The economic effects of the isolation measures and the national emergency resulting from Covid-19, prompted the modification of the current insolvency regime to the recovery and preservation of companies, through the temporary incorporation of rescue and recovery mechanisms for the business sector in Colombia.
Among other provisions, Decree 560 of 2020 adds mechanisms to protect business and employment, such as: (1) simplification of the admission process to reorganization mechanisms, (2) advance payment to employees and suppliers without prior authorization of the judge, (3) financial relief mechanisms such as capitalization of liabilities and risk bonds, (4) financing of the debtor during the negotiation of a reorganization agreement, (5) acquisition of assets in insolvency, (6) execution of emergency negotiations, and; (7) the granting of tax relief, such as the non- liquidation or advance payment of income tax, and the imposition of a 50% VAT withholding tax.
The National Government clarified that these measures are not permanent and the tools foreseen will only be available for two years after their entry into force. In addition, it indicated that they will only apply to companies affected by the causes that led to the state of economic and social emergency. Therefore, when using these mechanisms, companies will have to justify and prove the effects of the emergency.
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