In Colombia, the alternatives to secure loans are generally limited to pledges, mortgages and trusts over certain tangible and in existence assets. This limited scenario leaves out other valuable assets, which in turns results in a small loan market. However this situation has changed, a law has been recently enacted pursuant to which a person could grant liens over other intangible, future assets and other movable assets "to broaden the coverage for credits and to mark down their prices as the risk to grant credits is diminished" (Exposition of motives during the second debate to bill No. 143 of 2012 of the house of Representatives and 200 of 2012 of Senate). This law also adopts additional measures to protect creditors and to simplify the granting, priority and procedures to enforce the guarantee, among others. In this article, we will focus on these major features of the law.
A broad range of assets may be subject to movable guarantees, including rights and actions. For instance, the law allows movable guarantees over economic rights derived from intellectual property, rights to claim payments of moneys deposited with financial institutions and rights to enforce obligations of counterparties under a contract. In addition and as a very important change of the law, it will be possible to grant a movable guarantee on rights over future assets, which was not possible. Finally, movable assets that under Colombian law are deemed to be real estate because they are either physically attached to the land or meant to be used exclusively in the land may be subject to a movable guarantee; these types of assets were only subject to mortgages. Even though the law includes a list of the assets subject to movable guarantees, the same is not limited as any other movable asset could be subject to a movable guarantee if the parties agree on the economic value thereunder.
Some characteristics of the movable guarantees are that they will be easily granted and opposable against third parties. Movable guarantees may be granted by an agreement amongst the guarantor and the creditor identifying the secured obligation, its amount and a description of the assets subject to the guarantee. For this agreement to be opposable to third parties it must be registered in a public registry; however, a movable guarantee will also be opposable by means of the tenancy of the asset by the creditor or the execution of an account control agreement for moneys deposited with financial institutions.
The incorporation of accounts control agreement is a very important feature of the law. Pursuant to this, movable guarantees can be granted over monies deposited with a banking institution. Under previous legislation, for a lender to have a security interest over banking accounts it was required to have a trust in which the accounts were transferred and that allowed the lenders to have control over the same. By means of the accounts control agreement not only will the same purpose be achieved but also costs will be reduced and documentation will be simpler.
One of the innovations of the law is the incorporation of measures to protect creditors during the reorganisation or liquidation of the guarantor. Indeed, under past regulations, creditors were forbidden from continuing or initiating collection proceedings against a debtor in bankruptcy; however, by means of the law, assets subject to a movable guarantee may be foreclosed by the secured creditors if the same are not necessary to develop the economic activity of the guarantor in bankruptcy. Additionally, creditors with movable guarantees will have priority over the pledged asset either by receiving the proceeds of its sale or the asset itself as payment in kind. In the past, all creditors who were secured by pledges had the same priority in payment pro-rata to their credits with all pledged assets as oppose to having priority exclusively over the pledged asset.
Another highlight of the law is the collection proceeding. According to the same, upon default of the loan, the creditor has two options: to sell the assets subject to the movable guarantee without initiating a collection proceeding or to commence a collection proceeding. In the past in Colombia it was forbidden for creditors to dispose the pledged assets without initiating collection proceedings; however the law allows creditors to do so if the creditor has the tenancy of the asset or if it has been agreed in the contract. Alternatively, a creditor may also pursue a collection proceeding before a notary public or a chamber of commerce, competence that was exclusive of judges. This proceeding will also be faster because it incorporates mechanisms to avoid dilations and to dispose the guaranteed asset without public auction. In this regard, creditors could request that the loan is paid with the asset subject to the pledge or with the proceeds of its sale either directly or by means of auction. In any case, the parties may agree otherwise.
In the end, the law incorporates important modifications to facilitate access to the loan market in general and to structured financings in particular such as trade financing and project financing. Indeed, by broadening the scope of assets that could be subject to movable guarantees, improving their granting, priority and collection proceeding and incorporating additional creditor's protections in case of the bankruptcy of the guarantor, creditors will reduce their risks which, in turn, should be reflected in an increase of the granting of loans.