The regulation of trust
agreements
Martín Acero and Juan Fernando Gaviria
Prieto & Carrizosa
Bogotá
Trusts are a vehicle often used in structured
finance. Colombian law regulates trust agree-
ments in detail, both from the contractual and
insolvency perspective. Some of these regula-
tions aim to protect the rights of the settlor’s
creditors and so they may eventually affect the
transfer or the preference granted to a secured
creditor under a structured finance transac-
tion. It is therefore crucial for international
practitioners to be aware of these treatments if
they enter into a transaction concerning a
Colombian debtor or asset.
The Colombian Code of Commerce
expressly
regulates
trust
agreements.
According to the code, trust agreements to be
governed by Colombian law may only be
entered into with trust companies that are
under the surveillance of the Finance
Superintendence. The code also provides that,
as a consequence of a trust agreement, a trust
estate is created. The assets transferred by the
settlor to the trust company under the terms
of the contract are isolated from the assets of
both the settlor and the trust company.
This principle has certain exceptions that
affect the concept of a true sale as it is under-
stood in the US. In effect, the Code of
Commerce provides that creditors of the sett-
lor that: (i) have credits that were accrued
before the execution date of the trust agree-
ment; and (ii) consider that the transfer of
assets pursuant to the agreement affects their
interest, may request the termination of the
trust agreement in order to transfer the assets
back to the settlor.
Insolvency and bankruptcy
The new insolvency and bankruptcy law passed
by Congress in December 2006 confirms cer-
tain provisions of past regulations which could
affect trust agreements. Most importantly, it
enhances the treatment given to trust arrange-
ments in insolvency proceedings. The new reg-
ulations reiterate that, in certain circumstances,
a contract or an agreement entered into during
the previous 18 mo