August 19, 2016
On the 10th of June, during the second part of a hearing with a massive attendance the Superintendence of Corporations (the "Superintendence"), such authority recognized in Colombia the process of insolvency that Pacific Exploration and Production Corporation and its subsidiaries (the "Pacific Group"), advances in Canada.
This is the first significant case in which the Superintendence is in a position to implement the cross-border insolvency regime contained in the Law 1116 of 2006 (the "Act"), which is strongly inspired by the Model Law on Cross-Border Insolvency of the United Nations Commission on International Trade Law (the “Model Law”).
The Pacific case has left many lessons. The aim of this article is to highlight the most important for the practice of cross-border insolvency in Colombia.
Nothing in the section of the Act concerning the cross-border insolvency regime provides for the holding of hearings to decide on the request to recognize a foreign insolvency proceeding in Colombia. Nevertheless, in view of the general rules on reorganization and liquidation and the guiding principles of the General Code of Procedure, the Superintendence settled the matter in a public hearing. The Superintendence also ensured the participation of Colombian creditors and other stakeholders.
The decision to recognize a foreign insolvency process does not depend on factors other than those expressly contained in the Act. After confirming that the Canadian process was indeed a process in accordance with the provisions of Article 87.1 of the Act, and that the recognition was requested by who has the status of "Foreign Representative", the Superintendence was bound to recognize the foreign proceeding in our country. The only exception to this rule would occur when, at recognizing the foreign proceeding, Colombian public order is infringed. This circumstance, however, "should emerge in an evident manner and beyond doubt", the Superintendence stated.
III. Center of main interests of the debtor - COMI
Neither the Act nor the Model Law, provide regulatory elements for determining when a foreign insolvency proceeding should be treated as principal or not principal. The only available reference is that to the presumption that the debtor's place of incorporation is its COMI. In the Pacific case there was much debate about the location of the group’s COMI. The group has its headquarters in Canada, and dozens of subsidiaries in different jurisdictions, but it operates mainly in Colombia. To solve the issue, the Superintendency resorted to international instruments and doctrine and comparative case law, according to which, among the factors to be taken into account when determining the location of the COMI, it can be considered, among others,, the location of the administration place where decisions are made, the location of employees and creditors, the domicile of major contracts, the domicile of the reorganization of the debtor and where financing is organized or decided. In weighing these elements, the Superintendence found that the COMI of the Pacific Group is in Canada.
IV. Domestic processes
Confirming the precedent that was established in the Q-Bex and Global Geophysical Services cases, the Superintendence clarified that the recognition in Colombia of the foreign insolvency process of a company that owns a branch in our country does not automatically triggers the initiation of a domestic process regarding the Colombian branches. The latter, with the exception of the case where the branch itself is insolvent. It could not be otherwise because, the Superintendence reasoned that, failing a default there are no debts subject to reorganization, and it would not be well-founded to impose a reorganization proceeding to creditors whose obligations that are current.
V. Local creditors
The main role of the Superintendence in these matters is the protection of local credit. The Superintendence did not hesitate and demanded guarantees for the payment of national debt from the Pacific Group and even imposed other additional measures.
The landscape of the Colombian insolvency regime changed for good last June. The precedent set by the Superintendence, in front of thousands of spectators and participants, will certainly favor the Colombian trade scenario by providing predictability on crucial issues upon which reigned only uncertainty.