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Implementation of Equity Impairment and Insolvency Risk Indicators

Recently, the Colombian Superintendence of Corporations referred to the obligation of implementing equity impairment and insolvency risk indicators in the analysis of companies’ financial information. In this regard, it recalled that, in accordance with the provisions of Law 2069 of 2020 and Decree 1378 of 2021, the directors of commercial companies have the obligation to monitor the financial statements, financial information and projections of the company. Likewise, they have the obligation to determine if the indicators established in the aforementioned Decree 1378 on equity impairment and insolvency risks are applicable to the company, in accordance with its business model and the commercial sector in which it develops its corporate purpose. If these indicators are applicable, they are of mandatory implementation and doing so demonstrates proper management by the corporate directors. Therefore, in the event that they are not implemented when there is an obligation to do so, it will be considered a breach of the directors’ duties, who may be liable for damages caused to the company, to partners or to third parties by said breach.

In addition, the superintendence established that, once these indicators are implemented and analyzed, the following conclusions can be reached: (i) that there is no equity impairment or insolvency risk, (ii) that there is both equity impairment and insolvency risk, (iii) that there is equity impairment but no insolvency risk, or (iv) that there is no equity impairment but there is risk of insolvency. Additionally, it specified that the implementation of these indicators is not a simple formality, since the results of the analysis must be shared with the company’s highest corporate body (shareholders’ assembly or meeting of partners). The foregoing, in order to allow it to clearly know the company’s situation and risks and to take the decisions it deems appropriate based on the information provided by the company’s directors.

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