Colombia collection profile

Companies must report their financial information annually to the Superintendence of Corporations (Superintendencia de Sociedades de Colombia) and the Commerce Chambers (Camara de Comercio) located in the main cities. However, in some cases relevant and reliable financial information is difficult to obtain due to the informality of the SMEs that represent the majority of Colombian companies. Private channels may help obtain reputational data and use of specialized providers is recommended.

Allianz Trade allocates each company a grade reflecting its financial health and how it conducts business. Allianz Trade grades represent a core of our knowledge and analyses, helping clients identify and avoid risk. Data is continuously monitored to offer the most up-to-date information to support management decisions.

Liability for business debts is determined by legal structures, which may be described as follows:

• Limited Partnerships (Sociedad en Comandita) involve one or more managing partner (jointly liable for the company’s operations and debts) together with silent partners. Partners are liable in two different ways: a backer’s liability is limited to the amount contributed while a representative shares full responsibility. It is important to note that these types of companies are decreasing due to the high levels of risk for their shareholders.
• Limited Liability Companies (Ltda.) require a minimum of 2 partners (up to 25), each liable for the amount of their capital contributions. Management is made through a board of partners and decisions are taken in proportion to the partners’ shares.
• Corporations (SA) require a minimum of five shareholders, each being liable for the amount of their capital contribution.
• Simplified Shares Corporations (SAS) are increasingly relied upon as the main incorporated structure as they may be owned by a single shareholder whose liability is also strictly limited to their contribution.

Article 1629 of the Colombian Civil Code clearly stipulates that all cost caused by collection activities are to be supported by the debtor, if costs and efforts undertaken to recover the debt can be justified.

Article 310 of the General Code of Procedure establishes the right ownership protection of an asset to retain it until the debtor pays the obligation. In practice, this concept is unusual, as the debtor usually already owns the property.

Colombia has a codified Civil Law system inspired by continental legal frameworks, distinguishing constitutional and administrative jurisdiction from ordinary jurisdiction (civil and commercial).

In the first instance, claims are allocated to Municipal Courts and Circuit Courts depending on the amount of the claim. Different Courts of Appeal (Tribunales Superiores del Distrito Judicial) then deal with cases in their specific districts, depending on their expertise.

Civil procedure is governed by the General Procedure Code (Decrees No. 1400 and No. 2019 of 1970) – the last amendment (Law No. 1564 of 2012) coming into force in January 2014. Colombia also has a codified Commercial Law with a special policy and judgment process for companies and debtors. In a Civil Court, it is important to differentiate between ordinary and executive processes, as the policies are applicable to the latter regardless of whether it is a private individual or a company.

As a result of the last amendment of 2012, civil and commercial procedures ought to become more verbalized in the future but, in the meantime, formal legal action remains overly lengthy and unreliable. As a result, amicable settlement opportunities should always be considered as a strong alternative to formal proceedings. It is important to clarify that it is mandatory (under Law 640 of 2001) to conduct conciliation or mediation hearings before commencing formal proceedings (and pre-trial mediation must also be conducted in administrative litigations under Statutory Law of Justice Administration n°270 of 1996) in ordinary processes. However, it is not compulsory in executive processes.

Before starting legal proceedings against a debtor, assessment of their solvency and assets is essential as it allows verification as to whether the company is still active and whether recovery chances are at best: if insolvency proceedings have been initiated, it often becomes impossible to enforce a debt (see below).

It is worth noting that most conciliations are agreed before the matter goes to court as an attorney will look to resolve the matter in conciliation or arbitration centers. Procedural costs and delays are significant, so court proceedings should be avoided overall. On the other hand, the court system has too many requirements to accept security titles.

Ordinary legal action would usually commence when amicable collection has failed. When the debt is certain and undisputed (for instance if a promissory note, invoice, security is available as provided under Law 1231 of 2008) the creditors may initiate executive proceedings to obtain a Payment Order, in which case the debtor must comply with the decision (or bring a defence) within 3 to 10 days. Having said this, Law 1231 has made it more difficult to commence proceedings based on an invoice because it has established various restrictive conditions to their admissibility.
Otherwise, formal proceedings may commence as soon as a judge has authorized the action, and the debtor has been served with a Writ. The debtor must answer the claim within 10 days, but any failure of the defendant to bring a defence would normally lead the judge to issue a default judgment depriving the defendant their right to appeal. Otherwise, the courts would systematically invite the parties to attend a mediation proceeding to reach an agreement. If the parties fail to do so, evidence collection may commence, and the court will consider the parties arguments before rendering a decision.

The courts would usually award specific performance or issue an order to execute an obligation or abstain from doing something. As a rule, the claimant must be fully compensated so the courts tend to award damages by considering profit losses. Similarly, interest on overdue debts is usually awarded upon the claimant’s request. However, there are no punitive damages under Colombian law.

As a general rule, claims must be brought within specific periods of time which vary depending on the subject matter. Ordinary proceedings must be brought within 10 years, debt-related claims within 5 years (6 months for bad checks, 3 years for negotiable instruments). Insurance and transportation claims must be presented within 2 years. Courts have no authority to alter time limitations which are considered a matter of substantive law, but cases are rarely dismissed due to time limitation issues.

• Original invoices (for executive processes)/copies of invoices (for ordinary processes)
• Promissory notes
• Detailed account status
• General information about debtor
• Power of attorney

- The graphic representation of the electronic invoice.

- The XML file of the electronic invoice.

- Proof of invoice sending (traceability): This seeks to validate that the electronic transaction of sending and receiving the electronic invoice was carried out properly, to prove that the recipient has received it and accessed its content, since subsequent acceptance depends on this transaction.

- Delivery notes, receipts, service delivery notes, etc., and in general any document certifying the delivery of the product or service. It is important that this document contains the signature of the obligated party, as this is proof of receipt of the product or service.

Provisional measures (autos) may help to preserve the creditor’s interests pending a final and enforceable judgment. Indeed, the courts may order protective pre-action measures such as attachment and sequestration of the defendant’s assets, ex parte (without the presence of both parties) to avoid irreparable damage, preserve the status quo or to protect evidence. However, the courts would usually order the claimant to provide security on costs in order to protect the respondent from irresponsible action.

The parties may lodge an appeal within 3 days of service. Decisions rendered in the first instance are brought before the judge, and if there is a second instance it is brought before Supreme Courts only rarely review executive process decisions rendered in appeal (casación). Arbitration awards are not subject to appeal.

Legal proceedings in Colombia are generally public, and a third party can access basic information about the case. However, access to the file with the detailed proceedings is only possible for those involved in the process.

As previously mentioned, use of ADR methods has increased over the last few years following the introduction of mandatory conciliation proceedings as a prerequisite to bringing a claim before the courts (Law 640 of 2001) in ordinary proceedings. The settlement agreements achieved through this phase are binding and enforceable as final judgments. Nevertheless, in executive processes, conciliation before legal action is not mandatory. In order to streamline the procedure, original documents are obtained to ensure the seizure and collect directly.

In addition, domestic or international arbitration proceedings provide for confidential settlement opportunities while arbitral awards are final and enforceable. Though arbitrators are entitled to grant interim relief, ADR methods have shown no monetary benefit because they are expensive and often do not resolve the conflict. If legal action is subsequently taken, proceedings are influenced by issues resolved during the arbitration.

In Colombia, there are alternative methods of conflict resolution, such as conciliation, amicable settlement, and arbitration.

Conciliation: The parties appear before an impartial, neutral, and qualified third-party called a “conciliator”, who manages the differences between them and invites them to reach a conciliatory agreement. If possible, this agreement is binding on the parties and provides enforceability.

Amicable settlement: The parties delegate to a third-party called an “amicable settlement agent” the task of defining the dispute. This decision is binding on the parties and provides enforceability.

Arbitration: The parties submit their dispute to an impartial and qualified third-party, who will issue a decision that is binding on the parties and will result in a court ruling. This process, due to its specialized nature, is very costly.

It is relevant to emphasize that Colombian law does not allow the parties of a contract to limit or waive the jurisdiction of Colombian courts through foreign jurisdiction clauses. In practice, the courts of Colombia strongly protect their role towards public policy preservation and have thus only admitted foreign jurisdiction clauses in international arbitration proceedings (Article 62 of Law 1563/2012) or where the contract was to be executed abroad (article 869 of the Commercial Code).

When there are commercial relations between entities from different countries, an international arbitration tribunal clause may be stipulated in the contract.

It is relevant to emphasize that Colombian law does not allow the parties of a contract to limit or waive the jurisdiction of Colombian courts through foreign jurisdiction clauses. In practice, the courts of Colombia strongly protect their role towards public policy preservation and have thus only admitted foreign jurisdiction clauses in international arbitration proceedings (Article 62 of Law 1563/2012) or where the contract was to be executed abroad (article 869 of the Commercial Code).

A judgment is enforceable as soon as it becomes final (i.e. when all appeal venues have been exhausted) in ordinary processes. Usually, compulsory enforcement would occur through the seizure and auctioning of the debtor’s assets at the beginning of the executive process, since security titles and original invoices have been obtained.

By law (Law 1395 of 2010), first instance decisions in Colombia ought to be rendered within a year, while Courts of Appeal ought to render their decisions within an additional six-month period. In practice, it may take 5 years to obtain a first instance ruling while a full disputed lawsuit could spread over 10 years in ordinary processes, although in executive processes the lawsuit could take at least 5 years.

In principle, domestic courts would take longer to deal with cases involving a foreign party (since the originals would not be available) than to deal with cases involving domestic parties only. In practice, some extra delays would nonetheless occur depending on the complexity of each case.

Generally, the winning party may demand the court to hold the defeated party liable for the payment of the judicial tariff paid during the collection phase, the court fees as well as for part of the legal costs. Following the decision to strike down Law 1653 of 2013, Law 1394 of 2010 is now in effect. This law states that a court fee of 2% of the monetary claim applies once the legal process has been completed.

In executive process, conditional arrangements in which attorneys are not paid upfront but instead receive a fixed sum upon success and contingent fees whereby the legal professionals are entitled to receive a percentage of the final award are common in Colombia. Use of third-party litigation funding companies is also common. Instead, in ordinary process, costs are defined by stages of the process and will depend on the debt amount.

Although foreign decisions against Colombian debtors aiming at bypassing the authority of Colombian courts would not be enforced in Colombia (except in case of arbitration), domestic courts would normally enforce foreign judgments provided that they have been recognized by the Supreme Court of Justice, through an exequatur procedure, as having the value of a local judgment (Article 694 of the General Procedure Code).

The court would typically verify whether the foreign award is final and enforceable in the issuing country and whether the foreign court was seized with a matter normally falling under the exclusive jurisdiction of Colombian courts. It would also verify that the foreign decision was rendered without fraud while providing the parties with a due process of law. Of course, the foreign decision must be compatible with Colombian public policy. Recognition finally depends on reciprocity, which means that Colombian Courts will not recognize and enforce foreign decisions issued in countries which do not recognize Colombian decisions. Once exequatur is granted, the interested party may commence execution proceedings before a lower court.

In addition, Colombia is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958. Therefore, domestic courts also ought to recognize and enforce decisions rendered through international arbitration proceedings

The Colombian Insolvency Law (Law 1116 of 2006) provides for reorganization proceedings (similar to Chapter 11 proceedings in the United States), as well as judicial liquidation proceedings (similar to Chapter 7 in the United States).

Within the framework of the State of Economic, Social, and Ecological Emergency, the National Government issued Legislative Decrees 560 and 772 of 2020, adopting special transitional measures for insolvency proceedings. These decrees were permanently regulated by Law 2437 of 2024, which emphasizes insolvency proceedings for small businesses with assets less than or equal to five thousand legal minimum monthly wages (5,000 SMMLV). This decree provides an abbreviated reorganization process and a simplified liquidation process that meets the needs of micro and small businesses, establishing conflict resolution through conciliation for the prompt recovery of the business and employment, and facilitating creditor payments in the case of unviable companies. This decree regulates the Negotiation of a Reorganization Agreement (NAR) and the Business Recovery Process before Chambers of Commerce (PRE), expedited mechanisms with a maximum duration of 3 months. The debtor and its creditors must reconcile debts and finalize a payment agreement for subsequent confirmation by the Superintendency. 

Priority is always given to labour and tax claims, followed by secured, supplier, and other claims. The priority regime is usually applied when distributing proceeds to creditors, and the General Code of Procedure (articles 2495, 2497, and 2506) defines how credits should be repaid. Five classes of creditors are considered in order of priority: employee wages and tax credits, secured credits, mortgage credits, suppliers, and credits without prior preference.

The insolvency law establishes, from the moment of the application for admission, that the debtor is prohibited from making payments, offsets, transactions, agreements, among others, regarding outstanding credits until the time of admission. This results in penalties for both the creditor and the debtor.

Although it is difficult to estimate the average duration of a bankruptcy proceeding, given that it depends on cash flow, the general rule is that it takes around 10 to 15 years to comply with restructuring agreements.

There is no cost to the creditor to become part of the process; however, since this is a specialized process, it is recommended that a lawyer be hired to understand the subject matter, which incurs costs.