Keywords: security interests, movable assets, code of commerce, PYMES
On February 21, 2014, a new law on security interests over movable assets (Law 1676 of 2013,1 "Law 1676") came into effect in Colombia. Law 1676 replaced the regulations on creation, perfection and enforceability (oponibilidad) of security interests over movable assets set forth in the Code of Commerce of Colombia of 1971 (the "Code of Commerce"). The purpose of Law 1676 is to increase access to the financial products of medium and small-sized companies ("PYMES").2 It accomplishes this by reducing the time, procedures and cost needed to perfect and enforce security interests and by expanding the types of assets that can be subject to a security interest.3 Despite this limited purpose, the application of Law 1676 promises to be far reaching and will impact not only security interests created by PYMES, but also the way all security interests over movable assets are perfected, monitored and enforced in Colombia.
Among the most significant changes in the new law are: (i) an expansion of the types of assets that may be subject to a security interest; (ii) the creation of a new centralized system where filing and searches of security interests may be conducted; (iii) new methods to enforce security interests against third parties; and (iv) new methods to enforce security interests against debtors/guarantors.
Assets that May Be Subject To Security Interests
Law 1676 expands the types of assets that may be subject to a security interest by establishing that the proceeds or the products that result from the transformation, sale or substitution of collateral may be subject to a security interest. This new feature is a significant departure from the traditional concept of security interest under Colombian law (and civil law generally), which only covers the specific asset named in the security agreement, and follows the pattern of more dynamic laws, including the Uniform Commercial Code and the guidelines promoted by the UNCITRAL. The new system also eliminates the burden imposed on creditors and debtors on having to create, perfect and register a security interest each time an asset is sold, transformed or substituted.
Law 1676 also introduces the concept of a purchase money security interest (garantía mobiliaria prioritaria de adquisición) ("PMSI"). Pursuant to Law 1676, a PMSI is a security interest in goods that secures the repayment of the debt owed in connection with the purchase price of such goods. Under the new law, once filed, a PMSI is awarded a super-priority treatment vis-à-vis other security interests created over the goods sold. This feature will likely foster lending and selling on credit, as it will help mitigate the credit risks of...