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Arbitration
Overview
Including: Local Arbitration; International Arbitration; Recognition and Enforcement of Foreign Awards.
The Constitutional Court has decided that private parties are free to agree on the procedural rules that will govern a domestic arbitration. The ruling was rendered while reviewing the Amendment to the Statutory Law of Justice, approved by Congress in 2007. This decision ends a lengthy debate as to whether parties could freely agree on the applicable procedure.
Arbitration Bill Submitted to Congress
The government of Colombia recently submitted a bill to Congress that aims to consolidate the various provisions that regulate both national and international arbitration. Even though the bill reproduces almost verbatim a significant number of existing arbitration provisions, it introduces interesting modifications - particularly in connection with domestic arbitration involving state entities.
The Constitutional Court has upheld Law 1069/2006, which approved the bilateral investment treaty between Colombia and Spain. This is the second bilateral investment treaty to be approved unconditionally by the court. The court found no constitutional objection to arbitration - as provided for in the treaty - as a valid mechanism for resolving investment disputes.
In a surprising decision the Constitutional Court has revoked a previous decision which annulled an award issued by a national arbitral tribunal on the grounds that the matters involved could be subject to arbitration. The court stated that in local arbitration the parties may agree freely on the procedure to be followed by the arbitral tribunal.
The Constitutional Court has recently ruled that Article 7 of the Investment Stability Law, which does not provide for international arbitration for disputes on stability contracts, does not violate the Constitution. Among other things, the court held that disputes relating to state contracts must be governed by Colombian law and national arbitral tribunals are more qualified to apply national law.
Arbitral tribunals have held that they have jurisdiction to rule on the absolute nullity of contracts, even where the plaintiff had not invoked the nullity of the contract during the arbitration. These decisions are based on Civil Code provisions pursuant to which judges may, on their own motion, declare the absolute nullity of an agreement where the agreement is null on its face.
Banking
Overview
Including: Incentives for Expansion of Banking Services; Data Protection Issues; Money Laundering; Interest Rates.
Financial Reform Signed into Law
The Colombian Financial Reform Law introduces certain changes to the regulatory framework of the financial system. Among other things, it establishes a new regime for the protection of financial consumers, authorization for new activities for banks and new regulations for the development of microloans and microfinance.
There have been difficulties in the interpretation and execution of fiducie contracts, given the lack of clear rules regarding certain aspects of such contracts. Circular 46/2008, issued by the Financial Superintendence, addresses this and provides clearer parameters to fiduciary agreements, thus reducing uncertainty.
A bill currently being processed by Congress proposes establishing a state-regulated body that will resolves any disputes that may arise between financial institutions and their clients.
The Superintendency of Banks has issued a circular letter to all financial entities announcing changes to the ways in which credit risk may be analyzed. This update explains what sources of information may now be used to asses users' creditworthiness.
A recent decision by the Council of State offers protection for delinquent debtors. The decision states that once a person has met his or her financial obligations, information that classes him or her as a delinquent debtor must be removed from all databases so that he or she is not denied access to the financial system and to credit in general.
The new Colombian Criminal Code has attempted to identify banking crimes by giving more precise definitions of offences such as ‘economic panic’ and ‘usury’.
Capital Markets
Overview
Includes: Legal Framework; Superintendency of Securities; Register of Securities and Intermediaries; Stock Exchange; Public Offers; Securitization.
Self Regulation in Securities Markets
Decree 039/2009 allows self-regulatory organizations, among other things, to regulate every activity, transaction, service, product or market activity performed by the entities supervised by the Superintendencia Financiera (Colombian supervisory agency for financial institutions and securities market entities) and any other entity developing related activities that voluntary accepts the self-regulatory organization's jurisdiction.
The government has issued new rules on investors' rights and flexibility terms for foreign portfolio investments. The new rules facilitate the entrance and repatriation of capital and profits from foreign portfolio investments. Pursuant to these new rules, short-term foreign portfolio investments will be accepted without minimum duration restrictions.
The Colombian Superintendency of Securities has presented a proposal to amend rules regarding transparency and homogenization. Among other things, the proposal specifies that the notional value is defined as that set forth in the security at the time of issue and is not subject to variation over the life of the security.
New rules for the public offering of securities issued by multilateral financial organizations exempt the issuer from the need to obtain prior approval from the Superintendency of Securities if the organization holds a credit rating of a least A from an internationally recognized credit rating agency for 12 months before offering.
The government has presented Congress with a proposal to amend the securities and capital markets legal framework. The proposal seeks to establish a balanced framework that provides tools for the protection of investors' interests and for the participation of new issuers of securities in the capital markets.
The Superintendency of Securities has amended its regulations to allow foreign entities to grant guarantees in order to back issues of securities in favour of Colombian investors. The new resolution covers the requirements which must be fulfilled by the issuer of the securities and the responsibilities of the person who acts as agent for the securities holders.
Company & Commercial
At the end of 2012, Superintendent of Industry and Commerce José Miguel de la Calle announced his retirement from this role. During his two-year tenure, de la Calle saw several important goals achieved, including issuing the new Consumer Protection Law and dealing with cases relating to false or misleading advertising.
The supervisory agency for corporations has repeatedly held that only those entities that are legally considered as persons can conclude contracts through which a company is incorporated. This has caused problems for the practical development of trust contracts, within which autonomous entities can acquire shares and participate in corporations. However, new laws have clarified the issue.
The Constitutional Court has ruled that the controlling shareholder of a liquidated company is 'temporarily' liable for its affiliate company's mandatory social security and pension fund contributions.
Flexible Policy Promotes Foreign Investments
In its new document "Policy Guidelines for Negotiation of International Agreements on Foreign Investments", the Council of Economic and Social Policy approves guidelines for the negotiation of international agreements for foreign investments.
Public Services Law is Reformed
The Colombian government recently sanctioned Law 689 amending the public services law. This update discusses the amendments and the effect that they will have.
New Law Opens up Investment Opportunities
The recently enacted Law 677/2001 was sanctioned by the Colombian government and creates Special Economic Zones for Exportation within the borders of the several municipal territories. These zones offer tax incentives for exported goods, thus encouraging foreign investment.
Competition
Recently amended competition laws charged the Superintendence of Industry and Commerce (SIC) with defining relevant markets in the financial and insurance sectors, evaluating competition levels in such markets and highlighting any discernible market failures. Consequently, the SIC will be able to recommend new regulation in order to foster competition, boost efficiency and improve consumer welfare in these sectors.
Colombian antitrust laws have evolved in several phases. A couple of recently enacted statutes – the Anti-corruption Statute and the Anti-bureaucracy Statute – have introduced some notable interesting changes. In addition, the Anti-bureaucracy Statute modified certain procedures that must be followed in investigations and procedures carried out by the Superintendence of Industry and Commerce.
Corporate Finance/M&A
Overview
Including: Due Diligence; Basic Transactions; Shareholders Agreements; Other Legal Considerations.
A recent resolution defines new illegal, non-authorized and insecure practices in relation to publicly traded companies in order to protect the rights of minority shareholders and to guarantee transparent decisions at general shareholders meetings.
New Antitrust Legislation Tightens Controls
Circular Letter 10 was issued by the Superintendency of Industry and Trade on August 6 2001 and states the conditions under which companies must seek the superintendency's approval for a merger.
Antitrust Regulations Amended
Antitrust regulations in Colombia have changed recently with provisions included in Decree 266, dated February 22 2000. Article 118 amends Article 4 of Law 155 of 1959, regulating restrictive business practices and determining which powers are to be given to the Superintendency of Industry and Trade .
Corporate Tax
Local stamp duties can have the effect of raising overall taxation rates without any centralized control, since local authorities have broad discretion to determine their attributes, including deciding on taxable events. However, two recent decisions of the Council of State show an interest in limiting the reach of local stamp duties.
Technical assistance contracts must be carefully reviewed in order to ensure that they reflect the intentions of the parties and include any details with relevant tax effects, since their content will be a fundamental piece of evidence in any related judicial process.
A Tax Authority ruling that foreign companies are obliged to declare and pay taxes on assets held in Colombia even if those assets do not produce income has been overruled by the Council of State. Tax returns filed under the ruling have no effect and foreign companies may request a refund for payments made under the ruling.
Ruling 46320 of May 8 2008 states that a special deduction does not apply to the mere acquisition of a productive asset. For the 40% deduction to apply, the asset must have been effectively used to produce income during the taxable year. Such income will grant the right to the deduction.
In recent rulings Colombian tax authorities have clarified how to interpret Andean Community rules so as to avoid double taxation regarding services, dividends and labour payments. Two of the rulings also state that regulations issued by the Andean Community are directly applicable in Colombia and have pre-emptive effect.
Double Taxation Treaty with Spain Ratified
Ratification notes for a double taxation treaty with Spain were exchanged between governments in July 2007. The treaty will enter into force in October 2008 and will be applicable in 2009. Before the exchange of ratification notes, the Constitutional Court issued Decision C-383 which declared the validity of Law 1082/2006, approving the treaty.
E-commerce
Overview
Including: Electronic Messages; Digital Signatures; Certifying Entities; Copyright; Domain Names and Intellectual Property; Consumer Protection and Competition
Providers Liable for Child Pornography
A recent decree aims to prevent access to child pornography on the Internet. The law places obligations on internet service providers, web hosting companies and corporate users to filter and restrict access to illegal content. Infringements will be punished by fines, suspensions or removal of the offending web page.
Colombia Becomes Party to the WCT
In March 2002 Colombia became party to the World Intellectual Property Organization's Copyright Treaty (WCT). The treaty will help to protect copyrights on the Internet and create the necessary conditions for a wide and legitimate distribution of creative works on the Internet.
Domain '.co' to be Reserved for Country
The Colombian Administrative Court recently ruled that the Colombian country code top-level domain name '.co' is part of the Colombian national and cultural identity, and its administration is a public service which must be regulated by the state. This ruling may bring about a change in the domain name's administrator.
New Law on E-vidence
The Colombian Congress has approved a law on the access to and use of digital signatures in electronic commerce, and on the creation of certification entities. However, the law has yet to be implemented by further regulations and issues relating to foreign exchange, intellectual property and taxation have yet to be addressed.
Employment & Labour
Salary Exclusion Agreements Explained
Employers and employees can conduct agreements, known as salary exclusion agreements, through which they classify certain payments as non-salary payments. Law 15/1990 establishes what types of payments can be included in these agreements, as well as their effects on social security and other employment-based welfare contributions.
Energy & Natural Resources
Overview
Including: Oil and gas; Minerals and mining.
According to preliminary estimates by the Ministry of Commerce, Industry and Tourism, foreign direct investment for 2013 is expected is to be approximately $15.5 million. This figure, which exceeds the figure for 2012, is predicted to be principally focused on the oil and mining sector - and there is no indication that the wind will change any time soon. Thus, there are great opportunities in terms of mergers and acquisitions.
Several significant players in Colombia's energy sector have applied for approval from the Superintendence of Industry and Commerce (SIC) for key mergers or acquisitions. The SIC has been approving, objecting and conditioning mergers and acquisitions since 2001 in order to avoid concentrations of economic power in the market.
Mining has become a major source of growth for Colombia's economy during the last decade, and was recently designated as an engine for economic development by the government. In 2012 mining accounted for more than 23% of the country's total exports. However, many fear that 2012 marked a turning point in the mining sector's upward dynamic. But all is not lost - there is some positive news.
In less than a decade Colombia has moved from being a country in an energy crisis to a regional power provider. The electricity sector owes its current strength to the fact that it is regulated by the independent Colombian Energy and Gas Regulatory Commission, which applies strict technical and financial criteria to ensure the smooth running of the sector and its expansion.
The Ministry of Transport has paid Drummond – a multinational company exploiting coal on the north coast – nearly Ps60 billion (more than $30 million) for breach of contract, in compliance with a decision of the Court of Arbitration of the Paris Chamber of Commerce. The Civil Cassation Chamber of the Supreme Court had to decide whether the Paris court's award was in line with Colombian domestic law.
The Colombian government has just requested the Constitutional Court to extend for an additional two years the deadline by which a new Mining Code must be presented to Congress, as the necessary consultation with ethnic communities has proved difficult and the process has been delayed.
Insolvency & Restructuring
Overview
Including: Existing Legislation; Successes; Criticisms; Proposal.
In general, private debt restructuring is viable where major creditors have the corporate and regulatory ability, as well as the financial capacity, to extend the payment terms of obligations in their favour. However, debtor companies often have to negotiate with the social security authorities, which are not allowed to settle the terms of obligations in their favour.
Concerns over Proposed Amendments
The government recently submitted to Congress a bill proposing amendments to the insolvency regime. The proposal outlines a single regime for debt restructuring, bankruptcy and liquidation proceedings for companies and individuals. While overall the proposed bill appears beneficial, a number of areas of concern must be resolved before it is finally approved.
Colombian companies have begun to use the US Chapter 11 proceedings as an alternative to Colombian proceedings. However, procedural problems and legal questions exist as to the enforceability and binding effect in Colombia - or other jurisdictions in which a Colombian company has creditors, assets or payment obligations to fulfil - of decisions handed down in the US courts.
Intellectual Property
The year 2012 was a good one for users of the Colombian Patent and Trademark Office. Positive changes have been implemented, as a consequence of both international treaties coming into force and new local regulations reducing formal requirements. Among other changes, the Madrid Protocol came into effect in Colombia and a new multiclass trademark system is now available.
Litigation
Overview
Including: Legal System; Court Structure; Precedent; Civil Proceedings; Special Proceedings; Cost
New Guidelines for Analysis of Public Policy
The Colombian Supreme Court, in enforcing a foreign judicial decision, has dictated the principles on which it constructs the notions of public policy and sovereignty. Among other things, the court stated that the notion of public policy must be in accordance with international principles, in order to avoid economic isolation.
Limitation of Liability and Penalty Clauses
The usual limitation of liability clauses included in international contracts have been interpreted and given effect under Colombian law by courts and arbitration tribunals, even when it is decided that the relevant contract is subject to Colombian law. This update describes the new interpretations.
Class Actions Examined
The first decisions on class actions are beginning to be issued by the courts and the development of the jurisprudence will be essential in creating a coordinated body of law. As expected, financial institutions, government entities and multinational companies are the key targets.
There are legal provisions in Colombia designed to protect some forms of distributorship. While the courts have been consistent in interpreting the protective provisions on commercial agencies, the discussion on what is and what is not a commercial agency has led to inconsistent arbitration decisions.
Projects & Procurement
In an effort to foster private investment in large-scale infrastructure projects, which are much needed in Colombia, Law 1508/2012 has been passed to regulate public-private partnerships. The law applies to all contracts whereby state-owned entities assign to a private investor the right to design and build an infrastructure project and its related services.
Government Increases Airport Concessions
Continuing the efforts of the Samper administration to make Colombian airports more efficient, the Pastrana administration has awarded another airport concession to the private sector.
Telecommunications
Overview
Including: Restrictions on Foreign Ownership; Licences, Authorizations and Concessions; Licence and Concession Fees; New Telecommunications Services; Recent Developments
Guidelines Established for Telecom
The National Council of Economic and Social Policy has issued Document 3,145, which sets out guidelines for the future policies and activities of the National Telecommunications Company (Telecom), taking into account its current financial and economic situation.
With the issuance of Decree 575 the government has entered the final stage of establishing a Personal Communication Services network. The process will be completed with the issuance of rules for participating in the concession bidding process.
Legislative and Industry Developments
Two important changes have occurred in the telecommunications industry this year. First, the Personal Communications System Law was enacted. Second, BellSouth announced its acquisition of 50.35% capital in Celumovil, one of Colombia's largest cellular telephone companies.
Trade & Customs
The Andean Community recently issued Decision 671, which harmonizes customs regimes in the four countries of the sub-region. Although many important aspects of those regimes are not regulated due to the lack of consensus among member countries, it is expected that the Andean Customs Code, which the countries plan to draft in the near future, will address some of them.
New Benefits for Service Exporters
The government has recently published regulations for the Plan Vallejo de Servicios, an inward duty relief programme for the export of services. Under it, a provider of services may import certain capital goods and spare parts under a temporary regime with duty reductions or exemptions and value added tax deferral until the end of the programme.
Importers and exporters in the mining and hydrocarbons sectors may qualify for a number of trade programmes and customs advantages, including short and long-term temporary import regimes which offer value added tax and duties benefits. In addition, oil or mineral extractors may benefit from duty relief on raw materials and large importers are included in a more advantageous customs category.
Although Colombia's international trading companies were originally designed to benefit Colombian exporters, foreign investors may also benefit from these entities when exporting Colombian products. International trading companies are good legal vehicles for foreign investors wishing to purchase finished products to be exported to their country of domicile or to third countries, among other things.
The free trade zone regime has been reformed in order to promote investment and generate employment in industrial and service activities. The new Free Trade Zone Act and its decrees provide significant legal benefits for new investment projects in Colombian free trade zones, and set forth the conditions and requirements to obtain such benefits.
Foreign Trade Regime for Import of Goods
The foreign trade regime - which provides for the administrative control of import licences by governmental authorities and the registration of imports under the free import regime - was recently amended by means of Decree 3803/2006. The administrative control regime, which applies to all merchandise to be imported into Colombia, divides goods into several categories (eg, prohibited imports).
