Updated June 16, 2026 · Fabio Castro Forero

Business insolvency and attachments: a guide to acting in a liquidity crisis

When a company is facing attachments, arrears with creditors and insufficient cash, the decision should not be driven by fear. This guide explains how to put cash and liabilities in order.

Category Corporate Law Updated June 16, 2026 Author Fabio Castro Forero

Corporate Law

Liquidity crisis

Review your cash, your creditors and any attachments before promising payments When there are arrears, pressure from creditors or precautionary measures, the strategy must put liabilities, operations and evidence in order before any decision is taken.

Dispute Resolution

Business insolvency and attachments: how to act in a liquidity crisis before it is too late

Business insolvency is not the end of a company. In Colombia, the law provides an orderly route by which a viable company can reorganize, protect jobs, honor its debts in a structured way and keep operating. The problem is that this route is almost always triggered late: when the attachments have already paralyzed the cash, when the most aggressive creditors have gained an advantage over the rest, and when the decisions of the first few weeks are no longer options.

This guide explains when a cash difficulty turns into real insolvency, what routes are opened by Ley 1116 de 2006, what immediate protection the opening of the proceeding produces, what mistakes make the situation worse before seeking its protection, and what documents you need to have ready. It is written for legal representatives, shareholders and officers who are wondering what to do when the company starts to break.

In briefLey 1116 de 2006 defines two proceedings: reorganization, to preserve viable companies and normalize their credit relationships, and judicial liquidation, to bring order to the end of a company that is no longer viable. The formal opening of the proceeding produces an immediate effect of great value: no creditor may begin or continue an individual enforcement action against the debtor (art. 20). That turns the insolvency proceeding into a tool of protection, provided it is used with real information, up-to-date accounting records and good faith.

The first diagnosis

Liquidity difficulties versus real insolvency: when to trigger the formal proceeding

A company can have cash problems without being insolvent. A difficult month, a customer who is late paying, an extraordinary expense that was not in the budget: these are treasury problems that are solved with direct negotiation, a bridge loan or a renegotiation of maturities. Insolvency is something different: it is the structural inability to honor obligations as they fall due, or the firm prospect that this inability will arrive in the short term even though there is still some cash today.

Article 9 of Ley 1116 de 2006 sets out the two conditions that give access to the reorganization proceeding:

1 Cessation of payments: default in the payment of two or more obligations in favor of two or more creditors for more than ninety days, or the existence of two or more enforcement lawsuits under way, provided the unsatisfied obligations represent at least ten percent of total liabilities.

2 Imminent inability to pay: where the debtor shows that there are circumstances in the course of its activity that seriously affect, or may reasonably seriously affect, the normal performance of its obligations falling due within one year or less. This ground does not apply to individual merchants.

The practical difference between the two grounds matters because it defines the moment to act. Cessation of payments has already happened: there are overdue debts, there are active lawsuits, there is immediate pressure. Imminent inability is prospective: the company is still performing, but the signals indicate that it will not be able to hold out. Turning to the proceeding on the second ground, before everything collapses, usually produces better results: there are more assets to negotiate with, more credibility with creditors and more room to design a realistic agreement.

Two simple questions help you get your bearings: how long can the company keep operating on its current cash flow without refinancing? And is there a viable business if the liabilities are put in order, or is the cash merely postponing a larger loss? The first question is financial. The second is legal and strategic.

The legal framework

Ley 1116 de 2006: what the reorganization proceeding is and what it is for

Ley 1116 de 2006 is the business insolvency regime in Colombia. Its article 1 defines the purpose of the system with precision:

Article 1, Ley 1116 de 2006 — Purpose of the insolvency regime

"The judicial insolvency regime governed by this law has as its purpose the protection of credit and the recovery and preservation of the enterprise as a unit of economic exploitation and a source of employment, through the reorganization and judicial liquidation proceedings, always under the criterion of adding value.

The reorganization proceeding seeks, through an agreement, to preserve viable enterprises and to normalize their commercial and credit relationships, by means of their operational, administrative, asset or liability restructuring.

The judicial liquidation proceeding pursues a prompt and orderly liquidation, seeking to make the best use of the debtor's estate."

Three concrete objectives emerge from that text. First, to protect credit: creditors must be able to collect, but in an organized and equitable way, not through a race in which whoever sues first wins. Second, to preserve the company as a source of employment: the law does not seek to liquidate by default; it prefers reorganization where there is a business worth preserving. Third, to add value: the proceeding must produce more than a chaotic liquidation would, not merely redistribute losses.

That logic changes how insolvency is read. It is not a defeat, nor a declaration of bankruptcy: it is a legal proceeding designed so that a company in difficulty can settle its obligations in an orderly way, with judicial supervision, a stay of individual pressure and real room to negotiate with all the creditors at the same time. The stigma of "filing for insolvency" usually costs more than the proceeding itself.

Who can and who cannot

Who can seek protection under Ley 1116 and who is excluded

Not every company can turn to this regime. Article 2 of Ley 1116 defines who is subject to the insolvency regime:

Article 2, Ley 1116 de 2006 — Persons subject to the insolvency regime

"Individual merchants and legal entities not excluded from its application, which carry on permanent business in the national territory and are private or mixed in character, shall be subject to the insolvency regime. Likewise, branches of foreign companies and the patrimonios autónomos (separate trust estates) devoted to carrying on business activities shall be subject to the insolvency regime."

In practical terms, the following can enter the proceeding: sociedades anónimas, sociedades por acciones simplificadas (SAS), sociedades de responsabilidad limitada, empresas unipersonales, individual merchants with permanent activity in Colombia, and branches of foreign companies.

However, article 3 expressly excludes a set of entities that have special regimes of their own:

Excluded entity	Reason for the exclusion	Applicable regime
Entities supervised by the Superintendencia Financiera de Colombia	Banks, financing companies, financial cooperatives, pension funds	Special regime of financial intervention
Residential public utility companies	Electricity, gas, water supply, sewerage, waste collection	Ley 142 de 1994 and sector-specific rules
Entidades promotoras de salud (EPS)	Insurers within the health system	Superintendencia Nacional de Salud
Stock exchanges and central counterparty clearing houses	Capital market infrastructure	Superintendencia Financiera
Public law entities	The national government, departments, municipalities, decentralized entities	State fiscal accountability regime
Individuals who are not merchants	Consumers with no permanent business activity	Ley 1564/2012 — insolvency of the non-merchant individual

Verifying whether the company is or is not within the regime is the first step before assessing any insolvency strategy. An excluded company that tries to seek protection under Ley 1116 will not obtain the protective effects the proceeding produces; it needs to identify its own special regime and act within it.

The most valuable effect

The immediate effects of the opening of the proceeding: the automatic stay of attachments and lawsuits

The most concrete and immediate benefit of the formal opening of the reorganization proceeding is in article 20 of Ley 1116. Its text is direct:

Article 20, Ley 1116 de 2006 — New enforcement proceedings and enforcement proceedings under way

"From the date on which the reorganization proceeding begins, no enforcement lawsuit or any other collection proceeding against the debtor may be admitted or continued."

Enforcement proceedings under way must be referred to the insolvency judge. Precautionary measures shall be placed at the disposal of the insolvency judge, who will determine whether to maintain or lift them as best suits the objectives of the proceeding.

Any act in contravention of this provision shall be null and void as a matter of law. Judges who fail to comply will incur grounds of misconduct.

This article produces three parallel effects from the moment of the formal opening of the proceeding:

1 Freeze on new enforcement actions: no creditor may bring a new enforcement proceeding against the debtor. The mandamiento de pago that was about to be issued is blocked.

2 Stay of enforcement proceedings under way: the enforcement proceedings that were already active must be referred to the insolvency judge. The attachments levied and the judicial sequestrations of assets carried out come under the supervision of the insolvency judge, who will decide whether to maintain or lift them.

3 Nullity of contrary acts: any creditor who tries to continue or begin an individual collection after the opening acts in contravention of the law, and its acts are null and void as a matter of law.

The practical importance of this is considerable. In a crisis with no insolvency proceeding, each creditor acts on its own: whoever sues first attaches first, whoever has better access to the courts collects faster, whoever holds better security enforces and leaves the rest with no assets. The reorganization proceeding puts an end to that competition: it turns a conflict of all against all into a collective proceeding supervised by the insolvency judge.

It is important to stress that the stay operates from the formal opening of the proceeding, not from the application. The law also provides in its article 17 that, from the filing of the application, the officers are subject to restrictions: they may not adopt amendments to the bylaws, create security over the company's own assets without judicial authorization, make payments outside the ordinary course of business, or dispose of assets outside normal operations. Failure to observe those restrictions results in immediate removal, fines and joint and several liability. Good faith in management during the proceeding is not optional.

Two different routes

Reorganization versus judicial liquidation: when each proceeding applies

Ley 1116 distinguishes two proceedings with opposite logics. The first preserves; the second closes. Choosing the right one is not a matter of preference: it depends on whether the company still has a viable business or whether the operation no longer justifies its continuation.

Dimension	Reorganization (Ley 1116, arts. 1 and 9)	Judicial liquidation (Ley 1116, art. 50)
Core objective	Preserve the company, normalize credit relationships, restructure operations or liabilities	Liquidate the debtor's estate promptly and in an orderly way
Necessary condition	A company with a viable business: customers, revenue, margin or assets that justify continuing	A company that can no longer continue, or whose reorganization failed or was breached
Expected outcome	Reorganization agreement approved by the creditors and confirmed by the judge	Realization of assets and payment to creditors according to the statutory order of priority
Effect on the legal entity	The company continues to exist and to operate under the terms of the agreement	Dissolution of the debtor legal entity (Ley 1116, art. 50)
Effect on employment contracts	The employment contracts remain in force; employment claims are recognized and ranked	Termination of the employment contracts and payment of compensation (Ley 1116, art. 50)
Effect on the corporate bodies	The officers continue subject to restrictions; the promotor acts as a mediator	Removal of the officers and cessation of the functions of the corporate bodies (art. 50)
Voluntary access	Yes, the debtor may request it before reaching total cessation	It may be requested by the debtor or ordered when the reorganization has failed

Article 50 of Ley 1116 (Colombia's Insolvency Act) describes the effects of the opening of judicial liquidation with precision: the company is dissolved, the corporate bodies cease to function, the officers are removed, the employment contracts end with a right to the corresponding compensation (C-071/2010, Corte Constitucional), all term obligations become immediately due and payable, and paying creditors outside the proceeding is prohibited.

The practical message is clear: if the company still generates revenue, keeps its customers and has an operating structure that can work once the liabilities are eased, reorganization is the way. If there is no business left behind it, or if an earlier reorganization failed, an orderly liquidation produces more value than continuing to operate aimlessly, destroying assets while the debts grow.

Priority in a crisis

Employment claims and their priority: workers are first-class creditors

In any insolvency proceeding, not all creditors are paid in the same order or on the same terms. Colombian law establishes a system for ranking claims (prelación de créditos) that determines who is paid first when the assets are not enough for everyone. Employment claims hold a privileged position in that system, and that has direct consequences for the strategy of a company in insolvency.

Article 65 of the Código Sustantivo del Trabajo (Colombia's Labor Code) reinforces that protection by establishing the sanción moratoria (the statutory penalty for late payment) for failure to pay wages and benefits on termination of the contract:

Article 65, CST — Sanción moratoria for failure to pay on time

"If, on termination of the contract, the employer does not pay the worker the wages and benefits owed, except in cases of withholding authorized by law or agreed by the parties, it must pay the employee, as compensation, a sum equal to the last daily wage for each day of delay, for up to twenty-four (24) months, or until payment is made if that period is shorter."

Once twenty-four months have elapsed without the worker having brought a judicial claim, the employer must in addition pay default interest at the maximum rate for unrestricted-allocation credit certified by the Superintendencia Bancaria, from the twenty-fifth month until payment is made.

That penalty does not disappear because the company is in insolvency. On the contrary: if workers are first-class creditors and their claims are recognized and ranked in the insolvency proceeding, the arrears accrued before the formal opening become part of that privileged claim. An officer who prioritizes other payments and leaves workers in arrears is, in practice, enlarging a debt that will rank ahead of all the others.

Ranking of claims

Table: type of claim, priority and what happens in each proceeding

The order in which creditors are paid in an insolvency proceeding is not negotiable: it is set by law. Knowing it in advance helps you understand what the company can offer in a reorganization agreement and what outcome each class of creditor can expect in a liquidation.

Type of claim	Statutory priority	In reorganization	In liquidation
Court costs and expenses of the insolvency proceeding	Administrative expenses: paid first	Covered out of operating revenue during the proceeding	Deducted from the insolvency estate before any distribution to creditors
Employment claims (wages, statutory benefits, compensation payments)	First class — highest priority among creditors	Recognized and ranked; the agreement must respect their privilege; arrears keep generating the penalty (CST art. 65)	Paid before financial or trade creditors; contracts terminate with compensation (Ley 1116 art. 50)
Tax claims (taxes, withholdings, social security contributions)	Tax claims: high priority, after employment claims	Recognized in the proceeding; the DIAN (Colombia's tax authority) and the UGPP (the pensions and payroll-contributions authority) take part as creditors	Paid in priority over unsecured claims; immediate acceleration (art. 50)
Secured claims (mortgage, pledge, security interest in movable property)	Preferential: paid out of the encumbered asset	The encumbered asset answers for the debt; the agreement may include terms on those assets	The asset is realized and the preferential creditor is paid first out of the proceeds
Unsecured claims (suppliers, trade creditors without security)	Last class — paid out of whatever is left	They take part in the agreement on relatively equal terms; they may propose and vote on the plan	Paid pro rata out of whatever remains after the privileged claims; high risk of partial or no recovery
Claims with enforcement actions — CGP art. 422	It does not determine priority by itself, but it triggers an enforcement proceeding	The enforcement proceeding is stayed on the opening (Ley 1116 art. 20); the creditor becomes a party to the insolvency proceeding	The enforceable claim is folded into the liquidation proceeding; its actual priority depends on its class

A note on títulos ejecutivos (enforceable instruments): article 422 of the Código General del Proceso (Colombia's General Procedural Code) provides that enforcement may be sought for express, clear and due obligations recorded in documents originating from the debtor or from the debtor's predecessor in title, or arising from a judgment ordering performance or another judicial ruling. That includes invoices, promissory notes, bills of exchange, loan agreements and arbitral awards. The opening of the insolvency proceeding does not extinguish the instrument's enforceable character: it simply moves collection to the insolvency judge, within the collective proceeding.

What makes everything worse

The 7 mistakes that make the situation worse before entering the proceeding

Most of the problems Cafore encounters when a company in crisis arrives do not come from the insolvency itself: they come from the decisions taken before anyone recognized that it was time to act. These are the most frequent and most costly mistakes:

1 Paying only the creditor who pushes hardest. The logic of "I pay off whoever makes the most noise" destroys the company's position in an insolvency proceeding. In reorganization, payments made in the suspect period before the opening may be challenged by other creditors as preferential payments. Besides, statutory priority does not track how aggressive the collection effort is: a supplier who threatens may be unsecured, while a worker who has said nothing holds a first-class claim.

2 Promising payment dates without verifiable cash. Every broken promise erodes credibility with the creditor and may become evidence of bad faith. In an insolvency proceeding, the traceability of communications matters. Documents promising impossible payments are read in the context of how the debtor was managed and may affect the position of the executives.

3 Signing new títulos ejecutivos to buy time. Turning a disputable debt into a promissory note or a written acknowledgment of debt closes off defenses. A creditor who previously had to prove the obligation now holds a título ejecutivo (CGP art. 422) that opens directly the route of the mandamiento de pago (the court order to pay that opens enforcement). Before signing any new instrument in a period of crisis, it is advisable to review the full legal impact.

4 Concealing assets or keeping a parallel set of books. In an insolvency proceeding, the debtor must submit a complete inventory of assets and liabilities. Concealing assets does not merely invalidate the proceeding: it may give rise to criminal liability for the officers. And the discovery of inconsistent accounting destroys the credibility of the reorganization plan before the creditors and the judge.

5 Selling strategic assets at fire-sale prices. Selling machinery, vehicles, inventory or accounts receivable below market value in order to generate immediate cash may look necessary, but it shrinks the pool of assets available for the insolvency proceeding. If the sale is made to related parties or at clearly disadvantageous prices, creditors may challenge it as an act to the detriment of the estate.

6 Not keeping the accounting records up to date. The reorganization proceeding requires financial statements that are reliable, up to date and signed by an accountant. A debtor who arrives without current accounting records cannot prove the admission requirements, cannot demonstrate viability and cannot present a credible reorganization plan. The accounting records are the documentary basis of everything that follows.

7 Mixing personal and corporate funds to "plug holes". When a shareholder puts their own money into the company without support in the minutes or clear terms, that transfer may be read as a loan (a subordinated claim in the proceeding) or as a capital contribution (which creates no payment preference). Blurring personal and corporate assets may also affect the shareholders' liability and compromise the separation the company offers as a shield.

Before you start

The documents you should prepare before starting the proceeding

The reorganization proceeding does not begin with a decision: it begins with a folder of documents. The insolvency judge, the creditors and the appointed promotor (the court-appointed insolvency administrator who mediates between debtor and creditors) need real information in order to assess whether the company is viable, how much it owes, whom it owes and what assets it has available. Arriving without that information does not stop the proceeding, but it delays it and weakens the debtor's position from day one.

This is the minimum documentation worth preparing before filing the application:

Financial statements for the last three years signed by an accountant or a statutory auditor, plus the most recent trial balance. They must reflect the real situation, not the optimistic one.
An up-to-date inventory of debts: creditor's name, amount of the debt, due date, nature of the obligation (employment, tax, financial, commercial), whether there is security and the status of collection (current, in arrears, in court proceedings).
Inventory of assets: real property with certificados de tradición (certificates of title and encumbrances), vehicles with their registration documents, machinery with a valuation, merchandise inventory, aged accounts receivable, trademarks and intangible assets. It must include assets encumbered by security.
An up-to-date payroll: a list of workers with position, wage, length of service, payment status of wages and benefits, social security enrollment and any outstanding employment debts.
A thirteen-week projected cash flow: actual expected inflows, unavoidable payments, critical maturities and available headroom. Not optimistic projections: conservative projections based on signed contracts and recent collection history.
A list of active judicial and administrative proceedings: attachments, mandamientos de pago, judicial sequestrations of assets, requerimientos (formal notices) from the DIAN or the UGPP, investigations by the Superintendencia de Sociedades (the Colombian companies regulator).
Corporate minutes for the last two years: decisions of shareholders' meetings or juntas de socios on debts, security, sales of assets, capital increases and profit distributions.
Contracts essential to the operation: leases of the commercial premises, critical supply agreements, service agreements that generate the main revenue.

This folder has two uses. The first is legal: it is the basis for drafting the application for admission to the proceeding. The second is strategic: putting it together forces the company to look at itself honestly before taking the decision, and it sometimes reveals that the situation is better or worse than it looked from the inside.

The moment to decide

An 8-point checklist to assess whether it is time to seek protection under Ley 1116

There is no perfect moment to take a difficult decision. But there are signals showing that waiting is no longer advisable. Use this list as a starting point for the conversation with your legal adviser: if you check four or more of these points, the insolvency proceeding probably deserves a formal assessment.

Proven cessation of payments: there are two or more obligations overdue by more than ninety days in favor of two or more creditors, and those debts represent at least ten percent of total liabilities (Ley 1116, art. 9).
Two or more active enforcement lawsuits: there are mandamientos de pago issued, attachments levied or enforcement proceedings under way that the company cannot meet one by one without stripping its own capital.
Cash is not enough to cover payroll or social security: workers are first-class creditors and arrears on wages generate a daily sanción moratoria (CST art. 65). Deferring payroll makes the most privileged debt worse.
The banks have cut or closed credit lines: when financial institutions detect signs of insolvency, new credit disappears. Operating with no credit available in a business that needs working capital is a sign of structural deterioration.
Strategic assets are under a precautionary measure: an attachment over bank accounts, over production machinery or over accounts receivable can paralyze the operation faster than any other event. The stay of enforcement proceedings (art. 20) may be the only tool available to lift that pressure.
The shareholders or the legal representative have signed personal guarantees: when the crisis reaches the officers' personal assets, the company's insolvency proceeding is no longer just a business decision. There are personal assets at stake that require a separate assessment.
The company is viable if the liabilities are eased: there are active customers, recurring revenue, contracts in force and an operation that generates value above its variable costs. The problem is the weight of the historical debts, not the viability of the business itself.
The accounting records are up to date and the financial statements are reliable: starting the proceeding without solid accounting information is very difficult. If the accounts are behind or show inconsistencies, the first step is to bring them up to date before filing the application.

Sources and related reading

Legislation cited and further resources

The following are the verified legal sources on which this guide rests. All article references correspond to the texts in force and verified; the numbering corrections indicated in the body of the article are supported by direct reading of the provisions:

Ley 1116 de 2006 — Business insolvency regime in Colombia. Arts. 1 (purpose), 2 (persons covered), 3 (persons excluded), 9 (admission requirements), 17 (restrictions on the debtor from the date of the application), 20 (stay of enforcement proceedings and attachments), 50 (effects of the opening of judicial liquidation). Text at Función Pública or through leyes.co.
Código Sustantivo del Trabajo (CST), art. 65 — Sanción moratoria for failure to pay wages and benefits on termination of the contract: one day's wages for each day of delay, for up to twenty-four months, with default interest from the twenty-fifth month.
Código General del Proceso (CGP), Ley 1564 de 2012, art. 422 — Título ejecutivo: express, clear and due obligations recorded in documents from the debtor, or arising from a judgment ordering performance or another judicial ruling.
Superintendencia de Sociedades — The agency that administers the insolvency proceedings of commercial companies and other entities subject to its supervision. Its guides for debtors and creditors are available at www.supersociedades.gov.co.

To go deeper into related topics, you may consult our guides on corporate law, commercial law for companies and the liability of the legal representative. In a business crisis, those areas frequently intersect.

Content prepared by Cafore Abogados as a general guide for Colombia. It does not replace a review of the documents, proceedings, contracts and specific facts of each company. Insolvency strategies depend on the specific case, the type of creditors, the assets available and the moment at which action is taken. Updated in June 2026. The articles cited correspond to the texts verified in the primary sources; any use in a concrete context must be validated with the lawyer in charge of the case.

Is your company facing a liquidity crisis?

Act before the attachments decide for you

At Cafore we assess your company's financial and legal situation, identify the most suitable route and accompany you in the negotiation with creditors or in the insolvency proceeding. The first conversation is to understand the problem, not to commit to a solution we do not yet know.

We answer your questions

Frequently asked questions

Can the company keep operating during the reorganization proceeding?

Yes. Reorganization does not suspend the operation: the company stays open, generates revenue, pays the current payroll and meets its ordinary-course obligations. What changes is that the officers become subject to restrictions on taking decisions outside the ordinary course of business without judicial authorization (Ley 1116, art. 17), and creditors may no longer enforce their claims individually (art. 20). The appointed promotor acts as a mediator between the debtor and the creditors, and oversees that the company does not take decisions that harm the estate.

What happens to contracts in force during the insolvency?

Continuing-performance contracts that are essential to the operation —the lease of the premises, the supply of critical raw materials, service agreements that generate the main revenue— remain in force in the reorganization proceeding. In judicial liquidation, by contrast, article 50 of Ley 1116 provides for the termination of continuing-performance contracts that are not essential to the proceeding. The distinction between "essential" and "non-essential" is drawn by the insolvency judge in each case. Employment contracts also end in liquidation, with a right to the corresponding compensation.

Are the shareholders personally liable for the company's debts in insolvency?

It depends on the type of liability they assumed and on their conduct during the crisis. In a SAS (sociedad por acciones simplificada, Colombia's simplified stock corporation) or in a sociedad de responsabilidad limitada, the general rule is that shareholders are liable up to the amount of their contributions. But that protection falls away in several scenarios: if they signed as co-debtors, sureties (avalistas) or guarantors of the company's obligations; if it was shown that they used the company to defraud creditors (acción de desestimación de la personalidad jurídica, the action to pierce the corporate veil); or if, acting as officers, they acted with willful misconduct or gross negligence to the detriment of creditors. The question worth answering before starting the proceeding is what documents exist that evidence the officers' conduct during the crisis.

Are there criminal offenses for not paying in an insolvency crisis?

Commercial default is not in itself a criminal offense. A company that cannot pay its creditors because it genuinely does not have the resources commits no crime. Criminal risk appears in specific scenarios: when assets are concealed so as to keep them out of the creditors' reach; when financial statements are falsified; when funds entrusted to the company (customer advances, third-party money) are used for other purposes; when preferential payments are made to related creditors to the detriment of the rest; or when the payment promises are false from the outset. The distinction between default and fraud is factual: it depends on what the documents said, what was promised, what was paid and to whom. Organizing the evidence from the start protects the officers against that risk.

Can you negotiate with creditors before turning to the formal proceeding?

Yes, and in many cases it is the right first step. Private negotiation has advantages: it is confidential, it is flexible and it requires no judicial supervision. But it has limits: if there are many creditors with different interests, negotiating bilaterally with each one takes time and may produce contradictory agreements. Besides, while the negotiation is going on, the creditors who are not part of the conversation may continue to enforce. The insolvency proceeding adds value precisely in those cases: it summons all the creditors at the same time, stays individual enforcement actions and makes it possible to design an agreement that binds everyone. The combination that usually works best is to negotiate first with the key creditors in order to build the majorities that will support the plan, and then to formalize that negotiation within the insolvency proceeding.

How long does the reorganization proceeding take?

The law sets time limits, but the actual duration depends on the complexity of the case, the number of creditors, the quality of the information available and the parties' willingness to negotiate. As a reference, from the admission of the application to the approval of the reorganization agreement the proceeding may take between six months and a year in well-prepared medium-sized cases. Proceedings with deficient accounting information, many objecting creditors or assets that are difficult to value may run considerably longer. The cost of the proceeding includes the promotor's fees, court costs and the time the officers devote to documenting it: all of these are elements worth taking into account when assessing viability.

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