Colombia’s Restructuring and Insolvency outlook for 2025

As Colombia navigates through a period of economic and political uncertainty, restructuring and insolvency trends are evolving in response to macroeconomic pressures, regulatory changes, and shifting creditor dynamics. With a projected modest economic recovery in 2025, businesses and financial institutions must adapt to an increasingly complex restructuring environment.
 
Macroeconomic and regulatory landscape
 
The Colombian economy experienced a slowdown in 2023 and 2024, with GDP growth below expectations and persistent inflationary pressures. While inflation has shown signs of decline, interest rates remain high compared to pre-pandemic levels, limiting access to affordable credit for struggling businesses. Currency volatility continues to impact industries reliant on imported goods, further stressing corporate balance sheets. From the point of view of interest rates, even though inflation started to ease in 2024, rates remain high, which affects liquidity flows. This makes 2025 look challenging for businesses and it is anticipated that the restructuring industry will remain active.
 
From a regulatory perspective, the Colombian government has sought to introduce permanent reforms to expedite insolvency proceedings, building on temporary measures enacted during the COVID-19 pandemic. Legislative efforts in 2024 have focused on streamlining restructuring mechanisms, aiming to enhance creditor confidence and improve the efficiency of reorganisation processes. After almost a year of uncertainty regarding the incorporation of the decrees into a new law to make it permanent, Law 2437 was approved in December 2024, which includes mechanisms to expedite reorganisation processes, figures such as the discharge of liabilities and other aspects that have proven to be effective in the world of business recovery. However, the business community remains cautious, awaiting further clarity on the practical implementation of these reforms.
 
Sectoral distress and key industries at risk
 
The restructuring landscape in Colombia continues to be shaped by distress in key economic sectors. The construction industry, which suffered from reduced housing demand and policy shifts in social housing incentives, has seen an uptick in insolvency filings. In Q1-2024, licensed housing units fell by 35.7%, highlighting the deep challenges within the sector.
 
The retail and consumer goods industries are also facing liquidity strains, exacerbated by shifts in consumer behaviour and rising operational costs. Higher labour costs following the 2025 minimum wage increase have placed additional pressure on businesses, particularly those in labour-intensive industries such as manufacturing and food services. Actually, the minimum wage increased by 9.5% while inflation for the same period was 5.2%. This implies increases on the costs and expenses of companies, putting even more pressure on profit margins.
 
The healthcare sector is facing a uniquely complex crisis, with financial distress affecting both private and public institutions. The combination of rising operational costs, delays in government payments to service providers, and regulatory uncertainty has put many healthcare companies in a precarious position. Hospitals and clinics are experiencing liquidity challenges, making it difficult to maintain operations and pay suppliers, while pharmaceutical companies are navigating supply chain disruptions and fluctuating currency exchange rates. This distress is prompting an increasing number of healthcare organisations to seek restructuring and turnaround solutions.
 
DIP financing: An evolving market
 
Debtor-in-possession (DIP) financing remains a critical yet underdeveloped tool for corporate restructuring in Colombia. In contrast to mature markets such as the United States, where DIP financing is well-established, Colombia’s framework for distressed lending remains limited. Most distressed companies struggle to access credit, given banks’ risk aversion and the relatively small presence of specialised distressed debt funds. In this context, companies that decide to enter into regulated reorganisation processes or insolvency proceedings continue to face the lack of DIP financing mechanisms to deal with their turnaround plan, which delays recovery over time and leads to the judicial liquidation of the company being ordered on several occasions during the reorganisation process. However, there is growing interest from international investors in Colombian distressed assets, particularly in sectors with strong long-term fundamentals.
 
Private workouts and creditor negotiations
 
While formal insolvency proceedings remain an option, many Colombian businesses continue to pursue out-of-court restructurings. Financial institutions often prefer negotiated solutions to avoid lengthy legal proceedings, particularly given the increasing volume of non-performing loans in their portfolios. Nevertheless, private restructurings face significant challenges, including creditor coordination and valuation disputes. Colombian banks frequently form creditor committees to align restructuring strategies, but reaching a consensus among multiple stakeholders can be a time-consuming process. The effectiveness of these negotiations often depends on the perceived viability of the debtor’s turnaround plan and the credibility of its management team.
 
Cross-border considerations and Chapter 11 filings
 
For larger Colombian corporations, cross-border restructuring solutions, including Chapter 11 filings in the United States, have become an increasingly viable alternative. Cases such as Avianca’s restructuring have demonstrated the advantages of the U.S. bankruptcy system, including access to DIP financing and a more predictable legal environment for complex reorganisations.
 
However, the Chapter 11 route is not feasible for most mid-sized and smaller Colombian companies due to the high costs and legal complexities involved. As a result, local insolvency frameworks must continue evolving to provide viable restructuring pathways for businesses operating exclusively within Colombia.
 
2025 outlook: Preparing for continued uncertainty
 
Looking ahead, restructuring activity in Colombia is expected to remain elevated as companies navigate economic and financial pressures. Key trends to watch include:
 
Legislative reforms:The success of insolvency reforms will depend on their ability to reduce procedural inefficiencies and enhance creditor protections. If permanent DIP financing mechanisms are introduced, they could improve restructuring outcomes and attract more investment into distressed situations.
Sector-specific challenges:Industries such as construction, retail, transportation and healthcare will continue to experience distress, while opportunities may arise for strategic acquisitions of troubled assets by well-capitalised investors.
Investor sentiment:Foreign interest in Colombian distressed assets is growing, but concerns over regulatory uncertainty and political risks may temper the pace of investment.
Liquidity and financing constraints:Access to working capital will remain a challenge, particularly for mid-sized firms. Alternative financing structures, including asset-backed lending and structured debt solutions, may gain traction as companies seek to stabilise their financial positions.
 
For businesses and financial institutions operating in Colombia, 2025 will require proactive risk management, creative restructuring solutions, and a deep understanding of the evolving legal landscape. Companies facing distress must act swiftly to engage experienced advisors and explore all available options to preserve value and ensure long-term sustainability.
 
Cristina Gómez-Clark
Managing Director
Alvarez & Marsal
Bogotá, Colombia
 
Cristina Gomez-Clark is a managing director with Alvarez & Marsal. With 30 years of financial and consulting services experience, she focuses on corporate restructuring, turnaround, and transformation. She specialises in financial, operational, and commercial business diagnoses and turnaround business plans, cash flow projections and liquidity management, financial restructuring, and implementation of operational and financial improvements. Cristina is also founder of Turnaround Management Association – TMA -Colombia Chapter and member of INSOL and International Insolvency Institute.
 
cgomezclark@alvarezandmarsal.com
www.alvarezandmarsal.com