Friday night, a three-judge panel in the Cundinamarca Administrative Court issued a 13-page order blocking the Colombian government’s decision to loan $370 million USD to Avianca Airline, the largest air operator serving Colombia, now in Chapter 11 Bankruptcy proceedings in the United States. Cundinamarca is the department and administrative region surrounding Colombia’s capital of Bogotá.
A citizen’s lawsuit was filed by a Jonathan Ruíz Tobon to block the loan as a threat to public resources, and that the government’s hasty loan to a bankrupt entity with those bankrupt proceedings taking place in a foreign country do not provide adequate guarantees to safeguard public assets. As of press time, Finance Colombia has been unable to ascertain the identity or background of Mr. Ruiz.
Avianca officials refused comment when contacted Saturday by Finance Colombia
The lawsuit also sought to compel the government to disclose proof that there was no conflict of interest due to the fact that Colombian President Ivan Duque ordered the loan, while his own sister, María Paula Duque is Avianca’s “Senior Vice President of Strategic Relations and Customer Experience.” The suit additionally sought documentation on the due diligence performed in light of the revelations that the firm hired to conduct such studies on behalf of the government was only hired the night before President Duque announced the financing.
The lawsuit said that because Avianca was already in trouble before the Coronavirus COVID-19 Pandemic, the pandemic cannot be used to justify the financing, especially has it treats Avianca preferentially to other airlines also seeking aid.
The magistrates admitted the lawsuit, and granted the injunction against the loan to Avianca, while denying a motion to require the Ministry of Finance and Public Credit to report on objective analysis that led to the approval of the loan. The denial of this motion, indicated the court is not ruling that such information should not be provided, only that it is not included in the emergency injunction. Furthermore the court did not include a justification of possible conflict of interest between President Duque and his sister. Such proof may be necessary, but would not be injunctive in nature, or in other words, lifting the injunction would not depend on such justifications.
See Also: Declan Ryan Says Viva Air Not Being Treated Fairly By Colombian Government: Exclusive Interview
The likely next step would be an appeal, either by the Colombian government, Avianca or both. No matter, this is a grave blow for the airline, and for Duque’s credibility. The announcement of the loan to Avianca drew widespread disapproval on the grounds that it gave preferential treatment to Avianca over other airlines, including genuinely Colombian airlines such as Viva Air and bankrupt EasyFly, or to multinational carrier LATAM’s Colombian subsidiary. LATAM is also in bankruptcy, and like Avianca, is a foreign carrier with a Colombian subsidiary. LATAM lacks the family connections to the President that Avianca enjoys, however. In addition, rather than taking place in Colombian courts like EasyFly, Avianca’s bankruptcy was filed in US federal courts, where the Colombian government enjoys no special standing. Third, and the primary justification of the lawsuit, is that Avianca is in such dire financial shape, the government has failed to demonstrate adequate guarantees or even a probability of a return on its principal.
Above photo: Colombian President Ivan Duque with Avianca CEO Anko Van Der Werff (Courtesy Presidencia de la República)
The translated court order follows below.
CUNDINAMARCA ADMINISTRATIVE COURT
Bogota D.C., ten (10) September of two thousand twenty (2020)
Judge Speaker: Dr. LUIS MANUEL LASSO LOZANO
Reference: Exp. # 250002341000202000584-00
Plaintiff: JONATAN RUÍZ TOBÓN
Defendant: MINISTERIO DE HACIENDA AND OTHERS
MEANS OF PROTECTING COLLECTIVE RIGHTS AND INTERESTS
Subject: Admit lawsuit and take emergency precautionary action.
Mr. Jonatan Ruíz Tobón, acting on his own behalf, brought an action in the exercise of the Means of Control for the Protection of Collective Rights and Interests, provided for by Laws 472 of 1998 and 1437 of 2011, against the Presidency of the Republic, the Ministry of Finance and Public Credit and Avianca Holdings S.A.
The plaintiff argues that the defendants pose a threat and/or violation of collective rights to administrative morality, public heritage and “social security, as far as sustainability is reflected,” due to the approval and disbursement of a loan to Avianca Holdings S.A. worth US$370 million by the National Government.
In that regard, they claim that the defendants refrain from allocating the emergency mitigation fund (hereinafter the FOME) in the sum of US$370 million to Avianca Holdings S.A.
In the alternative, it requests that the defendants be ordered to provide real, material and valuable guarantees for the payment of the eventual credit that is disbursed by the FOME Committee with their respective interest, higher than those payable by the State when indebted.
- Procedural requirement
After reviewing the application, the shareholder states that it dispenses with the procedural requirement of the constitution in reluctance covered by the article 144(3) of Law 1437 of 2011, since it expressly authorizes “this requirement may be dispensed with, where there is an imminent danger of irretrievable harm against rights and collective interest, a situation which must be based on demand. ”
Plaintiff argues that “in this case the imminent danger is established on the basis that the FOME Committee has already approved the disbursement of credit and it is absolutely imperative, minimally, to require the National Government, as narrated in the previous fact, that obliges the debtor to constitute REAL, MATERIAL AND ABOVE ALL, VALUABLE GUARANTEES to support the debt before it is delivered to Avianca Holdings S.A., which gives account of the haste that exists in order to avoid irretrievable damage and, therefore, the impossibility of exhausting the prior requirement that the ibid. standard addresses, given that once a credit has been disbursed without guarantees little or nothing can be guaranteed.”
In that regard, the Court considers the following.
Article 144(3) of Law 1437 of 2011 provides.
“(…) Before filing the application for the protection of collective rights and interests, the complainant must request the authority or individual in administrative functions to take the necessary measures to protect the threatened or violated collective right or interest. If the authority does not address such a complaint within fifteen
- days after the application is filed or refuses to do so, it may be brought before the judge. Exceptionally, this requirement may be dispensed with, where there is an imminent danger of irretrievable harm against collective rights and interests, a situation which must be based on the ” (Highlighted by the Court).
In accordance with the facts and the presentation of the grounds of law submitted by the shareholder with respect to the collective rights it considers to be infringing, the Court finds that the possibility of disbursement of the claim to Avianca Holdings S.A. is imminent, which would mean, in the argument of the acting party, the specificity in the impact of the collective rights invoked.
Under such conditions, waiting for the President of the Republic, the Ministry of Finance and Public Credit to be relucted and Avianca Holdings S.A., would make harmless the capacity for protection offered by this means of control and, in particular, that of the precautionary measure that is “to protect and guarantee provisionally, the object of the process and the effectiveness of the judgment.” (Article 229(1), Law 1437 of 2011), which will be addressed below.
In that regard, there is a place to accept the application without the prerequisite laid down in Article 144(3) of Law 1437 of 2011, previously noted.
- Admission of demand
To meet the requirements of Articles 18 of Law 472 of 1998, 144 and 160, numeral 4, of Law 1437 of 2011, the application established by Mr. Jonatan Ruíz Tobón in exercise of the Means of Control of Protection of Collective Rights and Interests against the Presidency of the Republic, the Ministry of Finance and Public Credit and Avianca Holdings S.A. is ALLOWED.
- Emergency Precautionary Measure
In the application, the acting party requests, in accordance with article 25(a) and (b) of Law 472 of 1998, the decree of the following precautionary measures to avoid the result of irretrievable prejudice to collective rights to social security and public heritage.
“FIRST: ORDER the Ministry of Hacienda directly or through the FOME, the Presidency of the Republic or, in general, the person who corresponds by functional competence, REFRAIN from disbursing the approved credit to Avianca Holdings S.A up to US370 million, until possible debtor is provides real, material, valuable and objectively verifiable guarantees, which support the payment of the credit with their respective interest which in any case must be greater than those paid by the State when indebted, for the purposes of maintaining the normal return on public capital.
SECOND: ORDER the Ministry of Finance directly or through the FOME, to the Presidency of the Republic or, in general, to whom it corresponds by functional competence, to publicly inform what is the objective analysis that led to the approval of the credit in mention and, contrary to this, which prevented the resources from being allocated for the purposes provided for in Decree 444 of 2020 and, in any event, in the economic revival of traders, small and medium-sized enterprises, in addition to the basic needs of the “most vulnerable population.”
This implies that the defendants are ordered to publish: (i) the request for credit made by Avianca Holdings S.A with its means; (ii) the minutes where the FOME’s reasoning for the approval decision rests; (iii) the contract, agreement, or any document stating Avianca Holdings S.A.’s eventual agreement with the Government, with specification of the conditions, guarantees, method of payment and other minors. This is a measure to protect transparency and administrative morality.
THIRD: ORDER the respected President of the Republic, prior to any disbursement of money in favor of Avianca Holdings S.A., to report possible conflicts of interest in compliance with the 2013 Law of 2019, and as stated in Articles (sic) 40 of Law 734 of 2002 and 11 of Law 1437 of 2011 (now Law 1952 of 2019), or, if not, the reasons on which it is based so as not to do so or to understand it to be overdone, on the occasion of his sister, Mrs. María Paula Duque, she serves as Senior Vice President of Strategic Relations and Customer Experience at Avianca Holdings S.A.”.
Article 17 of Law 472 of 1998 empowers the court responsible for adopting the precautionary measures it deems necessary in order to prevent irretrievable and irreparable harm or to suspend the facts a resulting from the threat of collective rights and interests.
For its part, Article 25(a) and (b) of Law 472 of 1998 provide that before the application is notified, the court of its own motion or at the request of a separate person may properly decree the prior measures it deems relevant to prevent imminent damage or to cease what has been caused.
“ARTICLE 25. CAUTELAR MEASURES. Before the application is notified and in any state of the process, the judge may, ex officio or at the request of a party, decree, duly reasoned, the prior measures it deems relevant to prevent immutable damage or to cease the damage that has been caused. In particular, it may decree the following:
- Order the immediate cessation of activities that may cause the damage, which have caused or continue to cause it;
- Order that the necessary acts be executed, where the potentially harmful or harmful conduct is a consequence of the defendant’s omission; (…).” (Highlighted by the Court).
Article 229, paragraph, of Law 1437 of 2011, for its part, provides that measures in processes intended for the defense and protection of collective rights and interests shall be governed by the provisions of that law.
In line with the above, Article 234 of Law 1437 of 2011 provides:
“Since the submission of the application and without prior notification to the other party, the Judge or Judge-Rapporteur may take an injunction, when you meet the requirements for its adoption, it is shown that due to its urgency, it is not possible to exhaust the procedure provided for in the previous article. “.
In accordance with the prescribed rules, without prior notification to the other party the judge or judge-rapporteur may take an injunction when they meet the conditions for their adoption, as referred to in Article 231 of Law 1437 of 2011, it is clear that due to their urgency it is not possible to exhaust the process of transfer to the counterparty provided for in article 233 of the same law.
As stated in the lawsuit, it is certain about the loan that the National Government granted in favor of Avianca Holdings S.A. for US370 million; but information is lacking on the conditions under which it has been granted and, in particular, on the guarantees that support it, one of the central claims of the popular actor.
In such circumstances, due to the imminence of disbursement and the consent that once done it loses meaning, to a very large extent, the means of monitoring the popular action in question; the process of transferring Article 233 of Law 1437 of 2011 will not be exhausted and, consequently, the procedure or the emergency precautionary measure provided for in Article 234 of that law shall be adopted.
Likewise, two aspects stand out.
The first is that this emergency precautionary decision shall be taken by Decision-making Chamber. Although Article 234 of Law 1437 of 2011 provides that such a measure shall be adopted by “the Judge or Judge-Rapporteur,” it is no less true that Articles 125 and 243(2) of the aforementioned law provide, without distinguishing between ordinary and emergency precautionary measures, that the decree of those measures shall correspond to “the chamber.”
The second, which was dismissed by the subscribed magistrates, was refusing the possibility of declaring an impediment, which could arise in the fact that the remedies paid by them as a COVID-19 Solidarity Tax also feed the FOME; because they left the personal estate to move to that of the State and, consequently, constitute foreign property which, for that reason, do not generate direct or indirect interest with respect to the officials who take this decision.
The Chamber will then go on to set out the reasons why it considers that the requirements laid down in Law 1437 of 2011, Article 231(2) for the decree of this emergency precautionary measure, are fulfilled.
The lawsuit is reasonably well founded in law. It sustains claims and requests for injunction and information that accounts for the granting of the US$370 million loan to Avianca Holdings S.A. and, likewise, sufficient with regards to the absence of sufficient public information on the subject (numeral 1, article 231, Law 1437 of 2011).
The applicant is entitled by the standing as an active person conferred by Article 12(1) of Law 472 of 1998 (any natural or legal person) for the exercise of popular actions for the protection of collective rights and interests (numeral 2, Article 231, Law 1437 of 2011).
The plaintiff submitted “documents, information, arguments and justifications” which make it possible to conclude, through an interest-weighting trial, that it would be more burdensome for the public interest to deny the precautionary measure than to grant it (numeral 3, Article 231, Law 1437 of 2011).
The plaintiff has reported on the financial situation facing Avianca Holdings S.A., which is reflected in Financial Statements the annex to the electronic file “03 Test 1” of the lawsuit called “ “Unaudited Interim Condensed Consolidated Financial Statements” of Avianca Holdings S.A. and subsidiaries as of “June 30, 2020 and December 31, 2019 and for the six month periods ended June 30, 2020 and 2019. ” of the document named “Report of the Independent Auditor on the Intermediate Financial Review,” surrendered by the audit firm KPMG S.A.S.
That document states that according to the consolidated financial information condensed as of June 30, 2020, the Party (Avianca) in question has losses of US$353 million, negative equity of US$355 million equity and working capital differences of US$4.027 million (page 22 of the audit report).
Likewise, it points out (page 69) that the situation of Avianca Holdings S.A. is pre-existing to the pandemic situation generated by COVID-19, since in 2019 it did not pay dividends to its defendants due to difficulties due to the financial situation it had faced since then (“losses withheld as of December 31, 2019″).
Also that to address the effects generated by the COVID-19 pandemic, on 10 May 2020 the Panel referred to submitted voluntary petitions to the Bankruptcy Court of the Southern District of New York, for protection under Chapter 11 of the United States Bankruptcy Code (page 23 of the audit report).
It concludes this report by noting that “These conditions indicate the existence of material uncertainty that may raise significant doubts about the Group’s ability to continue as a running business. Our conclusion is not changed in relation to this matter.”
Taking into account that this means of control is formulated for the purpose of taking the safeguards for the protection of public assets following the credit granted to a company that, despite its strategic status in the performance of the Colombian economy, it is in a situation such as that described; the Court considers that there are sufficient reasons to consider that in the interest-weighting trial referred to in article 231(3) of Law 1437 of 2011, the conditions for asserting that it is “more burdensome for the public interest to deny the measure conceding it to be” are established” (page 2).
It is a US$370 million loan approved with public equity resources that are part of the Emergency Mitigation Fund, in relationship with which there is no clarity about the conditions of grant or the actual guarantees verified for their endorsement.
Finally, it should be noted that not granting the measure would cause irretrievable harm to public assets (literal a, numeral 4, article 231, Law 1437 of 2011); in particular, because once the disbursement has occurred, the possibilities available to the State entities concerned to reduce or control the risks of loss of the public resources concerned are significantly reduced.
In this context, there are serious grounds for considering that if the measure were not granted, the effects of the judgment would be nugatory (literal b, numeral 4, Article 231, Law 1437 of 2011), therefore the subject-matter of the process or the effectiveness of the judgment of the means of control of protection of collective rights and interests would not be guaranteed.
- Decree of test methods
In order to guarantee the right to defend the shareholdings and to have sufficient evidence of judgment in the present precautionary procedure, which permits the lifting or continuity of the provisional measure in question, the following means of proof are decreed to be close within three (3) days of notification of this Providence.
To the Ministry of Finance and Public Credit.
- The regulation on the basis of which appropriations are granted by the FOME.
- Technical motivations for the granting of credit as a regulatory measure. In this section, consideration should be given to: the selection of options or alternatives, the justification of the measure (social inclusion, environment, taxation and national interest), the analysis of the impacts of the measure and the way in which its implementation and monitoring is planned. In particular, the analysis of impact on the conditions of free competition in the Detailed credit conditions.
- The documentation that served as the basis for its grant: application for credit, documentation accompanied for the purpose (conditions of return of credit, business plan that supports it, guarantees offered and value therein) and documents that prove the development of the administrative action deployed by the FOME for the granting of the credit.
- Considerations on the establishment of a foreign jurisdiction for the provision of the courses constituting the loan.
- The existence of similar applications and formalities by other airlines based on the national territory.
- Amount of resources currently available to the FOME and what is the estimated projection over the next 18 months.
- The contract for the provision of services with code No.13.009-2020, signed on August 28, 2020 between the Nation-Ministry of Finance and Public Credit and the law firm Arnold & Porter Kaye Schiller LLP. As well as the reasons for it and the essential purpose for which it was subscribed, in the context of the credit in question.
To the Ministry of Transport.
The studies and connectivity reasons for air transport that justify credit. The study of alternatives and the justification of each of them. As well as the reasons for choosing the chosen one, that is, the granting of the credit alluded to, to Avianca Holdings S.A.
To the National Agency for the Legal Defense of the State.
The considerations on establishing a foreign jurisdiction for the provision of the resources constituting the US$370 million loan approved to Avianca Holdings S.A., arising from the possibility of participation in the insolvency process under Chapter 11 of the Bankruptcy Act of the United States (Chapter11 of Title 11 of the United States Code) of that company and, in that sense, the protection of Colombian public heritage in the context of the aforementioned judicial process before the foreign court.
The previous authorities shall indicate the information, which is reserved, in order for the Court to confer the appropriate treatment.
The Minister of Finance and Public Credit shall be ordered as an emergency precautionary measure to take the necessary administrative steps to ensure that the Emergency Mitigation Fund refrains from disbursing the credit approved to Avianca Holdings S.A. worth US$370 million.
It will be denied as an emergency precautionary measure that the Minister of Finance and Public Credit publicly reports on the objective analysis that led to the approval of the appropriation in mention. The reason for this is that it does not have a direct relationship with the imminence of disbursements or credit. However, it will be the subject of the evidentiary debate that will take place in the main notebook of this process of popular action.
The request for a precautionary measure shall be denied that the President of the Republic prior to any disbursement of the credit referred to in that report on any possible conflict of interest on the fact that his sister, Mrs. María Paula Duque Samper, serves as Senior Vice President of Strategic Relations and customer experience of Avianca Holdings S.A.
This application will be denied because it has no direct relationship with the emergency precautionary measure aimed at suspending the disbursement of the US$370 million loan approved by the FOME to Avianca Holdings S.A. However, this issue will be addressed within the framework of the popular means of action control (Numeral ninth of the facts of the lawsuit).
On the merits of the foregoing, the Administrative Court of Cundinamarca, Section First, Subsection “A”,
FIRST. – ADMITTED the lawsuit established in the exercise of the Means of Control of Protection of Collective Rights and Interests by Mr. Jonatan Ruíz Tobón against the President of the Republic, the Ministry of Finance and Public Credit and Avianca Holdings S.A.
SECOND. – PERSONALLY NOTIFY the content of this decision to the PRESIDENT OF THE REPUBLIC, MINISTER OF FINANCE AND PUBLIC CREDIT and PRESIDENT OF AVIANCA HOLDINGS S.A., or to whom they have delegated the power to receive notifications, in accordance with article 199 of the Code of Administrative Procedure and administrative litigation, applicable by reference to Article 21(3) of Law 472 of 1998.
THIRD. – INFORM THE PRESIDENT OF THE REPUBLIC, MINISTER OF HACIENDA Y CRÉDITO PÚBLICO and PRESIDENT OF AVIANCA HOLDINGS S.A., which in accordance with the provisions of article 22 of Law 472 of 1998, are granted a term of ten (10) days to respond to the request and request the practice of evidence, counted from the day following that of the respective documentation.
FOURTH. – In view of the provisions of the final section of article 21 of Law 472 of 1998, CONTACT, by Secretariat of the Section, the Attorney General of the Nation, Comptroller General of the Republic and Director of the National Agency for the Legal Defense of the State, on the admission of the application.
FIFTH. – Refer to the Ombudsman a copy of the application and this order for registration covered by Article 80 of Law 472 of 1998.
SIXTH. – At the expense of the acting party, DIFUSE to the members of the community through a media or mass communication (press or radio) that in the Administrative Court of Cundinamarca, Section First, Subsection “A”, File No. 2500023410002020-00584-00, the Means of Control for the Protection of Collective Rights and Interests is advanced as imposed by Mr. Jonatan Ruíz Tobón who considers collective rights violated and/or threatened social security (as far as its sustainability is concerned), public heritage and administrative morality for the approval and imminent disbursement of a loan granted by the National Government – Emergency Mitigation Fund to Avianca Holdings S.A. worth US$370 million.
SEVENTH. – ADOPT THE EMERGENCY CAUTELAR MEASURE consisting of suspending the disbursement of the credit to Avianca Holdings S.A. by the Emergency Mitigation Fund worth US370 million. For this purpose, the Minister of Finance and Public Credit shall, within twenty-four (24) hours after the communication of this measure, advance all necessary administrative actions in order to comply with the order given and inform this Court of such determination, accompanying the relevant support. This decision on caution does not imply pre-adjudication under article 229 (final) of Law 1437 of 2011.
EIGHTH. – DENIES THE EMERGENCY CAUTELAR MEASURE consisting of the Minister of Finance and Public Credit publicly reporting what is the objective analysis that led to the approval in favor of Avianca Holdings S.A. of the credit worth US370 million. This decision on the precautionary measure does not imply pre-adjudication under article 229 (final) of Law 1437 of 2011.
NINTH. – DENIES the precautionary measure consisting in the fact that the President of the Republic, prior to any disbursement of the credit referred to, reports on any possible conflict of interest on the fact that his sister, Mrs. María P Aula Duque Samper, serves as Senior Vice President of Strategic Relations and Customer Experience of Avianca Holdings S.A. This decision on the precautionary measure does not imply pre-adjudication under article 229 (final) of Law 1437 of 2011.
TENTH. – DECREE the means of proof indicated in numeral 4. of the reasoning part of this providence, for the notebook of the precautionary measure and the main notebook of this popular action. By the officiating Section Secretariat.
NOTIFY AND COMPLY
Approved in the courtroom and executed on the date.
LUIS MANUEL LASSO LOZANO
CLAUDIA ELIZABETH LOZZI MORENO
FELIPE ALIRIO SOLARTE MAYA