INTERNATIONAL INSOLVENCY INSTITUTE

Transcription

1 INTERNATIONAL INSOLVENCY INSTITUTE Eleventh Annual International Insolvency Conference Columbia University New York INTERNATIONAL INSOLVENCIES OF LATIN AMERICAN COMPANIES The National and International Insolvency Regime in Colombia By Daniel Posse Velasquez Posse Herrera & Ruiz S. A. Bogota June 13-14,

2 THE NATIONAL AND INTERNATIONAL INSOLVENCY REGIME IN COLOMBIA. Daniel Posse Velásquez Partner. Posse, Herrera & Ruíz S.A. Bogotá, Colombia 1. INTRODUCTION. GENERAL BACKGROUND OF THE FRAMEWORK OF INSOLVENCY IN COLOMBIA. In Colombia there is an advanced law system around the insolvency, because it has presented a constant legal development since the period of the colony, where the bankruptcy procedure was adopted into the Spanish system in the Ordinances of Bilbao, and later became embodied in the Colombian Constitution of Subsequently, in 1940 was published the Act No.750, by which all creditors that wanted to constitute the debtor in the status of bankrupt had to show off the quality of trader, basing this requirement on the commercial character of this institution. Then, by the Act 2264, later incorporated into the Commercial Code introduced the legal concept of preventive concordat (in Spanish concordato preventivo ), in which established a model of prevention to debtor to be constituted on bankruptcy. Later, with the issuance of Law 222, 1995, the legal institution of the bankruptcy was replaced for compulsory settlement (in Spanish liquidación obligatoria ) because into an insolvency process the priority was the liquidation of debtor s assets. In addition, Law 222 greatly advanced, as intended to unify the insolvency process, to the case of debtors with a chance to recover or those to be subject to a liquidation procedure (i), and set the subject of liquidation proceedings on the debtor, regardless if their individual, social or economic activity (ii). Four years later, Law 550, 1999 created the corporate restructuring agreements, in which the subjects where all the legal entities engaged in commercial activities (i). Also, developed the insolvency procedure to the economic situation of local authorities (ii), and eliminated the preventive concordat, leaving the current procedure of compulsory settlement (iii). Then, the Law 1116 of 2006 adopted the Corporate Insolvency Regime, which determines a new insolvency system and defines news legal procedures for traders, the reorganization process, the judicial liquidation, and international insolvency. 2

3 Also, Law 1116 develops an extraterritorial insolvency system, based on the UNCITRAL Model Insolvency Law. After few years, Law 1380, 2010 introduced to the Colombian Law System the institution of insolvency and it process for people that has not the status of trader. In summary, in our legal system are two mechanisms for insolvency cases: the economic insolvency procedure to people that has not the status of trader and the specific procedure to traders legal and natural persons THE PROCEEDING TO PEOPLE THAT HAS NOT THE STATUS OF TRADER. The direct antecedent of this proceeding was the sentence C 699, 2007 of the Colombian Constitutional Court, in which they urged to the Congress to establish an insolvency proceeding for non- traders people. While insolvency proceedings are essentially mechanisms for the protection credit is also true that through them can be realized by the principle of solidarity in those cases where, as a result of insolvency, the debtor is in a position of manifest weakness affecting their fundamental rights, why be in line with the principle that the legislature establish a specific process for non- traders people who are in a state of insolvency. To this end, the Court will urge to the Congress, so that within its own legislative power to issue a universal system that can be claimed by persons who are not insolvent traders." 1 Accordingly, it is established for people that are in default (in Spanish cesación de pagos ), caused when a debtor has defaulted on two or more creditors more than ninety (90) days. Or, when there are one or more executory proceedings or compulsory jurisdiction against the debtor demanding the payment of any of his obligations. Thus, the Law establishes a procedure which provides safeguards for both subjects in the process as the insolvent debtor allows organizing the performance of their duties, without being stifled by a series of unsuccessful executory proceedings. While the creditor is assured with an agreement that will be more fast, accurate and economical than the independent judicial claim can be 2. 1 Colombian Constitutional Court. Sentence C 699, Magistrate Rodrigo Escobar Gil. Free Translation. 2 Colombian Magazine OBSERVATORIO LEGISLATIVO. Boletín No La ley de insolvencia económica para personas naturales. Page 1. Free translation. 3

4 2.1. Scope of application. Subject to this regime are the people who are not traders and be domiciled in Colombia Competency. For this insolvency proceeding has competence any Mediation Center of the domicile of the debtor (i), including Notaries Public (ii). Also in this situation, specified by law, has competence the Civil Municipal Court (iii): In fact when a case exceeded the powers conferred to a Mediation Center. When the payment of agreement be challenged Proceeding. 1. Submissi on of the applicati on 2. Application to a debt negotiation process 3. Debt negotiation accepted by the proper authority 4. Notice to creditors of the proceedings begins. 5. Debt Settlement Hearing. Here, creditors may or may not accept the account given by the debtor. If they do not established an agreement, it will be declared failed If they established an agreement, it will be a final decision and continue the process as the creditors accept from the begin 6. Proper authority gives another opportunity to reach an agreement May not accept 6. The account will be a final decision. May accept 7. The debtor will make a payment proposal. To which creditors may offer counter to reach an agreement 8. Payment Agreement. It will finished the proceeding Commence of the process. The submission of the application shall be presented by the debtor, by himself or being represented by an attorney The process of debt negotiation. In the application to commence the process, the debtor may include a draft debt negotiation where on exchange of their own assets as a means of partial or full payment of his obligations. 4

5 If the request for debt negotiation is successful, the Conciliator shall to processing it, and the debtor must submit an updated list of his obligations, which should include their debts in order of legal priority. Therefore, there are certain consequences of start this stage: Suspension of payment of any interest, management fees or similar charges on obligations subject of insolvency proceedings that the creditor intends to do. Civil actions executory, restitution, among others shall not be admit or get continue against the debtor. If it happens the debtor may plead the invalidity of those proceedings. And, for the record, the Civil Municipal Court, requested by the Conciliator, should state failed this negotiation if: It is demonstrated by an expert that the debtor, with the purpose to the detriment of general pledge of creditors, within six (6) months prior to the acceptance of the application, made any tax or transferred into his own goods. It is demonstrated that the debtor, just to be insolvent, pretended to transferred to anyone the ownership of one or more of his assets representing more than ten percent (10%) of total assets prior to the date of the application The Debt Settlement Hearing (in Spanish audiencia de negociación de deudas. ) In this hearing the Conciliator or the proper authority shall inform the creditors the detailed list of debtor s liabilities and assets and inquire them if they concur with it. So, if none one has objected, that agreement is taken as definitely into the proceeding. After the acceptation by creditors, the Conciliator shall invite to the debtor to make a payment proposal for the fulfillment of his obligations, which may receive counter and alternative agreements from the creditors. Nevertheless, if there are any objections to the detailed list given by the debtor, the Conciliator shall invite to the parties to establish another settlement. But, if they 5

6 continue with discrepancies, the Conciliator or proper authority shall consider as failed the debt negotiation process Payment Agreement. The payment agreement is the consequence of concord between the creditors and the debtor about any financial obligation. So, from the acceptation of the debt negotiation to the celebration of this payment agreement, the prescription term is interrupted and the expiration shall not operate to proceedings against the debtor before the initiation of this process. In that sense, the payment agreement has these legal effects: Provides executory bequest. The executory and restitution proceedings are stayed, pending the verification of fulfillment or breach of the payment agreement. The debtor is entitled to apply for a new process of debt negotiation, just six years (6) later, from the fulfillment date of the last agreement. If the Conciliator verifies the breach of the agreement, shall invite to the parties to review and study a possible modification of the original agreement. If they concur and the breach continue, or the parties do not establish a new modification, the Conciliator state the agreement as failed and notice to the judges who knows the claims against the debtor to continue with those proceedings immediately. The insolvency proceeding ends, if the parties are complying the payment agreement. 3. CORPORATIVE INSOLVENCY REGIME: LAW 1116, Law 1116 defines as its aim the credit protection (i) and the recovery and conservation of the enterprise as a unity of economic exploitation and generator of employment, thought the reorganization proceedings and the judicial liquidation 3 (ii). For that matter, the Colombian Constitutional Court has established: 3 Free Translation. 6

7 Finally, it should be noted that the figures of the concordat, contests or liquidation processes are oriented primarily to the credit protection, subject to the provisions designed to make less burdensome the debtor s situation or draft of agreements. The law has other provisions to protect the debtor, among which may be stated the limitation of interest rates and intensive regulation of certain types of credit or those which designed to protect the debtor s assets in event of insolvency, as ( ) the protection of wages. ( ) In this context, it should be noted that the protection of the debtor may be a purpose into the concurrent insolvency proceedings, but is not its principal sense. In fact, these processes are specifically designed to protect the debtor s assets as a way to ensure the payment of the debts, and to preserve the credit and in cases as Law 1116, 2006 and others, are built around the idea of keeping the enterprise as a unit of economic development. 4 In spite of what has just been said, the debtor has to be in the economic situation of cessation of payment, or be impending inability to pay, as a required to commence the insolvency proceeding: Cessation of payment. This is an economic situation establish for traders where cannot pay their obligations, and, in addition, has one of the following factual: - Breach of payment of two or more obligations to two or more creditors, for ninety (90) days or more. - The debtor has two or more executory proceedings, where the claimants are two or more creditors. 4 Colombian Constitutional Court. Sentence C 699, Magistrate Rodrigo Escobar Gil. Free Translation. 7

8 Impending inability to pay. This situation only exists for an economic crisis into a commercial company and demonstrates the existence of circumstances over the respective market or within the company that affects or could seriously affect the normal discharge of the duties Scope of application. The subjects of this regime are people who are traders (i), commercial companies not excluded by law (ii), branches of foreign companies established in Colombia (iii) and equity for commercial activities(iv) Competency. By law, the proper authorities are the Superintendence of Corporations and Civil Circuit Court of the domicile of the debtor. Superintendence of Corporations: Has competence when the subject is a commercial company, a branch of foreign company established in Colombia, or a trader. Civil Circuit Court of the domicile of the debtor: Has competence when the applicant is a trader, or implies a proceeding in which the Superintendence of Corporations has no competence Proceeding. In the corporative insolvency regimen are two kinds of proceedings: reorganization process (i) and the judicial liquidation (ii) The reorganization process. This proceeding has been established to recover the company, preserve its economic role and guarantee to creditors to get their payments. In this matter, the Superintendence of Corporations and the Industry and Trade Ministry considered: We use the term reorganization in a broad sense, to refer the procedures whose basic purpose is allow the debtor to overcome its financial difficulties and resume or continue its trades operations, even though some cases may include reducing the ability of the company, its sale as going concern to another 8

9 company and if it does not be possible, it extinction through an allocation procedure, or in case of breach of the agreement, the consequence is the commence of a judicial liquidation 5 1. Submission of the application. 2. Commence of the proceeding. Admission of the application by the proper authority 3. Reorganization Draft. The debtor makes a draft detailing obligations and creditors. 4. Reorganization agreement. Between creditors and debtor. 8. Registering the state of the proper authority which ratifies the fulfillment of the agreement, in the Chamber of Commerce of the debtor s principal domicile. 7. Procedure ends with the fulfillment of the obligations established inside the agreement. Make an agreement. 5. Confirmation Hearing. 6. Decision by the proper authority. If it would be denied, the procedure will continue as if the agreement has never existed Don t make an agreement 5. Hearing of the Allocation Agreement 6. Registering their agreement in the Chamber of Commerce of the debtor s principal domicile Submission of the application. If the economic situation is a cessation of payment, the debtor, creditors or proper authority that polices the company, are allowed to apply to a reorganization process. Now, if the economic situation of the debtor is an impending inability to pay, the debtor or the creditors are only entitles to apply Consequences of the admission of the application. Once the application is admitted by the proper authority (Superintendence of Corporations or the Civil Circuit Court), the reorganization process formally begin and, from this moment, the debtor cannot tax or transfer all kind of goods except in case of ordinary business -, unless would be authorized by the judge of the process. 5 SUPERINTENDENCE OF CORPORATIONS AND THE INDUSTRY AND TRADE MINISTRY. Cartilla. Nuevo Régimen de Insolvencia Empresarial. Pages 2 and 3. Free Translation. 9

10 Also, a legal institution is set: the ancillary jurisdiction, which means that shall be no admission or following with executory proceedings or any other procedure against the debtor because all debtor s assets are part of this process, in addition, if all creditors are subject to the same procedure, it guarantees the principle of equality because they are all derived from the same powers of a procedural nature 6. Last, but not least, the debtor may not suffered the decreed to the unilateral termination of any other contract, neither its expiration Reorganization Draft made by the debtor. Law 1116, 2006 establishes: The reorganization process pretends, through an agreement, preserve viable companies and normalize its commercial and credits relations, with an operational restructuring and management of assets and liabilities (Emphasis added) In this way, the objective of the reorganization draft is to recover and preserve the company into the future, trough the identification of changes that have to do and define the strategies that adopted. About the usefulness of this draft, made by the debtor, the Colombian doctrine has understood: The draft is useful to put in writing, clearly and understandable, aspects of the business, to be discussed in an objective and impersonal way. It represents the commitment of the company in front of the partners and creditors to follow the recovering process Reorganization Agreement. Presented the draft by the debtor, the judge proceed to hold the Reorganization Agreement Hearing, in which debtor and creditors discussed about the draft and the creditors decided about it (to protect their own interests) This stage of the process has been defined precisely by the treatise Saúl Argeri: This is a creditor s meeting, organized and disciplined by the legal system, which characterized the voluntary acts of its 6 ISAZA U, Álvaro y LONDOÑO R, Álvaro. Comentarios al Régimen de Insolvencia Empresarial. Editorial Legis. Tercera Edición. Page 150. Free Translation. 7 Ibidem 6. Page 28. Free Translation. 10

11 presents members, individually considered, who will unify and fuse a common interest through the system of legal majority, in exercise of the function assigned by the legislature, even when to the contrary in the assessment of the circumstances that make the acceptability or not of the draft proposed by the debtor Confirmation Hearing of the Reorganization Agreement. After the acceptability of the draft from creditors, the judge has to declare its legality, which means that the agreement is under the corporate reorganization regime Allocation Agreement Hearing. If the creditors do not accept the agreement or the judge do not confirm it, the judge shall hold an allocation agreement hearing. In this hearing, as well as the name implies, the debtor s assets are allocated as a partial or total payment of obligations recognized by the judge, because creditors agreed when the reorganization agreement negotiation has failed 9. Colombian law establishes that the allocation of goods has to be under the judicial liquidation s rules: the goods have to be allocated as the creditors have agreed, but if they don t, the judge has to allocate the goods as the law determines for payment and allocation Ending of the reorganization process. The process ends when the reorganization agreement is fulfillment (i), the judge ratified it through a pronouncement (ii), and the state is registered in the Chamber of Commerce of the debtor s principal domicile Duration of the procedure. The term to conclude the reorganization agreement shall be four (4) months, renewable for two (2) months, because it is intended to be flexible and ready to achieve the objectives in pursuing Breach Hearing. 8 ARGERI, Saúl. Manual de Concursos. Citado por ISAZA U, Álvaro y LONDOÑO R, Álvaro. Comentarios al Régimen de Insolvencia Empresarial. Editorial Legis. Tercera Edición. Page 193. Free Translation. 9 Ibidem 6. Page 327 Free Translation. 11

12 If the creditors or the debtor denounced the breach of the obligations established into the reorganization agreement, the judge has to verify it and hold to a breach hearing. In this hearing, the judge invite to parties to found a new alternative of solution. So, if parties do it this is the final agreement, but if they do not establish a new agreement, the judge has to order to commence of the judicial liquidation The judicial liquidation. In this proceeding the company is extincted, which means finish with its commercial activities. 1. Commence of the process. 2. Valuation of goods and them selling. 3. Payment to creditors from the proceeds of sales. 4. If the goods were not sale, the judge hold to an allocation agreement between the creditors. 5. Confirmation Hearing. Make and agreement Do not make an agreement 5. Allocation State. The judge decides which good allocate to any of creditors. 6. Decision about the agreement. If it would be denied, the procedure will continue as if the agreement has never existed 6. Procedure ends. After the allocation state by the judge 7. Procedure ends.the allocation is like creditors concord Grounds to commence the judicial liquidation. The grounds to commence the judicial liquidation are: Breach of the Reorganization Agreement. Because law s grounds: - When the debtor request it. - When a creditor started with an insolvency process and the debtor did not provide all the documents and information required. - If the debtor quit to business 12

13 Proceeding. - The authority responsible for monitoring or controlling the corporation, submitted the application. - The Superintendence of Corporations decided it through a reasoned decision. - Application by the debtor and a plural number of creditors. - Application of a foreign authority. - If the debtor has pension obligations, labor or tax due, without having been paid within the period specified by the judge. Once the liquidation procedure began, the judge order the valuation of the debtor s goods and them selling. Then, from the proceeds of sale have to pay to each creditor. And if it is not possible because there was no sale, the judge hold to an allocation agreement between creditors, and goods have to be allocated as they have agreed, but if they don t the judge have to allocate all goods as the law determines for payment and allocation Consequences of the judicial liquidation: The judicial liquidation has legal effects: Dissolution of the corporation. The prescription term is interrupted and the expiration cannot operate for claims against the debtor that would have become due and payable before the initiation of this process. Completion of debtor s contracts, those are not necessary for preservation of debtor s assets, unless there is an express authorization by the judge. Completion of debtor s trusts, unless there is an express authorization by the judge. Completion of employment contracts Ending of the judicial liquidation. This process ends with the allocation is doing by the creditor s agreement or the judge s state(i), or if during the process debtor and creditors hold a reorganization agreement (ii). 13

14 4. THE CROSS BORDER INSOLVENCY PROCEEDING. Law 1116, 2006 provides the cross-border insolvency for processes involving natural and legal persons. In this sense, the law develops its principles fully inspired by the UNCITRAL Model Insolvency Law 10. The bill incorporates to the Colombian legal system the UNCITRAL Model Insolvency Law, so Colombia will be more include in the countries from the international community who have adopted in their domestic law the model of that Commission, as México inside the Latin American context. The Model Law is a valuable tool to address current proliferation and increasing cross-border insolvencies. Its advantage is reflected in respect to the differences given intern procedural laws to other, without attempting unify the substantive law of insolvency, and at the same time to offer solutions that can be useful to creditors and national and international corporations. 11 Thus, with the incorporation of the UNCITRAL Model Insolvency Law there is an introduction of rules stimulating international cooperation, recognition of insolvency proceedings, and access to officials and foreign creditors to procedures, and the access of domestically officials and creditors to foreign proceedings outside 12. Therefore, Colombian law provides in which cases shall be applicable the crossborder insolvency procedure: A foreign court or a foreign representative requests assistance in Colombia pertaining to a foreign proceeding. Assistance is requested in a foreign State in regards to a national proceeding. Concurrent Cases. It means there are underway simultaneously proceedings - foreign and a local - for the same debtor. 10 Colombian Constitutional Court. Sentence C 699, Magistrate Rodrigo Escobar Gil. 11 Ibidem 5. Page Ibidem 6. Page

15 Creditors or other interest parties who are located abroad and are interest to participate in the Colombian proceeding or in a submission of application UNCITRAL Model Insolvency Law incorporated to Law 1116, In this matter, Law 1116 implies an advance because introduce the insolvency cross-border and considered the guidelines establish by UNCITRAL Model Insolvency Law, as: Definitions of terms. As foreign proceeding, foreign main proceeding, foreign non-main proceeding, foreign representative, foreign court. During the insolvency proceeding in Colombia, the foreign creditors has the same rights as the recognized to domestically creditors. Foreign representative has an important role inside Colombian Insolvency proceeding because: 4.2. Competency: - They can apply to commence a process, in concordance to national law. - If the foreign process is recognized, they can participate in every national proceeding against the debtor. - They can participate inside reorganization and judicial liquidation processes For this proceeding the proper authorities are the Superintendence of Corporations and Civil Circuit and Municipal Courts of the domicile of the debtor. If it is a branch of a foreign corporation in Colombia, the proper authority is the Superintendence of Corporations Proceeding Request to commence an insolvency proceeding in Colombia. Any foreign representative is entitled to request the recognition of insolvency foreign proceedings. 13 Ibidem 6. Page

16 In that sense, by requested of the foreign representative, the judge may take necessary and urgent measures to protect the creditor s interests or the debtor s assets, that s why is enabled to: Order to suspend all kinds of executory proceedings against the debtor, subject to competition in another country. Instruct, to the foreign representative or any other Colombian authority, the management of the debtor s assets located in Colombia, according with national law. 14 Furthermore, the foreign shall be recognized: The foreign proceeding has this quality in response to the legal definition. The foreign representative applying is recognized as such in the foreign proceeding is intended to recognize. The application response to the legal requisites. The application was presented to the proper authority. But, in this case, the request from a foreign representative or authority do not involved the submission of debtor s assets and business overseas. Thus, when the foreign process is recognized, it shall be notice to the creditors who resident in Colombia, and to the creditors that has not any domicile or residence in Colombia and knows their address, shall be notice through any suitable media Effects of the recognition of insolvency foreign main proceeding: In Colombia as in the UNCITRAL Model Insolvency Law, a foreign main proceeding is a foreign proceeding taking place in the State where the debtor has the center of its main interests In this way, in our country the recognition of a foreign proceeding as main has certainly effects: Commencement or continuation of any executory proceeding against the debtor is stayed. 14 Ibidem 6. Page

17 The foreign representative and the debtor are entitled to apply, individually or collective, the suspension or the invalidity of every kind of proceedings open against the debtor after the recognition of the foreign process. The debtor s right to tax or transfer all kind of goods is suspended, unless in case of ordinary business. If the proceeding is about the owner of a branch in Colombia, the proceeding is open as Colombian law establish The recognition of insolvency foreign non-main proceeding in Colombia: As Law 1116 provides, a foreign non-main proceeding shall be recognized only if the debtor has goods or economic activities in Colombia, and that s why the effects of the recognition just involved them. 5. FINAL CONSIDERATIONS. The national insolvency regime in Colombia pretends to give legal tools to debtors and creditors to found an agreement or payment solution in the best way possible, without any traumatisms to parties. In that sense, this is a proceeding which does not imply to parties several charges, as judicial costs, causation of higher interest to the debtor, the risk to creditors to not get soon them payment, traders can be stayed their activity by a long time; and other circumstances which lead a drastic process where the opportunity to enter into payment agreements is not given. Besides, with the introduction of an international insolvency system to domestically law provides an effective mechanism to face this economic situation in cross-border cases (i), improve the international cooperation (ii), and allows a pacific international proceeding (iii). Then, is necessary to keep in development this regime that emphasizes on conciliation, because, in one hand, the creditors get them payment with an agile and effectiveness way; and in the other hand, the debtor shall pay with a pre-established agreement according the economic situation. 17