REGIONAL COMMITTEES: LATIN AMERICA
Bankruptcy Remoteness in Colombia By Diana Rivera Andrade
Insolvency Framework in Colombia
The Colombian insolvency regime applicable to individuals and legal entities comprises five reorganization mechanisms and two liquidation mechanisms, ranging from fully judicialized procedures to predominantly out-of-court mechanisms, depending on the debtor’ s size and economic relevance.
Reorganization proceedings seek to preserve the debtor as a going concern and normalize its liabilities, whereas liquidation proceedings aim at the orderly realization of assets, satisfaction of creditors in accordance with statutory priorities, and cessation of economic activity.
Only since the enactment of Law 1116 of 2006 Independent Trusts( hereinafter, I. T.) derived from trust agreements and structured for
18 the execution of business operations may be subject to insolvency proceedings 1. Over the past nearly twenty years the Superintendence of Companies has received 63 petitions for the admission of insolvency proceedings involving trusts, of which 33 have been admitted. As of December 31, 2025, these proceedings represent approximately 0.6 % of the total number of insolvency proceedings( 5,502), according to the Atlas de Insolvencia 2.
Concept of Bankruptcy Remoteness
Regarding the concept of bankruptcy remoteness, it is a " term used to describe an
1
Article 20 Law 1116 of 2006.
2
https:// www. supersociedades. gov. co / noticias-superso ciedades // asset _ publisher / atwl / content / nuevo-atlas-de-insolvencia entity formed to develop, own, and operate a specific project while isolating financial risk and minimizing insolvency risk, such as a special purpose vehicle( SPV) or special purpose entity( SPE) 3, that is, legal structures designed to isolate certain assets and cash flows from the insolvency risk of the originator”.
In Colombia, bankruptcy remoteness became legally relevant with the development of securitization transactions in the early 1990s and the systematic use of Independent Trusts as insolvency-remote vehicles. Article 5.6.2.1.1. of Decree 2555 of 2010 recognizes irrevocable commercial trust agreements as an appropriate securitization mechanism, pursuant to which assets or acquisition funds are transferred to the trust. 4
Independent Trusts constituted for securitization purposes are expressly excluded from the scope of application of Law 1116 of 2006.
Outside securitization, Independent Trusts are commonly used in project finance structures to administer project cash flows, assume direct payment obligations, and grant security interests in favor of lenders. Unlike securitization trusts, these structures do not benefit from an explicit statutory exclusion from insolvency proceedings, despite their functional similarity in terms of asset segregation 5. Early Judicial Practice Prior to 2014 During the initial phase of application of Law
3
https:// uk. practicallaw. thomsonreuters. com / Glossary / PracticalLaw / I03f4d6deeee311e28578f7ccc38dcbee? transitionType = Default & contextData =( sc. Default)& fir stPage = true #:~: text = Also % 20known % 20as % 20bankr uptcy % 2Dremote,% 22bankruptcy % 2Dremote % 22).
4
Article 5 º. Num 3 º, and Artcicle 50 Law 1116 of 2006
5
Reorganization Proceeding of Energia Integral Andina S. A., Official Letter No. 400-227679 dated December 18, 2013
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