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marzo 31, 2023

Insolvency remoteness in Colombia

Insolvency remoteness is a legal concept that aims to protect assets from the insolvency of a company. In the context of securitization, insolvency remoteness is achieved by creating a special purpose vehicle (SPV) or special purpose entity (SPE) that is separate and distinct from the originator of the securitization.

The SPV or SPE is typically established as a bankruptcy-remote entity that holds the assets that are securitized, such as loans, receivables, or mortgages. The SPV or SPE issues securities, such as bonds or notes, that are backed by these assets.

The primary purpose of the SPV or SPE is to isolate the securitized assets from the bankruptcy or insolvency of the originator. This means that if the originator goes bankrupt, the assets held by the SPV or SPE are protected and can continue to be managed by the servicer or trustee appointed to oversee the securitization.

The insolvency remoteness of the SPV or SPE is achieved through a variety of legal mechanisms, such as the creation of a trust, the use of limited liability companies, or the establishment of a complex web of legal agreements. These mechanisms are designed to ensure that the SPV or SPE is legally separate from the originator, and that the assets held by the SPV or SPE are protected in the event of the originator’s insolvency.

While Colombia has its own legal framework for insolvency, it also has provisions that recognize the concept of insolvency remoteness in the context of securitization.

In Colombia, insolvency remoteness is typically achieved by creating a special purpose vehicle (SPV) or special purpose entity (SPE) that is separate and distinct from the originator of the securitization. The SPV or SPE is established as a bankruptcy-remote entity that holds the assets that are securitized, such as loans, receivables, or mortgages. The SPV or SPE issues securities, such as bonds or notes, that are backed by these assets.

The Colombian Civil Code recognizes the legal validity of SPVs or SPEs and allows them to be established for specific purposes, such as securitization. The Code also establishes the legal framework for trusts, which can be used as a mechanism for achieving insolvency remoteness in securitization transactions.

In addition, Colombia has implemented specific regulations that apply to securitization transactions, such as the regulations issued by the Colombian Financial Superintendency. These regulations establish specific requirements that must be met by the SPV or SPE, such as the requirement to maintain a separate legal existence, to have an independent board of directors, and to maintain separate accounting records.

Overall, while the concept of insolvency remoteness is recognized in Colombia in the context of securitization, the effectiveness of insolvency remoteness mechanisms may vary depending on the legal and regulatory framework of the jurisdiction in which the securitization takes place. It is important for parties involved in securitization transactions in Colombia to seek legal advice and ensure compliance with applicable regulations to achieve insolvency remoteness.

Autor: Andres Menendez LL.M

Abogado – Derecho Financiero- (Colombia) Profesional en cumplimiento normativo y manejo de riesgos legales para entidades financieras. Graduado con Maestría en derecho financiero de La Universidad Canadiense de York University. Especialista en prevención e investigación de lavado dinero.

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