COVID-19: Temporary Corporate Insolvency Proceeding

Decree Law 560 of 2020 explains a series of special transitional measures regarding corporate insolvency.

The measures will be in force for two years and are based on four pillars, which are explained below.

Among the most recent measures taken by the national government is the issuance of Decree Law 560 of April 15, 2020, to face the business crisis originated by COVID-19, through which it seeks to facilitate the preservation of companies and employment, without neglecting credit.

In this regard, Juan Pablo Liévano, Superintendent of Companies, has said that since July 2019 this superintendency had been studying and analyzing the insolvency regime for a structural reform.

For him, it is necessary to have different legal tools of conjuncture to facilitate agreements between debtors and creditors, and thus preserve the company and employment.

“The National Government with the issuance of this decree law generated different options for companies to access mechanisms to move forward in this crisis and preserve the company and employment,” says Liévano.

Decree Law 560 adopts special transitory measures regarding insolvency processes during the state of emergency, which will be in force for two years and are based on 4 pillars:

Creation of expeditious extrajudicial negotiation tools.

As explained by Supersociedades, the decree law introduces two new tools within the framework of out-of-court corporate reorganizations.

“These are the emergency negotiations of reorganization agreements and the business recovery procedure in the chambers of commerce.”

These allow for the prompt and adequate solution of the company’s crisis and the attention of different sectors of the economy. These are the emergency negotiations of reorganization agreements and the procedure of business recovery in the chambers of commerce.

Creation of extraordinary rescue mechanisms to protect companies, employment and credit.

– Formal requirements for admission to the processesarereduced.

– The payment of small claims and sale of assets for payment without judicial authorizationisallowed.

– Mechanismsarecreated to improve the company’s cash flow, which facilitate the execution of agreements (capitalization of claims, discharge of debts and sustainable debt covenants).

– Incentives of priority and guaranteesaregenerated for new credits in the judicial negotiation stage.

– Mechanismsarecreated to avoid the liquidation of a company through the purchase of the going concern.

– The installments of the reorganization agreements of April, May and Junearesuspended, which will be considered overdue in July, and will have a period of three (3) months for their correction in a hearing.

Tax benefits

Until December 31, 2020, some tax measures are adopted with the purpose of providing assistance with the cash flow and alleviating the situation of debtors admitted to a corporate reorganization process or who have entered into a reorganization agreement and are executing it, presumptive income and withholding at source for income and VAT.

Suspension of legal rules and obligations

Some legal rules and obligations are suspended in order to preserve companies and facilitate the management of the economic public order, such as the cause of dissolution due to losses.

Source: Actualícese