Economic Corporate Insolvency in Colombia

Colombia’s corporate economic insolvency regime is governed by Law 1116 of 2006. This special framework aims to protect business credit, support company recovery, and preserve employment. It applies when companies act in good faith and penalizes abusive practices. Insolvency can proceed via judicial reorganization or judicial liquidation.

Insolvency Mechanisms

• Judicial reorganization: Enables viable companies to restructure operations, assets and liabilities through negotiated agreements, restoring normal commercial and credit relations.
• Judicial liquidation: Ordered sale of assets to satisfy creditors in the legally established priority order.

General Requirements

• The company must not have missed opportunities to remedy dissolution causes.
• It must be registered with the appropriate authority.
• Pension liabilities must be up to date, with an approved actuarial valuation.
• No overdue obligations for tax withholdings, employee deductions or social security contributions.

Reorganization Process

1. File a written petition with an authorized conciliation center or notary, including:

   • Explanation of causes of payment default.
   • Clear negotiation plan proposal.
   • Creditor list (priority order, capital vs. interest, credit nature, dates, co-debtor/guarantor details).
   • Detailed inventory of assets (property IDs, liens, restraints, protected family assets).
   • List of ongoing judicial or patrimonial proceedings and their status.
   • Debtor’s income certificate.

2. Assignment to a conciliator.

3. Payment of fee at a Chamber of Commerce office (per conciliator’s notice).

4. Approval and scheduling of a hearing within 5 days.

5. Negotiation hearing (up to 60 days, extendable by 30 days).

6. Agreement execution: conciliator oversees compliance.

Reorganization Costs

Note: SMMLV = Current Legal Monthly Minimum Wage.

Recovery Options

1. Internal restructuring: Operational/administrative overhaul (1–3 years).
2. Judicial reorganization: Debt renegotiation (max 6 months).
3. Asset recovery: Sale of non-essential fixed assets (max 3 months).

Benefits

• Negotiated debt-payment agreements with modified terms and amounts.
• Suspension of public utilities and enforcement proceedings.
• Protection of ongoing judicial processes.

Restrictions

• Prohibition on disposing of assets once insolvency proceedings commence.

References

1. Law 1116 of 2006 on Business Insolvency_
2. Economic insolvency law: what it is and who can apply
3. How and when to make use of the economic insolvency law
4. Basic Manual of Business Insolvency
5. Chamber of Commerce of Medellín. Insolvency Services