1116 of 2006, insolvency judges generally acknowledged the segregation of trust assets based on contractual stipulations and accounting treatment. However, in practice, once the settlor-debtor was admitted to reorganization proceedings, judges frequently ordered trustees to suspend payments to secured creditors and to transfer trust funds to the settlor’ s insolvency estate.
Such measures were justified on debtor-protective grounds and were often adopted without a substantive examination of whether the Independent Trust had autonomously assumed the underlying obligations vis-à-vis the creditors.
Recognition of Obligational Isolation( 2014 – 2023)
Beginning in 2014, Colombian insolvency case law evolved to recognize not only asset isolation but also obligational isolation. Insolvency judges began to assess whether the I. T. had directly assumed obligations toward creditors. Where this was the case, they held that the trust could continue servicing its debts with trust assets even if the settlor was undergoing insolvency proceedings.
This approach was first articulated in the Campollo 6 case and subsequently reaffirmed in multiple decisions distinguishing situations in which the I. T. was a direct debtor from those in which it was not 7.
This jurisprudential development was reinforced by Law 1676 of 2013— modeled on Article 9 of the U. S. Uniform Commercial Code— which significantly modified the Colombian insolvency regime by allowing the enforcement of security interests within
6
Reorganization Proceeding of Campollo S. A., Order No. 430-008152 dated June 4, 2014.
7
Reorganization Proceeding of Jungla Kumba Entretenimiento S. A. S., Order No. 400-013438 dated October 9, 2018, Reorganization Proceeding of Central Papelera de Colombia S. A. S., Order No. 400-014007 dated September 16, 2016, Reorganization Proceeding of Organización Suma S. A. S., Order No. 400-002370 dated March 26, 2019 reorganization or liquidation proceedings under certain conditions.
As a result, project cash flows structured as security interests under Law 1676 of 2013, together with an I. T. acting as the debtor, became legally protected. In such cases, funds may not be redirected to the insolvent settlor unless secured creditors expressly consent.
Between 2014 and 2023, case law consistently held that an I. T. must satisfy its liabilities with its own resources and that neither its assets nor its liabilities were affected by the settlor’ s insolvency, provided that the trust had directly incurred the obligation and that an enforceable security interest existed over the cash flows 8. Recent Jurisprudential Shift Since 2023 Since June 2023, certain insolvency decisions— sometimes prompted by settlor-debtors and, in some cases, supported by trustees— have challenged the asset and obligational isolation of I. T. that had traditionally been regarded as separate from the settlor’ s insolvency. On various grounds, five trusts structured as independent debtors and payment sources, and which do not conduct business activities, have been subjected to insolvency proceedings.
The following three cases involve these five trusts:
• Gacsas: PA Acreedores and Patrimonio
Autónomo Aeropuerto Ernesto Cortissoz.
• Gmovil: P. A. SITP Gmovil.
• Azteca: Fideicomiso Azteca Tier 1 and Fideicomiso Azteca Colombia Tier 2.
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8
In the event that the insolvency proceeding is a liquidation, if the trust serves solely as a security vehicle, it shall be terminated pursuant to Article 50 of Law 1116; however, if it has multiple purposes and not only a security function, but the trust agreement shall also continue to be performed, preserving the asset and obligational segregation.
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