Due to the adverse situations brought about by the pandemic generated by Covid-19, the economic and business sector has been severely affected, which has led to non-compliance with its obligations within its operational line of business, despite the multiple alternatives that the National Government and the business sector have adopted, all of them in order to minimize the negative impact and the consequences left by this painful situation that is being experienced worldwide.
That is why the initiative to enact Law 212 of April 29, 2021, which establishes the Special Regime for the Conciliated Reorganization processes carried out due to the national emergency caused by the COVID-19 pandemic, arose.
This being the case, we find ourselves in the disjunctive that previously there is a regulation that rules on this aspect, which is Law No. 12 of May 19, 2016 “That Establishes the Regime of Insolvency Bankruptcy Proceedings and Dictates Other Provisions” notwithstanding, the legislator exposes that such initiative arises by virtue that the referred Law 12, 2006 does not contemplate the scenario of “force majeure”, that the situation requires an abbreviated process and seeks to protect credit and employment places, being these the factors mainly the ones that motivated this Law.
2. Generalities of the Conciliated Reorganization Law
As we have already mentioned in our initial considerations, Law 212 of April 29, 2021, established the special regime for the conciliated reorganization processes, which has the purpose of protecting the credit and the creditors, in view of the insolvency situation generated by the state of national emergency. It is important to mention that the authorities ordered the closing of commercial establishments of both natural persons and legal entities by virtue of the declaration of national emergency, issued in March 2020.
The aforementioned Reorganization Law determines in the scope of application who may be subject to this law and the pre-existing conditions that must be maintained in order to be subject to the regulations under analysis, which we shall explain briefly:
Any merchant natural person and the mercantile partnership registered or not registered in the Public Registry that have their commercial domicile, branch, agency or establishment in our country, may submit to the conciliated reorganization process, provided that they are in a situation of cessation of payment, imminent insolvency or foreseeable lack of liquidity, due to the state of emergency due to the COVID-19 pandemic; that have a minimum of 24 months of operation and that present the notice of intent within a maximum term of two years.
Under the Conciliated Reorganization Law, the following are eligible to file for reorganization:
a. The debtor or its representative; being optional to request the initiation, but obligatory to appear if the Reorganization is requested by the Creditors’ Meeting;
b. The Creditors’ Meeting by means of a representative.
The conciliated reorganization process shall include an extrajudicial mechanism called conciliation, by means of which the debtor and its creditors may negotiate the company’s Continuity Plan for its reorganization, within a period of insolvency financial protection assisted by a certified conciliator.
The law stipulates two types of conciliation, the institutional conciliation when it is carried out in a private arbitration, conciliation, and mediation center and these may apply the provisions of its regulations regarding the conciliation procedure, administration expenses, personnel fees, and the appointment of the conciliator. Or ad hoc or independent conciliation when the parties appoint an independent professional as conciliator.
One of the most relevant characteristics is that the conciliated reorganization process has a duration of six months from the publication of the notice of intent.
– Stages prior to the beginning of the process:
The debtor prior to initiating the conciliated reorganization process must meet with its main creditors, with main creditors being understood as those that represent the holding of more than 50% of the total liabilities; in order to appoint a conciliator by mutual agreement and the desire to formalize the process in question.
The conciliator referred to is no more than a person who is appointed to manage the process, who shall have the function of facilitator for both parties, so that they can negotiate and approve an agreement that includes the continuity plan of the company. This conciliator, as required by law, must comply with a series of requirements to be able to exercise the post and fulfill the functions detailed in articles 14 and 15 of the aforementioned Law.
Having these parameters established, the debtor shall submit to the appointed conciliator a request that must be accompanied by the documents listed below:
1. Authenticated Copy of the Minutess of the Shareholders’ Assembly or of the corresponding body in which the resolution to avail itself of the Conciliated Reorganization Process is recorded, in the case of a corporation;
2. Explanation of the motives that determine financially, how the measures adopted on the occasion of the COVID-19 pandemic affected its operations and led the company to a state of cessation of payment, imminent insolvency, or foreseeable lack of liquidity;
3. Audited financial statements, corresponding to the last fiscal year, issued by a certified public accountant;
4. Interim financial statements corresponding to the last quarter prior to the date of the application, certified by an authorized public accountant, in the event that the debtor does not have audited Financial Statements, it may submit the following:
a. Income tax returns filed in the last two fiscal years;
b. A sworn statement signed by the debtor before a notary public, in which he/she declares to have accounting books or records and that these have been delivered to an authorized public accountant for its review;
c. An opinion or report from an authorized public accountant certifying that:
i. That the accounting books or records of the company have been reviewed.
ii. That no inconsistencies have been found in the accounting books or records of the company;
iii. That from the review of the accounting books or records it is found that the company is in a state of cessation of payment, imminent insolvency, or foreseeable lack of liquidity;
iv. Inventory of assets and liabilities as of the last quarter immediately prior to the date of the application, certified by a certified public accountant;
v. List of the assets, their location and the encumbrances affecting them;
vi. List or summary of the proceedings pending;
vii. List of employees or list of its collaborators, whatever their contractual situation, corresponding to the month prior to the request;
viii. List of the totality of the creditors and their credits, with their contact information.
The debtor shall have the option of submitting a proposal for a Continuity Plan to be shared with the creditors.
Once the conciliator has been appointed and accepted the position, the conciliator shall have five days from the presentation of the request by the debtor to review the documentation provided and validate if it complies with the established requirements in order to proceed with the presentation of the notice of intent that initiates the process.
-Beginning of the process
The reorganization process begins with the sole filing of the notice of intent before the insolvency judge or, in its stead, by the corresponding civil circuit judge, with the possibility of filing it in writing or electronically, provided that a record of the sending and delivery is allowed. Such proof of receipt shall be made in accordance with the provisions of Article 478 of the Civil Code, which establishes that:
” Article 478. All writs addressed to the court shall bear on the upper margin of the first page the indication of the type of proceeding to which it refers and the name and surname of the parties. Notwithstanding the foregoing, once received by the clerk’s office, its return may not be ordered for lack of the said requirements or for any other defect of a formal nature. When a party wishes to have a record of the date and time of filing of a writ, he shall request it orally and the clerk shall make the corresponding notation, if an extra copy of the referred writ is submitted to him.”
– About the Reorganization Process:
Once the notice of intent is filed, the conciliator shall order the publication of such notice for five (5) consecutive days in written mass media including an appeal to all domestic or foreign creditors. In order for them to appear within a term of ten days, the conciliator shall likewise send such communication to the creditors using the contact information provided, attaching the continuity plan, in the event that the debtor has submitted it, and to the judge of the case.
Once the term of ten (10) days mentioned above has expired, the conciliator shall summon the debtor and the creditors, so that in the first meeting the appointment of the conciliator is ratified, the continuity plan proposed by the debtor is discussed, if any, confirm the need for a financial expert who shall prepare or validate the continuity plan for the subsequent review and approval of the parties, in the event that it is determined that the participation of the financial expert is required, the appointment of such expert must be approved in such meeting.
Like the conciliator, the regulations have indicated in article 16 and 17 both the functions and the requirements, respectively, to act as financial expert in the conciliated reorganization processes. Among the functions stipulated in the law, the financial expert shall have a term of five weeks to prepare and propose a continuity plan for the company, such plan must contain:
1. Analysis of the financial situation of the business;
2. Analysis of the historical situation of the business;
3. Impact that COVID-19 and the declaration of the state of national emergency had on the company’s financial results;
4. Cash flow projections for the next five years;
5. Proposed structure for repayment of financial obligations, according to the company’s actual capacity;
It is important to mention that the continuity plan must contemplate all the provisions regarding the rights of the creditors and the privileges established in the Civil Code for those credits that enjoy preference, and it is included in the order of priority the debts contracted for the survival of the company and the debts originated by the ordinary operation of the company.
The notifications or communications within the conciliated reorganization process shall be considered valid when they are sent to the e-mail address provided by the parties and the call for the conciliation meetings must be made at least three (3) days prior to the date scheduled for the corresponding meeting. It is also contemplated that hearings, meetings and meeting of creditors may be held virtually, leaving a record of the development of the meeting and the documentation used may be digital provided that each of the parties declare under oath the legitimacy of the documentation provided and that which arises from the process.
Among the effects of the filing of the notice of intent, is the suspension of the initiation of other reorganization or liquidation processes such as the bankruptcy financial protection for a maximum period of six months, which shall operate as of right and shall be counted from the date of publication of the notice of intent referred to in Article 12 of the Law in question.
As a result of the bankruptcy financial protection, the foreclosure proceedings that have begun before the beginning of the Conciliated Reorganization Process must be submitted to the Judge to be incorporated to the process so that the credits are considered as well as the precautionary measures, so that the judge may determine if they are still in force or if they should be lifted.
In those cases, in which exceptions have been filed and are pending decision, they shall be processed as objections to the credit. As for the processes of guarantees, real or fiduciary, while the protection in reference is in force, no process for the execution of such guarantees may be initiated and the processes initiated in which the auction has not been carried out shall be suspended.
However, creditors are given the possibility of appealing to the Judge by means of a substantiated request, so that he may authorize the initiation or continuity of the proceedings, if it is considered that the execution does not affect the operation of the company or the viability of the Continuity Plan.
-Ratification of the Continuity Plan.
For the ratification of the continuity plan it is required that it be approved by the debtor and by the absolute majority of the creditors representing 51% of the totality of the liabilities. Once the conciliation agreement is signed, it binds the debtor and all its creditors, whether or not they attended the conciliation where it was approved.
-Termination of the Conciliated Reorganization process and its effects.
The conciliation proceeding shall conclude:
2. By the non-approval of a Continuity Plan;
3. By the withdrawal of the debtor or the withdrawal approved by
decision of the Creditors’ Meeting;
4. For the debtor’s unjustified non-attendance at two scheduled meetings,
which shall be Considered as disinterest in the solution of the
5. Due to the debtor’s incapacity;
When the parties have not reached an agreement as to the approval of the Continuity Plan, the conciliator shall issue a Minutes stating the absence of the agreement and the conciliatory procedure is concluded, the conciliator shall have to issue a certification attaching a copy of the mentioned Minutes to be sent to the judge to close the file. This being the case, it is determined that the debtor shall not be able to initiate the Reorganization Bankruptcy Process established in Law 12 of 2016 subsequently or in simultaneously.
1. By the signing of a Conciliation Agreement approved the Continuity Plan;
2. By the non-approval of a Continuity Plan;
3. By the withdrawal of the debtor or the withdrawal approved by decision of the Creditors’ Meeting;
4. For the debtor’s unjustified non-attendance at two scheduled meetings, which shall be considered as disinterest in the solution of the controversies;
5. Due to the debtor’s incapacity.