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How a Company is Liquidated in Colombia

How are companies liquidated in Colombia? What guarantees exist for the effective payment of creditors’ debts in the event of a company having to go into liquidation?

Nicolás Tirado, corporate partner and M&A, and Daniela Vargas, junior partner at Philippi Prietocarrizosa Ferrero Du & Uría lawyers firm, presents the “Corporate Insolvency Regime” chapter from 2019 Bogota’s Foreing Investment Guide.

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.

Keep in mind

  • Health promoting entities (EPSs), administrators of the subsidized regime of the general system of social security in health, and healthcare providers (IPSs) are excluded from this regime. 
  • Insolvency procedures that take place due to reorganization must not last longer than 6 months, and those related to liquidation must not last longer than 8 months. However, in practice they can last up to 2 years. 
  • Insolvency procedures end with a reorganization or liquidation agreement, enforceable education measures, or the signing of a reorganization agreement.

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Philippi Prietocarrizosa Ferrero DU & Uría

The first major Ibero-American legal firm, and the result of the union between the Chilean firm Philippi, Yrarrázaval, Pulido & Brunner, the Colombian firm Prietocarrizosa and the Peruvian firms Ferrero Abogados and Delmar Ugarte. The renowned Spanish and Portuguese firm Uría Menéndez has participated in this new firm since its foundation in 2015. The firm responds in an efficient way to the different necessities of professional services that are in growth because of the economic relationship among the countries that are part of the Pacific Alliance.

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