1. What type of restructuring schemes exist in Chile?

Other than voluntary agreements between creditors and debtors to renegotiate debts and restructure businesses, in Chile it is possible to open restructuring proceedings governed by the Chilean Insolvency and Re-Entrepreneurship Act. According to this Act:

  1. the debtor can initiate a voluntary proceeding in Court to gather all creditors and propose to them a restructuring plan to be voted upon within 30 to 90 days, during which the debtor is granted financial protection (Judicial Reorganisation Proceeding); or
  2. the debtor can negotiate out-of-court agreements with its creditors, which then must be submitted to Court for its approval (Extrajudicial Reorganisation Proceeding). In both cases, the proceedings and the debtor’s assets administration are supervised by the national agency for insolvency and re-entrepreneurship (Superintendencia de Insolvencia y Reemprendimiento, SUPERIB) through the participation of an observer or liquidator.

2. What type of liquidation schemes exist in Chile?

Under the Chilean Insolvency and Re-Entrepreneurship Act, creditors can initiate a forced liquidation proceeding against the debtor. The debtor can also request voluntary liquidation. Both forms of liquidation are made before the Courts. It is not mandatory for the debtor to ask for its own liquidation. Once a forced liquidation proceeding is initiated, the debtor can opt to undergo a judicial reorganisation proceeding in order to prevent the liquidation.

3. What are the effects of the commencement of an insolvency proceeding?

Reorganisation and liquidation proceedings have different effects.

The main effects caused once the debtor has initiated a reorganisation proceeding include: (i) the debtor is granted with financial protection, meaning that for a period from 30 to 90 days creditors cannot initiate liquidation proceedings nor make individual claims and collections against the debtor, that all judicial claims and collections in course are suspended, and that all agreements entered into by the debtor cannot be terminated anticipatedly nor any obligations thereof can become due before their maturity; (ii) the debtor is prevented from transferring its assets or creating security interests over them, other than in the ordinary course of business; (iii) the Court will order the debtor to publish in a special insolvency gazette its reorganisation proposal no later than ten days before the creditors’ meeting to vote on the proposal; and (iv) the Court will fix the date for the creditors’ meeting, which matches the period for the financial protection granted to the debtor.

If the reorganisation proposition is approved in the creditors’ meeting, the proposition becomes a binding agreement between creditors and the debtor, setting forth the terms according to which the liabilities will be paid. If the proposition is not approved, the Court will automatically initiate a forced liquidation proceeding.

Once a liquidation proceeding is initiated, the main effects include: (i) the debtor is prevented from administering its assets, which will pass to a liquidator. Therefore, all contracts and dealings made by the debtor after the liquidation resolution are void and can be revoked; (ii) as a general rule, creditors’ rights of enforcement against the debtor’s assets are fixed at the date that the liquidation resolution is issued; creditors are prevented from making individual claims and collections against the debtor; and (iii) all debtor’s monetary obligations become automatically due regardless of their original terms, so that creditors can verify their credits in Court and participate in the liquidation proceeding.

4. Managing the assets in an insolvency proceeding 

In reorganisation proceedings, the debtor is not generally prevented from managing its assets, but is supervised by an observer from SUPERIB empowered to access the accounting of the debtor and, moreover, has the duty to inform the Court, creditors and third parties about the debtor’s business. Also, the authorisation of the observer is required to perform certain transactions enabling the continuation of the debtor’s business, such as due payment to suppliers of goods and services that are necessary to the debtor’s business and payment of credit facilities to lenders, provided that those creditors continue to supply good and services and/or facilitate credits.

In liquidation proceedings, the debtor is prevented from managing its assets, which is done directly by the liquidator and with the sole purpose of having an expedited and efficient liquidation of the assets. The liquidator must submit for the creditor’s approval the means through which the liquidation of the assets is made, and creditors can also decide on the selling of the debtor’s assets as an economic unit.

5. Plans of reorganisation and liquidation: vote and structure

As a general rule, creditors will have the right to vote in reorganisation or liquidation proceedings, provided that their credits have been recognised by the debtor upon submitting a voluntary request for reorganisation or liquidation, or by the creditors participating in the relevant proceeding once they have notice of the existence of the same, following procedural rules and deadlines provided by law.

Related-party creditors do not have the right to vote in creditor meetings of reorganisation or liquidation proceedings, and their credits are not considered in the calculation of the debtor’s liabilities.

Reorganisation proposals must be approved by the debtor and with the favourable vote of creditors with the right to vote representing at least 66.6% of the creditors assisting in the relevant meeting. The proposal can be separated in different creditors’ classes, considering their preferences according to law and if their credits are secured with a mortgage or pledge. If the reorganisation proposal is separated in different classes of creditors, the approval of the proposal in each class of creditors is contingent on the approval of the proposal in the other classes of creditors.

Creditors’ meetings in liquidation proceedings are validly held with the assistance of creditors with a right to vote representing at least 25% of the debtor’s liabilities. Resolutions in liquidation creditors’ meetings are generally subject to simple majority rule, whereas decisions regarding the means of liquidation of the debtor’s assets are subject to an absolute majority rule.

Other than the quorums explained above, ordinary procedural resolutions by creditors in both types of proceedings are subject to a simple majority rule.

6. International insolvency: effects of an international insolvency for assets located in Chile

As a general rule, foreign judgments would be recognised in the courts of Chile and would be enforceable, provided there is reciprocity between the two States and that the judgment is not contrary to the public policy of Chile. Therefore, a judgment rendered in a foreign insolvency proceeding can be enforced in Chile against the debtor’s assets located in Chile.

Notwithstanding the above, in 2014 Chile adopted the UNCITRAL Model Law on Cross-Border Insolvency. This has fostered cooperation between government agencies and courts overseeing insolvency, facilitating the participation of foreign creditors regarding insolvency proceedings against debtors and/or their assets located in Chile, as also enabling debtors undergoing foreign insolvency proceedings to initiate a reorganisation proceeding in Chile. In this last case, foreign debtors can be granted financial protection regarding assets located in Chile, which benefits creditors participating in foreign insolvency proceedings.

Jorge Allende Destuet
Jorge Allende D., LL.M.
Rodrigo Campero T.
Rodrigo Campero, LL.M.
Ignacio Errazquin, LL.M.
Senior Associate