On June the 3rd, 2020, the National Government issued Legislative Decree 722 of 2020 “which adopts special measures regarding bankruptcy processes, to mitigate the effects of the corporations resulting from the social, economic and environmental emergency”. The decree modified some aspects of the current bankruptcy regime, and added mechanisms to protect the company and employment, which include a new expedite reorganization proceeding, and a simplified liquidation proceeding.

1. SCOPE OF APPLICATION

The measures adopted by the Decree are not permanent. The tools provided will be available for two years from its entry into force and will only apply to companies affected by the causes that led to the State of Economic and Social Emergency. To that extent, when applying these mechanisms, it will be necessary to justify and prove the effects of the emergency. The Decree does not establish a minimum or specific test for such proof, and it will be up to the Superintendence of Companies to verify that the company was indeed affected by the causes that gave rise to the emergency.

2. EXPEDITE ADMISSION PROCESS

The Decree simplifies the process of admission to reorganization mechanisms. Consequently, it provides that the judge will not audit the content or accuracy of the documents provided or the financial information or its compliance with the accounting policies of the applicant debtor. What is required is that the debtor certifies that the regular accounting is maintained and verifies the completeness of the documentation provided. The first decision about the admission of the proceedings may order to extend or to update such information.

3. TECHNOLOGICAL TOOLS

To handle the large number of applications, the Superintendence of Companies may request to fill out an electronic form and may use online tools and artificial intelligence -which could be permanently implemented-. Those who declare not have access to technological tools will be supported through the secretary by allowing them the technological access or the physical filing. The information may be online granting the access to third parties.

4. PROTECTION MECHANISMS

A. The company and the employment

The first decision about the admission of the insolvency proceedings of a debtor affected by the emergency should lift interim measures of executive or coercive collection proceedings regarding said debtor’s goods not subject to registration. The executive or coercive collection proceedings’ judge should return those goods or money. The promoter of the insolvency proceedings should inform the judge about the destination of the returned good or money.

B. Reorganization proceedings related to real state for housing

Affected debtors, whose purpose is the construction and sale of real estate destined for housing, who have mortgage credits, may, without authorization, make payments of the largest mortgage credit, directly or through a buyer of a housing unit, observing buyer’s legal rights. Those operations must be reported, including data and supports, to the insolvency judge, within the next 5 days.

The clauses included in the reorganization agreement should comply with the “promise of purchase’s” commitments, looking for the compliance of the purchase contract instead of the refund of the money.

C. VALUE RECOVERY IN LIQUIDATION PROCEEDINGS

The global adjudication of a productive unit should be preferred. If it is not possible, the divided adjudication should produce value.

The liquidator may submit to the creditors a proposal to perform one or multiple trust contracts to transfer partially or totally the adjudicated goods and pay the obligations with such fiduciary rights. The proposal shall be approved by most of the creditors. Silence by a creditor will mean its positive vote. Even though the judge is not in charge of developing the clauses of the trust contract, the existence and the terms of the trust contract may be informed to the judge.

5. STRENGTHENING OF THE LIST OF ASSISTANTS OF JUSTICE

The lists of justice assistants will be broadened, and it is indicated that the same person may act as promoter, liquidator, and inspector, in various processes, without exceeding 6. The assistant who is domiciled in the place where the process is conducted, is preferred.

6. RULES REGARDING DECREE 560, 2020

Postponement of administration payments (Numeral 3, Par. 1, Article 8, Decree 560) must be framed in the principle of good faith. Therefore, the use of the rule without justification should be identified as an abuse of the law.

Debtors who obtain financing under Article 5 of Decree 560 must be complying with their credits to obtain the judge confirmation of the reorganization agreement.

Paragraph 3 of article 8 of Decree 560 will be applicable to procedures before the chambers of commerce related to article 9 of said Decree.

The suspension of the “dissolution for losses” cause for company dissolution, is extended for two (2) years, for all types of companies.

7. EXPEDITE REORGANIZATION PROCEEDINGS, AND SIMPLIFIED LIQUIDATION PROCEEDINGS.

A. Expedite reorganization proceedings

Proceedings regarding companies which asset value is less than 5,000 monthly minimum wages, will be admitted in an expedite reorganization proceeding. The application must comply with general legal requirements and a cease of payments.

There are additional requirements to those included in the Article 19 of Law 1116 of 2006, to be included in the order opening the insolvency proceedings. The debtor must comply with the requirements and the order, and then report its compliance to the judge within 5 days after the expiration of each granted term.

Features and rules to follow in this type of proceedings are included.

B. Simplified judicial liquidation proceedings

The debtors whose assets are less than 5,000 monthly minimum wages will be part of small insolvencies. They will be admitted exclusively in a simplified judicial liquidation process.

The rules to develop this type of proceedings are included. It is also clarified how to establish and pay the liquidator’s fees in this type of proceedings.

It establishes that regarding matters not provided, in relation to this new type of proceedings, and compatible with Law 1116 of 2006 and Decree 560 of 2020, such regulations will be applied alternatively.

8. TREATMENT OF SOME DEBTOR INCOME TAX

For fiscal year 2020 and 2021, the reductions, discounts or capital withdrawals, fines, penalties or interests obtained by the debtors, will be taxed as capital gain and not as ordinary income. The foregoing, in the understanding it is within the framework of a reorganization agreement under Law 1116 of 2006, and Decrees 560 and 772 of 2020.

Likewise, within the framework of the provisions of this article, for the fiscal year 2020 and 2021 the capital gains may be compensated with the capital losses of the year or with the accumulated fiscal losses.