Colombia: Law 550 Of 1999: A New Chance For Profitable Companies

As of December 28 of 1999, Colombia has a new tool to confront the economic crisis which has been threatening the viability of some enterprises. By means of Law 550 of 1999, new regulations intended to help entrepreneurs and their creditors find a solution involving the redemption of the companies, were approved. Among others, Law 550 provides the elimination of various legal obstacles which prevented profitable companies in difficult financial situation from achieving a recovery. Additionally, said law permits entrepreneurs and their creditors to reach an agreement in order to restructure the companies’ financial obligations. The following is a brief description of the most important aspects of this law, focusing on said entrepreneur-creditors agreements:

The negotiation term for the agreements is four months after its initiation. During such negotiation term in which entrepreneur and creditors should reach an agreement, all executive processes held against the company will be suspended, allowing it to attend the administrative expenses of the company and permitting its continuity. Likewise, every financial operation involving the entrepreneur’s assets and intended to guarantee any creditor’s rights, must be previously authorized by the corresponding Superintendency.

In order to facilitate the negotiation of the agreement, a promoter will be appointed by the corresponding authority. Such promoter, who will be subject to a strict legal regime in order to guarantee the proper performance of his/her activities, will be in charge of coordinating the agreement’s negotiation. His/ her duties, among others, are the following: i) to determine voting rights of each creditor party taking into account the financial statements of the company; ii) to act as friendly mediator between the parties during the negotiation process; iii) to obtain from the parties an agreement concerning restructuring of the company’s financial obligations which guarantees its viability; and iv) to participate in the committee supervising the agreement’s performance.

Law 550 of 1999 provides a reduction in the number of creditor votes required for its approval. In fact, while the previous concordat regime demanded that votes representing 75% of the creditors rights should approve any agreement, as of now such number is reduced to 51% provided such percentage is obtained from at least two (2) different classes of creditors. However, considering that the promoter has previously determined voting rights of the different creditors, creditors can object such resolutions.

Once an agreement has been reached, it becomes mandatory for the company and its creditors. Consequently, the order and payment procedure provided by the agreement will rule the legal obligations involving any party. Likewise, any decision that may affect the asset composition of the company will be subject to the approval of the agreement supervision committee.

It is important to point out, however, that the legal obligations of the company with the National Direction of Tax and Customs, DIAN, as well as the labor obligations and formerly acquired financial obligations will not be ruled by the agreement’s dispositions.

Nonetheless, if an agreement is not reached by the parties within the announced four months, the corresponding authorities will then start the liquidation or intervention process that would otherwise be applicable.

Finally, it is worth pointing out other relevant aspects of Law 550 of 1999. We can mention the following, among others: i) the possibility of capitalizing the company’s debts; ii) Governmental capitalization by Instituto de Fomento Industrial, IFI, and Fondo Nacional de Garantías in order to grant small and medium enterprises’ creditors special rediscount lines and special guarantees; and iii) the elimination of the "unity of enterprise" concept from the Colombian labor laws.

The content of this article is intended to provide a general guide but specialist advice should be sought about your specific circumstances.

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