The insolvency regime concerns the set of rules that aim to protect legal persons (both of Colombian origin and foreign branches of companies that operate in Colombia) when they experience financial difficulties and struggle to meet their obligations to other creditors.
As a result, the insolvency regime aims to provide guarantees for the effective payment of creditors’ debts, safeguard companies and normalize their commercial and credit relationships.
In Colombia, as in other countries across the world, there are two ways in which these goals can be achieved: business reorganization, a process that aims to keep viable companies afloat by restructuring their operations, administration and assets and liabilities; and business liquidation, which pursues the prompt and orderly liquidation of companies by attempting to utilize debtors’ assets.
The solvency process is carried out with the Superintendence of Industry and Commerce in accordance with debt priority rules, which specify that creditors in Colombia can request that debtors’ assets be distributed proportionally in line with the priority of payment provided for by law.
One of the following situations must occur for an insolvency process to begin:
- Cessation of payments: Non-payment of two or more obligations to two or more creditors for over 90 days.
- Imminent inability to pay: Debtors demonstrate the existence of circumstances in the respective market, or within their company or organization, which seriously affect or could affect compliance with obligations.