Vol 13 (2016) - Issue 6

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Claw-Back Actions under Colombian Business Insolvency Law

One of the most common concerns of creditors within an insolvency proceeding is the concealment of assets in order to avoid payments. The lack of control over the debtor’s actions during the period before the commencement of the insolvency proceeding increases the risk for such transfers in the detriment of the insolvency estate. Law 1116 of 2006 ('Law 1116') includes a preference period where the debtor’s actions are subject to scrutiny and may be revoked. This article aims to show the main elements and characteristics of claw back actions under Law 1116, and the most relevant cases that have been developed by the Superintendence of Companies, which acts as the bankruptcy court for business organisations.

1. Overview
Articles 74 and 75 of Law 1116 govern the claw back actions that are aimed to revoke ('acción revocatoria') or recharacterise ('acción de simulación') the acts performed by the debtor before the commencement of an insolvency proceeding – either reorganisation or judicial liquidation – which adversely affect the creditors or the priority payment order. Claw back actions seek to restore the debtor’s estate, whenever it has been adversely affected as a result of the actions performed prior to the commencement of the insolvency proceeding. Their main purpose is to ‘reconstitute the debtor’s patrimony and roll back every effect that the contract or transaction may have brought, given that they necessarily endanger its integrity’ Article 74 of Colombian Law 1116 introduces two different types of claw back actions. The first type is aimed to revoke any act performed by the debtor before the commencement of the insolvency proceeding, which caused or aggravated the insolvency. The second type is aimed to recharacterise any simulated transaction executed by the debtor with the purpose of concealing a fraudulent act.
The Constitutional Court has held that claw back actions seek to protect both the debtor and the creditors. The actions do not only enhance the probability of the creditor’s payment, but also the chances for the debtor to overcome the financial difficulties. Law 1116 has also given special importance to claw back actions, since they have become a very effective mechanism to protect the debtor’s patrimony, and therefore, the creditor’s interests. In fact, Article 74 encourages creditors to file this type of action by rewarding the claimant with 40% of the recovered value.

2. Jurisdiction and standing
The insolvency court will have jurisdiction to rule on the claw back actions. Nonetheless, since the judicial powers of the Superintendence of Companies are an exception (given that it is a governmental institution) this corporation has specifically held that its jurisdiction is limited to rule over acts that are performed by the debtor. Pursuant to Article 75 of Law 1116 of 2006, claw back actions may be exercised by any of the following: i) Any creditor of the debtor holder of a claim accrued prior to the performance of the act subject to the claw back and, the burden of proof to show the claim arose prior to such act is on the claimant. The Superintendence of Companies has held that, since claw back actions seek to protect the creditors against acts executed by the debtor that may adversely affect their interests, the creditors whose claims are subsequent to these acts could not have been affected by them and consequently are not entitled to request the revocation.