuals who are “merchants” under Colombian commercial law
  • companies and corporations
  • branches of foreign companies
  • commercial trusts (patrimonios autónomos) that carry out business transactions.

Additional regulation exists in connection with insolvency of other persons including:

  • individuals who are not “merchants”
  • entities of the healthcare, social security and pension sectors
  • stock exchange entities
  • companies subject to surveillance by the Superintendence of Finance  – financial institutions
  • state-owned companies – public/governmental entities
  • public utility companies

As a result of the COVID-19 pandemic, the Colombian Government issued Decrees 560, 772 and 842 of 2020 (together “COVID-19 Emergency Decrees”) which include temporary measures to face the pandemic-related crisis. 

2. How are insolvency proceedings or restructuring proceedings initiated?

All insolvency proceedings and court-sponsored financial restructuring proceedings are initiated based on a request to the court which can be filed by: 

Compulsory settlement 

  • an insolvent debtor
  • a personally liable shareholder, or 
  • creditors in certain cases.   

Simplified compulsory settlement

  • an insolvent debtor, or 
  • a personally liable shareholder.  

Bankruptcy 

  • an insolvent debtor 
  • a personally liable shareholder
  • creditors in certain cases, or 
  • Public Guarantee, Maintenance and Disability Fund of the Republic of Slovenia, in certain cases.

Court-sponsored financial restructuring proceeding

  • a debtor.  

Out-of-court financial restructuring 

  • can be proposed by any of the involved parties. 

There are two different types of insolvency proceedings in Colombia, restructuring/reorganisation processes and liquidation processes.

Restructuring/reorganisation processes

The purpose of restructuring/reorganisation processes referred to in Law 1116 is to:

  • enter into an agreement to preserve viable enterprises, normalise their commercial and credit relations, and to restructure their operations, management, assets and liabilities 
  • promote and protect good faith in commercial and asset-related relations in general 
  • impose sanctions regarding acts that were performed in violation of the insolvency regime.

Liquidation processes

On the other hand, the purpose of liquidation processes referred to in Law 1116 is the prompt and orderly liquidation of the debtor’s assets and liabilities. The processes seek to promote and protect good faith in commercial and asset-related relations in general, and impose sanctions on acts that were performed in violation of the insolvency regime.

Thus while restructuring/reorganisation processes seek to save the business of the debtor who, despite facing economic difficulties, has prospects of emerging out of the crisis, liquidation processes aim to realise the debtor’s assets in order to meet payment of its obligations.

Restructuring/reorganisation proceedings

Restructuring/reorganisation proceedings regulated by Law 1116 may be initiated as a result of a petition filed by the debtor, a petition filed by creditors, a request by the Superintendence that has supervision powers over the debtor or the debtor’s activity, 1 Law 1116 of 2006. Article 11. or ex officio by the Colombian Superintendence of Companies. 2 Law 1116 of 2006. Article 15. Additionally, restructuring/reorganisation proceedings can be initiated as a result of a petition filed by a foreign representative of a foreign (cross-border) insolvency proceeding. Requirements vary depending on how the proceeding is initiated.

Liquidation proceedings

Liquidation proceedings start by the filing of an admission petition. Such petition can be filed either by the debtor, one of its creditors, or ex officio by the Superintendence of Companies which acts as a judge and is entitled to admit or decline the submission. The Superintendence shall admit this petition if it complies with the requirements of Law 1116. If such requirements are not fully complied with, the petitioner has 10 days to correct the request.

A bankruptcy proceeding is initiated against insolvent debtors. Under ZFPPIPP the company is considered insolvent if the following reasons exist:

  •  long-term illiquidity (trajnejša nelikvidnost), i.e. the company is not able to pay its payment obligations that are due in a longer period of time, and/or
  • the company is over-indebted (dolgoročna plačilna nesposobnost).

ZFPPIPP defines certain assumptions for a company to be considered insolvent which help to establish or prove that a company is insolvent. Certain assumptions are considered true unless proven otherwise, and certain assumptions cannot be contested.

Assumptions that can be contested

Long-term illiquidity 

  • if a company is late with payment for more than 2 months and with more than 20% of all of its payment obligations, as shown in its last published balance sheet/annual report, or
  • if the monies on a company’s bank account do not suffice for payment of its obligations under the writ of execution or debenture note (izvršnica) in an uninterrupted period of 60 days, or interrupted period of more than 60 days within a period of 90 days, and such situation exists on the day prior to filing for bankruptcy, or
  • if the company has no bank account with Slovenian providers of payment services and has not paid its payment obligations under the writ of execution in a period of 60 days from when such decision became final.

Over-indebtedness 

  • if the value of the company’s assets is lower than the total amount of its obligations
  • if the loss of the current business year with losses brought forward reached half of the registered capital and such loss cannot be paid out of the profit brought forward or the provisions.   

Assumptions that cannot be contested

ZFPPIPP defines certain assumptions for a company to be considered insolvent which are considered true and cannot be contested:

Long-term illiquidity 

  • the company is late with payment of employees’ salaries in the amount of a minimum salary for more than 2 months, or
  • the company is late with payment of taxes and contributions that need to be paid in respect to employees’ salaries, and such situation exists on the day prior to filing for bankruptcy.

Pursuant to the intervention measures of the Slovenian state amid the COVID-19 pandemic, an additional assumption for long-term illiquidity has been introduced that applies until 30 September 2020: 

  • the company is late with payment of salaries and contributions to employees for more than 1 month from the time the company received compensation from the state for salaries and contributions of employees, based on the intervention measures amid the COVID-19 pandemic.

Restructuring/reorganisation proceedings

The legal reasons to initiate restructuring/reorganisation proceedings are 3 Law 1116 of 2006. Article 9. :

Cessation of payments

It shall be understood that the debtor is in a “cessation of payments” situation when it fails to pay, for more than 90 days, two or more overdue obligations, to two or more creditors; or when two or more collection claims/suits have been filed against the debtor, by two or more creditors. 

Provided that in both scenarios outlined above, the accumulated value of the obligations in question represent 10% or more of debtor’s total liabilities.

Imminent inability to pay

It shall be understood that the debtor is in an “imminent inability to pay” situation when it proves that there are circumstances in the relevant market, or within its organisation or business structure, that seriously/materially affect, or could reasonably seriously/materially affect, the normal fulfilment of or compliance with its short-term obligations (those obligations with a maturity date equal to or less than 1 year). Imminent inability to pay, as grounds to start a restructuring/reorganisation proceeding, was suspended for 2 years by COVID-19 Emergency Decrees, in connection with regular restructuring/reorganisation proceedings. 4 Law Decree 560 of 2020. Article 15.

Liquidation proceedings

The legal reasons to initiate restructuring/reorganisation proceedings are 5 Law 1116 of 2006. Article 47 and 49. :

  • breach of the reorganisation agreement
  • cessation of payments
  • when the debtor directly requests it, or when it fails to deliver in time the documentation required as a result of a creditor’s request for an insolvency process
  • when the debtor has ceased to carry on its business
  • at the request of the authority supervising and controlling the respective business
  • as a result of a decision by the Superintendence of Companies, issued as a consequence of not updating the project for the recognition of credits in order to initiate the reorganisation process
  • as a result of a joint request from the debtor and a plural number of creditors holding less than 50% of the external liabilities
  • by express request related to the initiation of a judicial liquidation process by a foreign authority
  • due to overdue obligations related to pension allowances, tax authorities, discounts made to workers or contributions to the comprehensive social security system, without being remedied within the term indicated by the judge.

4. Which different types of restructuring / insolvency proceedings exist and what are their characteristics?

For a company that is insolvent the following insolvency proceedings are available in Slovenia: 

  • compulsory settlement proceeding
  • simplified compulsory settlement proceeding
  • bankruptcy proceeding.   

Prior to insolvency there are two options of restructuring proceedings: a court-sponsored financial restructuring and an out-of-court financial restructuring.

Insolvency proceedings

Compulsory settlement (postopek prisilne poravnave)

  • a compulsory settlement proceeding is a proceeding available to already insolvent companies; it can be proposed even if the bankruptcy proceeding has already been initiated. Once bankruptcy proceeding starts, there are no longer any restructuring options 
  • the proceeding is usually proposed by a debtor, though in certain cases it may be proposed by creditors holding more than 20% of the value of all claims against the debtor
  • compulsory settlement generally affects all unsecured claims. The company, however, has the possibility to propose:
    • restructuring of secured claims as well
    • restructuring of claims of financial creditors only
  • the proceeding is led by an insolvency administrator, appointed by a court, who also oversees the business operations of the debtor during the proceeding 
  • a proposal for a compulsory settlement proceeding must be substantiated with a combination of one or more of the restructuring measures necessary for a successful restructuring; these measures may include: 
    • financial restructuring measures: principal haircut, maturity extension, and/or interest rate reduction
    • corporate restructuring measures (usually ancillary in nature): a simplified capital reduction, a capital injection with cash inflow or by way of a D/E swap, a downstream spin-off
    • operational restructuring measures: divesting non-core assets, operational turnaround, etc.
  • compulsory settlement requires a vote of 60% of all affected claims. 

Simplified compulsory settlement (poenostavljena prisilna poravnava)

  • a simplified compulsory settlement is intended for micro-sized companies and self-entrepreneurs who meet the criteria of micro- or small-sized companies. Some rules of compulsory settlement are simplified to ensure efficient restructuring of small entities. For example, in this proceeding, no administrator is appointed, creditors do not register their claims, there is no creditors’ committee and there is only limited involvement of the court
  • simplified compulsory settlement requires more than a 50% vote of all creditors. 

Bankruptcy (stečajni postopek)

  • a bankruptcy proceeding is initiated to enable a court-sponsored dissolution of an insolvent debtor with the best possible recovery terms for the creditors. After the opening of a bankruptcy proceeding, creditors’ claims can only be exercised within this proceeding. There is no possibility of the restructuring of a debtor within a bankruptcy proceeding.

Restructuring proceedings

Court-sponsored financial restructuring (postopek preventivnega prestrukturiranja)

  • a court-sponsored financial restructuring proceeding is available to debtors who are not insolvent but are likely to become insolvent within 1 year. If financial creditors holding at least 30% of the value of all financial claims support the initiation of the proceeding this condition is presumed to be fulfilled 
  • a statutory stand-still/execution holiday prevails for the entire class of financial creditors during the time period of the proceeding
  • the proceeding is led by the debtor
  • the proceeding is intended for the restructuring of financial claims (secured and unsecured) only; claims of other creditors (e.g. suppliers) are not affected unless they expressly consent to be part of the restructuring agreement
  • the restructuring agreement may contain various restructuring measures, but only the following will achieve the “cram-down” effect on dissenting creditors: 
    • principal haircut and/or maturity extension of unsecured financial claims
    • interest rate reduction and/or maturity extension of secured financial claims (to a maximum of 5 years) 
  • other restructuring measures (e.g. D/E swap, principal reduction of secured claims, maturity extension of secured claims beyond 5 years, haircut and/or maturity extension of claims held by other non-financial creditors) require explicit the consent of affected creditors
  • the restructuring agreement must be approved by financial creditors holding at least 75% of the value of all financial claims (with a separate majority of 75% of all secured financial creditors if the restructuring agreement affects secured financial claims). 

Out-of-court financial restructuring 

  • an out-of-court financial restructuring agreement is purely a result of negotiations and agreement between the parties. All parties need to consent to the terms of restructuring agreement.

Restructuring/reorganisation processes

There are several restructuring/reorganisation mechanisms in Colombia.

Firstly, private and voluntary restructuring proceedings are allowed between debtors and their creditors, who are free to agree the terms of a restructuring/reorganisation.

There are also multiple special restructuring/reorganisation regimes applicable to, among others, public/governmental entities, financial institutions and individuals who are not “merchants”.

Finally, Law 1116 provides a comprehensive insolvency regime that applies, except otherwise excluded, to “merchants”, legal entities, branches of foreign companies and commercial trusts (patrimonios autónomos) that carry out business transactions. As previously mentioned, this statute was partially amended temporarily for 2 years by the COVID-19 Emergency Decrees.
Law 1116 and additional special regulations to that effect (Regulatory Decree 1074 of 2015) also provide the possibility to, at any time and without having to comply with regular admissibility requirements, enter into an out-of-court restructuring/reorganisation agreement. Such an agreement may be filed with the insolvency court/judge for validation and approval, upon request of any of the parties to the agreement. Once approved, the out-of-court agreement shall have the same effect as a judicial restructuring/reorganisation agreement.

The COVID-19 Emergency Decrees create two additional transitory restructuring/reorganisation mechanisms: 

  • emergency negotiation of reorganisation agreements
  • business recovery procedure in the chambers of commerce (insolvency mediation mechanism).    

These two processes are more agile and shorter than conventional processes and allow debtors to enter into agreements with one or some categories of creditors.

Despite the fact that there are multiple “restructuring/reorganisation mechanisms” in Colombia, this document focuses only on the judicial restructuring/reorganisation regime of Law 1116, as it is the most important and relevant one for this publication.

The purpose of the restructuring/reorganisation process referred to in Law 1116 is to:

  • enter into an agreement to preserve viable enterprises, normalise their commercial and credit relations, and to restructure their operations, management, assets and liabilities
  • promote and protect good faith in commercial and asset-related relations in general
  • impose sanctions regarding acts that were performed in violation of the insolvency regime.

The reorganisation process is a judicial process carried out before civil judges/courts or before the Superintendence of Companies, depending on who the debtor is, and is intended for the debtor to reach a payment agreement with its creditors. 

This process has the following stages: 

  • application
  • admission
  • start of the process
  • qualification and graduation of credits, and voting rights and inventory of assets
  • restructuring agreement.

If an agreement is entered into by the parties, the reorganisation process terminates. But if an agreement is not reached, liquidation by adjudication proceeds. 6 Given the pandemic’s transitional measures adopted by the COVID-19 Emergency Decrees, liquidation by adjudication is suspended, and if an agreement is not reached, the debtor goes to judicial liquidation.

Liquidation processes

There are several liquidation mechanisms.

Under the first classification, a distinction must be made between voluntary and mandatory settlements.

The former are private or extrajudicial since no judge is needed to carry them out, and are fundamentally ruled by the Colombian Commercial Code.

The mandatory ones, on the other hand, are judicial proceedings ruled by Law 1116.

There are also multiple special liquidation regimes that include public entities and financial institutions.
Although there are multiple “liquidation schemes” in Colombia, this document focuses on the judicial liquidation regime provided by Law 1116, as it is the most important and relevant for this publication.

Judicial liquidation process

The purpose of the judicial liquidation process referred to in Law 1116 is the prompt and orderly liquidation of the debtor’s assets and liabilities. The process seeks to promote and protect good faith in commercial and asset-related relations in general, and impose sanctions on acts that were performed in violation of the insolvency regime.

The judicial liquidation process starts mainly in the following events:

  • failure to comply with the restructuring/reorganisation agreement
  • as a result of a request for a restructuring/reorganisation proceeding, the insolvency court/judge finds “elements of judgement” according to which liquidation is required
  • the debtor does not update the project of “qualification” and “graduation” of credits and voting rights required by the insolvency court/judge
  • the debtor has overdue obligations (i.e. it has fallen into arrears for the payment due) regarding pension allowances, mandatory withholdings in favour of tax authorities, discounts made to workers, or contributions to the Social Security system, and payment has not been made within the term indicated by the insolvency court/judge, which in no case shall exceed 3 months.   

5. Are there several types of creditors and what is the effect of a difference?

Under ZFPPIPP the types of creditors are: 

  • preferential (secured) creditors (prednostni upniki) – hold a right to separate satisfaction (prednostna pravica do poplačila). They are paid before the ordinary creditors (unsecured) from the proceeds of the debtor’s assets on which they have their security, depending on their rank
  • creditors with exclusion rights (izločitvena pravica) – have an ownership right on a debtor’s asset and therefore have the right to exclude this asset from a bankruptcy estate
  • ordinary creditors – are paid after preferential creditors, in the same rank and in the same share, depending on the value of the general bankruptcy estate in a bankruptcy proceeding. In a compulsory settlement proceeding, simplified compulsory settlement proceeding and a court-sponsored financial restructuring proceeding these creditors may, by law, be more affected than the preferential creditors (e.g. haircut on principal can be proposed only for unsecured claims)   
  • subordinated creditors (podrejeni upniki) – are subordinated to preferential and ordinary creditors.

ZFPPIPP also differentiates between financial and non-financial creditors. For example:

  • court-sponsored financial restructuring is only meant for the restructuring of claims of financial creditors 
  • a compulsory settlement proceeding can only be initiated with the intent to restructure financial claims. 

According to Colombian law there are five classes of creditors.

The first class includes:

  • wages and all benefits arising from an employment contract
  • court costs incurred in the general interest of creditors
  • tax and parafiscal credits
  • contributions to the Social Security system
  • child support obligations.

The second class includes:

  • pledgees (secured creditors with a pledge) up to the sale value of the pledged assets
  • fees paid by the intended buyers of real estate destined for housing in the insolvency processes of people who are engaged in construction and disposal of assets for that purpose
  • beneficiaries of guarantee/security trusts over movable assets, up to the sale value of the assets.

The third class includes:

  • mortgagees until the value of the property subject to mortgage
  • beneficiaries of guarantee/security trusts over real estate property, up to the sale value of the assets.

The fourth class includes all the credits of the suppliers of raw materials or supplies necessary for the production or transformation of goods or the provision of services.

The fifth class includes the other creditors that do not have any preference.

These classes define the order in which credits must be paid in a reorganisation process. Therefore, no class can be paid until the prior classes have been paid in full first.  However, special rules apply regarding securities over movable assets (garatías mobiliarias) which rank higher than any other class up to the value of the assets, except regarding first class child support obligations and employment contract wages and benefits.

Also, it is important to note that Law 1116 divides creditors for the purposes of voting categories as follows: 

  •  company employees
  • governmental entities
  • financial institutions
  • internal creditors of the company i.e. partners and shareholders
  • other external creditors that do not fall into any of the above categories.

The above categories apply both to restructuring/reorganisation processes and liquidation processes.

6. Is there any obligation to initiate restructuring / insolvency proceedings? For whom does this obligation exist and under what conditions? What are the consequences if this obligation is violated?

When a company becomes insolvent, the management of the company must, among other actions: 

  • submit a report on financial restructuring measures to the supervisory board within 1 month of the company becoming insolvent. (If there is no supervisory board, the obligation is the same with the exception of not submitting the report to the supervisory board.) Such report must clarify the company’s financial position, analyse the causes of insolvency and provide the management’s opinion as to whether a financial restructuring is more likely than not to succeed, and if so, provide a financial restructuring plan
  • file for bankruptcy within 3 business days if the management is of the view that:
    • the probability of successful financial restructuring is less than 50% (the deadline starts when the term of 1 month, outlined in the previous item, expires), or 
    • the shareholders do not approve the capital injection (the deadline starts when the shareholders’ meeting is concluded), or
    • when approved, all the shares have not been registered and paid in time (the deadline starts when the term for registration and payment of shares expires)
  • file for a compulsory settlement proceeding within 3 months of the company becoming insolvent if the probability of a successful restructuring is more than 50%.  

Pursuant to the intervention measures of the Slovenian state amid the COVID-19 pandemic, management does not need to file for insolvency proceedings until 31 August 2020 if a company has become insolvent due to the COVID-19 pandemic.

Management, however, will have a duty to file for insolvency within the regular deadline if there are no prospects for a company to resolve its insolvency. If a bankruptcy proceeding is proposed earlier by a creditor, management will have 4 months (instead of the usual 2 months) for a financial restructuring to prevent bankruptcy.

Generally, under the Slovenian Companies Act and ZFPPIPP, members of the management board and supervisory board have a duty to act in the benefit of the company with the diligence of a conscientious and fair-minded businessperson. They are jointly and severally liable to the company for any damage caused pursuant to the rules of the Companies Act and ZFPPIPP, unless they can prove they acted with due care and in line with the business and financial rules and rules of management.

A claim for damages against the management board and supervisory board members can be exercised by creditors in the case that the company cannot pay their claims, and by a bankruptcy administrator for the benefit of creditors in a bankruptcy proceeding.

Pursuant to ZFPPIPP, the management and supervisory board can also be sanctioned with a fine ranging from EUR 2,000-10,000 if they do not follow the steps required by ZFPPIPP when the company becomes insolvent.
In a pre-insolvency situation the management is, pursuant to the rules of the Slovenian Companies Act and ZFPPIPP, required to initiate a restructuring proceeding in due time and/or implement other restructuring measures to ensure the company’s solvency.

According to Article 1938 of the Colombian Commercial Code, merchants shall file a declaration before the competent judge/court that there has been a “cessation of the normal/current payment of its mercantile obligations”. However, such obligation was suspended for 2 years by the COVID-19 Emergency Decrees, when the cause of the cessation of payments is a direct consequence of the causes that motivated the declaration of the State of Economic, Social and Ecological COVID-19 Emergency.

Therefore there is no obligation for debtors or creditors to initiate restructuring/reorganisation processes and/or liquidation processes. Nevertheless, as noted above, the Superintendence of Companies can initiate insolvency processes ex officio.

7. What are the main duties of the representative bodies in connection with restructuring / insolvency proceedings?

Once a company becomes insolvent, the management has, in addition to those described under point 6 above (among others), the following duties:

  • equal treatment of creditors
  • to take on no new obligations or make payments on behalf of the company, except for those that are necessary for regular business operations.

In general

According to Section 1938 of the Colombian Commercial Code, merchants shall file a declaration before the competent judge/court that there has been a “cessation of the normal/current payment of its mercantile obligations”. However, such obligation was suspended for 2 years by the COVID-19 Emergency Decrees, when the cause of the cessation of payments is a direct consequence of the causes that motivated the declaration of the State of Economic, Social and Ecological COVID-19 Emergency.

Restructuring/reorganisation processes

  • The insolvency court/judge appoints a promoter whose main functions are the negotiation, analysis, diagnosis and preparation of the reorganisation agreements, as well as the issuance or dissemination of financial, administrative, accounting or legal information of the entity in the reorganisation process. The intervention of the promoter in the hearings of the reorganisation process cannot be delegated
  • The debtor’s internal bodies continue to operate but their functions are limited by the general rule contemplated in Law 1116. Therefore, as of the date of filing of the application for admission to the reorganisation process, administrators are prohibited from making disposals of assets or operations that do not correspond to the ordinary course of the debtor’s business, unless the insolvency court/judge authorises them to do so. 7 Law 1116 of 2006. Article 17.

In addition to the effects generally described above, from the date of submission of the application for admission until the restructuring/reorganisation process is actually “admitted”, the administrators are prohibited from:

  • adopting statutory reforms (i.e. reforms to articles of incorporation and by-laws)
  • creating and enforcing securities or guarantees over the debtor’s assets
  • making compensation (i.e. set-offs), payments, settlements, withdrawals, unilateral or mutually agreed terminations of processes in progress
  • conciliations or transactions (i.e. settlements) of any of its obligations
  • disposal of assets or transactions that do not correspond with the ordinary course of business of the debtor.

Any act performed in contravention of the above-mentioned prohibitions will result in the removal of the manager (officer or director), who will be jointly and severally liable for the damages caused to the company, the partners and creditors.
Likewise, fines of up to approximately USD 50,000 will be imposed on the creditor, the debtor and its managers (officers and directors) until the operation is reversed.  Also, credit rights of the sanctioned creditor shall be postponed.

Liquidation processes

A company in a liquidation process cannot initiate new operations in the development of its social purpose, and its legal capacity is strictly limited to the necessary acts of its immediate liquidation. 

One of the effects of the commencement of the judicial liquidation process is the cessation of functions of corporate bodies and the separation of all managers (i.e. officers and directors).

These functions are transferred to the liquidator, who assumes responsibility for the administration of the company and the assets until they are sold (liquidated) in a diligent manner, and the liquidator then distributes the product in strict order of legal priority.  Therefore, the entity being liquidated is represented by the liquidator.

The board of directors’ body of a company in a liquidation process may be maintained as a consultant or advisory body to the liquidator, if the shareholders’ meeting decides so. Thus, it is not mandatory for the board of directors’ body to continue holding periodical meetings, as required by the company’s by-laws, unless the shareholders (in a shareholders’ meeting) decide so.

The debtor’s assets are the central focus of the proceeding, and precautionary measures are decreed/ordered as protective measures in connection with these assets so that they are not disposed of (transferred) by anyone. Therefore, the insolvency court/judge will order the assets to be handed over to the liquidator (as a “court-appointed receiver”) who will have the obligation to provide verified accounts/statements and reports regarding his/her management.

Also, the receiver must deposit in a “judicial deposit account” any income/return obtained from the administration of the assets.

The liquidator must verify the assets he/she receives, their quantity, condition and other information required for him/her to perform all necessary acts to preserve the assets within the framework of the insolvency proceeding.

Also, if:

  • the assets received by the liquidator – to be liquidated – are part of a productive unit, and
  • during the time of custody, the liquidator believes that he/she can maintain the productive unit and that it can be used as a generating source of employment

the liquidator must strive to ensure that the promotion and sale are carried out in this way. By doing so, the liquidator will accomplish two main goals of insolvency: protection of credit and the conservation of companies.

  • in a bankruptcy proceeding, representation of the company is transferred to the bankruptcy administrator
  • in a compulsory settlement proceeding, simplified compulsory settlement proceeding, court-sponsored financial restructuring or out-of-court financial restructuring, the company is still run by the existing management, supervised by its supervisory board
    • in a compulsory settlement proceeding, an administrator is appointed but has only a limited supervisory role. 

(See point 7 above)

Restructuring/reorganisation processes

  • At the beginning of the reorganisation process, the insolvency court/judge appoints a promoter whose main functions are the negotiation, analysis, diagnosis and preparation of the reorganisation agreements, as well as the issuance or dissemination of financial, administrative, accounting or legal information of the entity in the reorganisation process.  The intervention of the promoter in the hearings of the reorganisation process cannot be delegated.
  • The debtor’s internal bodies continue to operate but their functions are limited by the general rule contemplated in Law 1116. Therefore, as of the date of filing of the application for admission to the reorganisation process, administrators are prohibited from making disposals of assets or operations that do not correspond to the ordinary course of the debtor’s business, unless the insolvency court/judge authorises them to do so. 8 Law 1116 of 2006. Article 17.

Liquidation processes

One of the effects of the commencement of the judicial liquidation process is the cessation of functions of corporate bodies and the separation of all managers (i.e. officers and directors). These functions are transferred to the liquidator, who assumes responsibility for the administration of the company and the assets until they are sold (liquidated) in a diligent manner, and the liquidator then distributes the product in strict order of legal priority. Therefore, the entity being liquidated is represented by the liquidator.

9. What are the main duties of shareholders in connection with restructuring / insolvency proceedings?

Personally liable shareholders have a right to file for compulsory settlement proceedings and bankruptcy proceedings. 

After insolvency occurs, authorisations of the shareholders’ meeting are limited to recall and appointment of members of the management and supervisory board and the passing of certain decisions necessary for successful restructuring (e.g. if a restructuring plan anticipates a capital injection, etc.).

In a bankruptcy proceeding, shareholders must provide the insolvency administrator with explanations of the bankruptcy debtor’s transactions and other facts and circumstances relevant to the bankruptcy proceeding and for preparing financial statements.

Restructuring/reorganisation processes

The debtor’s internal bodies continue to operate but their functions are limited. Thus, the insolvency court/judge appoints a promoter in charge of the negotiation, analysis, diagnosis and preparation of the reorganisation agreements, as well as the issuance or dissemination of financial, administrative, accounting or legal information of the entity in the reorganisation process.

Shareholders will meet (hold shareholders’ meetings) as provided by the by-laws or by law, in order to vote on the fiscal year’s financial statements and review a detailed report on the status and development of the process.

Liquidation processes

As mentioned above, corporate bodies as well as managers, officers and directors are deprived of their powers and functions upon commencement of a liquidation process and their functions are transferred to the liquidator.
Shareholders will meet (hold shareholders’ meetings) as provided by the by-laws or by law, in order to vote on the fiscal year’s financial statements and review a detailed report on the status and development of the liquidation process.

According to Law 1116, when the assets are insufficient to pay the debtor’s liabilities, the liquidator must require all shareholders to pay the full value of any unpaid equity or shares, and of any additional liability provided the by-laws, to be paid by shareholders or equity holders. 9 Law 1116 of 2006, article 60.  To that end, if necessary, the liquidator shall start collection proceedings against shareholders and equity holders before the liquidation court/judge. In these processes, the collection document (título ejecutivo) shall include a copy of the inventories, appraisals and a certificate from the public accountant or tax inspector of the company, if any, certifying the insufficiency of the assets and the amount of the benefit payable by the corresponding shareholder or equity holder.

Finally, if the debtor’s assets or payment capacity are diminished due to fraudulent, wrongful or culpable acts or omissions of partners, shareholders, administrators (i.e. officers and directors), internal auditors or employees, said persons shall be liable for unpaid external liabilities unless they did not have knowledge of the actions or omissions or voted against such actions or omissions

10. Are the shareholders of a company involved in restructuring / insolvency proceedings?

For certain restructuring measures, the shareholders’ involvement is needed (for example, if there are any demands of creditors to shareholders such us capital injection or converting shareholder loans to equity; or any decision of shareholders is required for implementing  restructuring measures, or when shareholder loans are also being restructured). 

In a bankruptcy proceeding, the shareholders’ involvement is limited to their duty to provide the bankruptcy administrator with certain information relevant to the proceeding.

(See points 7, 8 and 9 above)

Restructuring/reorganisation processes

Even though the debtor’s internal bodies continue to operate, their functions are substantially limited and the promoter is in charge of the negotiation, analysis, diagnosis and preparation of the reorganisation agreements.
As to shareholders, they will meet (hold shareholders’ meetings) as provided by the by-laws or by law, in order to vote on the fiscal year’s financial statements and review a detailed report on the status and development of the process.

Shareholders are under no direct obligation to comply with the duty to request a reorganisation proceeding. However, they may controvert/dispute the decisions taken by the representative bodies whenever such decisions do not comply with the law or the by-laws.

In addition, shareholders of a company in a reorganisation process may freely transfer their shares, since there is no legal rule that prohibits the exercise of their right to negotiate them. Said rule applies unless there is a “right of preference” in connection with negotiation of shares provided by law/regulation or by the by-laws. Any additional stipulation that restricts the freedom of negotiation of the shares will be void.

Liquidation processes

Corporate bodies as well as managers, officers and directors are deprived of their powers and functions upon commencement of a liquidation process and their functions are transferred to the liquidator. However, shareholders will meet (hold shareholders’ meetings) as provided by the by-laws or by law, in order to vote on the fiscal year’s financial statements and review a detailed report on the status and development of the liquidation process.

11. Is a solvent liquidation of the company an alternative to regular insolvency proceedings?

A solvent liquidation may be an alternative to an insolvency proceeding, but only if an insolvent company can become solvent (by way of capital injection, for example) first. Solvent liquidation can only be initiated if the company is solvent.

According to article 218 of the Colombian Commercial Code, one of the causes/grounds for dissolution of a commercial company is the decision of the associates (i.e. shareholders and equity holders), adopted in accordance with the law and the company’s by-laws. The dissolution of a commercial company observes the rules of a statutory reform, and according to the article 158 of the Commercial Code, must be adopted by public deed which must be registered in the Chamber of Commerce (or it will not produce any effect against third parties).

Likewise provides that after the dissolution of the company, its liquidation will be immediate.  Therefore, it may not initiate new operations in pursuit of its object and shall retain its legal capacity only for the necessary acts for immediate liquidation. Any operation or act unrelated to this purpose, except those expressly authorised by law, shall make the liquidator and auditor jointly and severally liable to the company, its members and third parties if they do not oppose it. 11 Decree 410 of 1971, article 222.

Thus, the liquidator must proceed to continue and conclude the corporate operations pending at the time of dissolution, taking into account that such operations do not suspend the liquidation process, since it continues with regard to the sale of assets and the payment of the obligations of the debtor company, which must be concluded before the documents are registered in the Chamber of Commerce.

Under article 226 of the Commercial Code, one of the liquidator’s duties is, among others, the presentation at the ordinary shareholders’ meetings of a detailed inventory, which must be provided to partners/shareholders. The inventory must include, in addition to a detailed list of the company’s assets, all the obligations payable by the company, specifying the priority or legal order of payment established in the Civil Code, including those that may affect the company’s patrimony, such as conditional, litigious, bonds, guarantees, etc.

Said inventory may be controverted by creditors on grounds of falsehood, inaccuracy or gross error.  Once the objections have been resolved and the corrections made, or once the period in which they can be proposed has expired, the inventory will be submitted for approval by shareholders (at a shareholders’ meeting).

Once the liquidation process has been completed, the liquidator will proceed to cancel third parties’ accounts/credits/debts, based on the inventory, taking into account the legal priority of payments.  

Note, shareholders shall not be entitled to request reimbursement (total or partial) of their shares, quotas or equity interest before all external liabilities have been cancelled. Only then, reimbursement shall be made in proportion to the nominal value of each shareholder’s equity interest unless the company’s by-laws stipulate otherwise. 11 Decree 40 of 1971, art. 144.

However, it should be noted that the Superintendence of Companies has the power to request the dissolution, and later liquidation, of a company when the conditions set out in the law or the by-laws are met. 12 Law 222 of 1995, article 84.

Yes, preventive (court-sponsored) restructuring is regulated in Chapter 2.3 of ZFPPIPP.

Colombia does not yet have a legal framework for preventive restructuring. All restructuring measures outside of insolvency proceedings must have the approval of the debtor, a plural number of creditors (equivalent to the majority required by Law 1116 for this purpose) and the subsequent opening of a process of validation of the out-of-court reorganisation agreement, in order to verify that it complies with all legal requirements.

If, as a result of the validation process, the insolvency court/judge authorises the agreement, it will have the same effect as those conferred by Law 1116 to a reorganisation agreement.

13. What is the average success rate after completed restructuring / insolvency proceedings?

According to publicly available data, the following success rates apply:

Compulsory settlement proceeding

  • ordinary claims: approximately 30-40% with payment deferral of 4-6 years 
  • claims with rights to separate satisfaction: 100% with payment deferral of 4-6 years.

Simplified compulsory settlement proceeding 

  • ordinary claims: approximately 30-50% with payment deferral of 4-5 years
  • claims with rights to separate satisfaction: 100% with payment deferral of 4-5 years.

Bankruptcy proceeding

  • ordinary claims: below 10%
  • claims with rights to separate satisfaction: approximately 20%.  

For court-sponsored restructuring there is no publicly available data since master financial restructuring agreements are commercially confidential.

There is no accurate information to assess what the success rates is.

Maja-Zgajnar-CMS-AT
Maja Zgajnar
Partner
Ljubljana
Picture of Irena Sik
Irena Šik Bukovnik
Attorney-at-Law for banking & finance
Ljubljana
Maja-Sipek-CMS-SVN
Maja Šipek
Associate
Ljubljana
Daniel Rodríguez
Daniel Rodríguez, LL.M.
Partner
Bogotá
Carolina Arenas
Carolina Arenas
Partner
Bogotá