Closing Your Business in Colombia

by Michael Diaz Jr. - Diaz Reus International Law Firm
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In Colombia, as in many other countries, closing down or dissolving a business is often more complicated than setting up a new one. Although there is a lot of information related to setting up a company in this country, there is not much guidance on the process of shutting one down. Because things do not always go as planned, it is important for investors to obtain information on corporate dissolution in Colombia.  

Dissolution and Winding Up

Corporate dissolution is the resolution of corporate business. The process begins with the occurrence of a cause of dissolution. The dissolution is distinct from the “winding up” of the business. Even though “dissolution” appears to imply the end or termination of a company, it is actually the beginning of the process. According to article 222 of the Colombian Commercial Code, during the dissolution process a company continues for the sole purpose of winding up its activities. This means that the company loses its ability to perform new operations. After dissolution, the company remains exclusively for the purpose of determining the legal relationship established by the company with third parties and with its own members.

“Winding-up” refers to the process through which a company liquidates its remaining assets. During the winding-up stage, the liquidator must follow the priority-based method, established by the law, to discharge pending obligations with third parties. During this period, creditors may file claims to enforce their rights and obtain payment, in accordance with the priority and preferences established by law.

Reactivation of the Company

Pursuant to Law 1429 of 2010, companies and foreign corporate branches may agree to reactivate the company at any time during the winding-up process, provided that (i) the external liabilities are not greater than seventy percent (70%) of the corporate assets; and (ii) the remaining assets have not been distributed among the partners or shareholders.

Types

The dissolution and winding-up of a company may either be voluntary or court-ordered. Liquidators appointed by the partners of a company conduct voluntary dissolutions in accordance with the procedures prescribed by the Colombian Commercial Code. Liquidators appointed by the judicial authorities conduct court-ordered liquidations.

Causes

Dissolution can be trigged by (among others) the expiration of the company’s term, by the occurrence of certain circumstances prescribed by law or the company’s bylaws, or by the agreement of the partners. The stockholders’ meeting should be constituted with the quorum necessary to deliberate and decide. With the exception of the Simplified Share Corporation, which may only consist of one single member, all corporate meetings must deliberate with a plurality of shareholders representing at least one half plus one of the shares subscribed, unless the company’s bylaws provide for a different quorum. This means that a majority of shareholders must still depend on the presence of another partner to have a valid quorum in order to deliberate. Decisions are made according to the bylaws – usually the majority of votes present. This requirement of having a “plurality of members” present to deliberate and, therefore to adopt valid corporate decisions provides a great power to minority partners because they can block a corporate decision by not attending a meeting.

Registration

The dissolution resolution must be filed with the Chamber of Commerce located in the company’s main domicile and registered in the Mercantile Registry. After this process is complete, the company must always add to its corporate name the expression “En Liquidación.” This way, third parties are aware that a company is no longer able to perform new commercial activities.

Liquidator

A person appointed to carry out the winding up of a company is called a “liquidator.” If the winding-up is through the competent authority, the term used for such person is “official liquidator.” The duties of a liquidator include selling the property of the company, paying its debts, and distributing the surplus, if any, among the partners. According to article 238 of the Commercial Code, the general powers of liquidator(s) are, among others, the following: (i) to carry on the business of the company so far as it may be necessary or beneficial to it; (ii) to pay its creditors; (iii) to make any compromise or arrangement with creditors; and (iv) to sell the company´s property.

Finalization

The winding up process is concluded when the company cancels its Tax ID Number (RUT) before Colombian Tax Authority (DIAN) and its foreign investment status with the Colombian Central Bank. Cancellation can be done after the company’s final liquidation statement is filed with the Chamber of Commerce.

Diaz, Reus & Targ, LLP’s international dispute resolution team resolves complex transnational business, contractual and commercial disputes throughout Latin America, Asia, the Middle East, Europe and the United States. Our team has successfully handled complex, multi-jurisdictional cases and parallel proceedings for noted multinational corporations as well as for sovereign governments.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Michael Diaz Jr. - Diaz Reus International Law Firm | Attorney Advertising

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