Insolvency 2024 Comparisons

The Chilean Insolvency Law (Law No 20.720, or CIL) provides the standard procedures applicable to address the insolvency state of companies or individuals. In this vein, the law defines companies as private entities, or natural persons that within the previous 24 months have paid income tax. Any natural person that falls outside such definition is considered an individual for this law’s purpose. This distinction is relevant as, depending on the subject, a different procedure will apply.

The procedures established in CIL can be grouped as:

• liquidation procedures, under which the debtor’s assets are liquidated to pay its creditors; and
• reorganisation procedures, under which the debtor’s assets and obligations are restructured to avoid liquidation.

It must be noted however, that Chilean law contemplates provisions dispersed in different bodies of law, providing specific regulation regarding the insolvency of a company or individual. For example, the Banks General Law (DFL No 3 of 1997) and Insurance Companies Law (DFL 251 of 1931), contain specific provisions in relation to the insolvency state of these types of companies. CIL will apply to the referenced cases, except as provided otherwise in such bodies of law.

As indicated in 1.1 Legal Framework, CIL provides reorganisation and liquidation procedures, applicable to companies or individuals as defined therein.

Companies can be subject to reorganisation or liquidation procedures, which can be classified as follows.

• Reorganisation procedures can be grouped into two categories:
1. out-of-court reorganisation agreements (see 3.1 Out-of-Court Restructuring Process); and
2. judicial reorganisation agreements (see 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation).
• Liquidation procedures can be grouped into two categories:
1. voluntary liquidation (see 5.1 The Different Types of Liquidation Procedure); and
2. forced liquidation (see 5.1 The Different Types of Liquidation Procedure).

Individuals and smaller companies can be subject to renegotiation, reorganisation and liquidation procedures, which can be classified as follows.

• Renegotiation procedure, which allows individuals to renegotiate their debts with creditors, by submitting a voluntary application to the Superintendency of Insolvency and Re-entrepreneurship (the “Superintendency”).
• Simplified reorganisation procedure, which applies for small companies and have the same purpose as the reorganisation procedure for companies.
• Simplified liquidation procedure, which can be either voluntary or forced, and allows individuals and small companies to liquidate their assets through a trustee to pay their creditors.

Throughout this questionnaire the authors will focus on the reorganisation and liquidation standard procedures applicable to companies.

Statutory officers will vary, depending on the procedure under analysis, however, in respect of both the reorganisation and liquidation procedures, the Superintendency and the courts will play roles in selecting and appointing officers, monitoring the proceedings’ legality and fairness, as well as approving or rejecting decisions regarding reorganisation or liquidation of the debtor’s assets.

Reorganisation Procedure

Overseer

The overseer supervises the debtor’s administration, promotes agreements between the debtor and creditors, and facilitates the proposal of reorganisation agreements. The reorganisation procedure can start by the debtor voluntarily filing a request in court, or as a response in a forced liquidation procedure initiated by a creditor. In both cases the debtor must point out the three largest creditors, who will elect a head and alternate overseer.

Once the head and alternate overseer are selected by the three largest creditors, the Superintendency will notify the head overseer, who must accept the office and swear to perform it faithfully.

Once the office has been accepted, the Superintendency shall issue the certificate of nomination of the overseer, which shall be sent directly to the competent court, within the day following its issuance, so that it may include the overseer’s appointment in the reorganisation resolution.

Creditors’ committees

The reorganisation agreement proposed by the debtor might provide the designation of a creditors’ committee to oversee compliance with the agreement. Such committee shall have the powers, duties and compensation set forth in the agreement (Article 69 of CIL).

Financial controller

The reorganisation agreement proposed by the debtor shall contain the appointment of a financial controller to supervise its fulfilment.

Liquidation Procedure

Trustee

Upon the submission to the competent court of a request for the start of a liquidation procedure, the Superintendency will appoint a trustee, following a procedure similar to the one described to appoint an overseer in a reorganisation procedure. In this vein, the three largest creditors will be in charge of electing a head and alternate trustee.

The trustee will:

• represent the debtor in and out of court during the procedure;
• assume management of the debtor’s assets; and
• liquidate the debtor’s assets and pay its creditors.

Creditors’ committees

In the liquidation procedure, creditors may agree, through a creditors’ meeting on the constitution of a creditors’ committee to adopt resolutions that fall within the scope of its competence. Its composition, powers, duration and applicable procedures shall be determined by the creditors’ meeting. Such decision will require the support of the absolute majority of creditors with voting rights (Article 202 of CIL).

The Chilean Civil Code (CCC) regulates the preference order that creditors will have for their claims, in case of a liquidation procedure. The preference order differentiates between preferred and non-preferred credits (see Articles 2470 to 2491 of the CCC).

Preferred credits – the law recognises four types of preferred credits, which are paid in the following order.

• First class (Article 2472 of the CCC) – including tax credits, employee’s remuneration, procedural and administration expenses, trustee fees and employee and pension claims.
• Second class (Article 2474 of the CCC) – including debts secured by a pledge, and certain specific types of credits.
• Third class (Article 2477 of the CCC) – debt secured by a mortgage.
• Fourth-class (Article 2481 of the CCC) – including claims from the tax authority against tax collectors and administrators of fiscal assets, claims of national charitable or educational institutions, and those of municipalities, churches and religious communities against the collectors and administrators of their funds.

Non-preferred credits – Fifth-class or non-preferred credits do not have any preference in their payment and shall be covered pro rata with the remainder of the debtor’s estate once the preferred credits are paid. It must be noted that the law allows subordination between non preferred credits. In such event, after the non-preferred unsubordinated credits are paid, subordinated credits will be paid on a pro rata basis.

Finally, it must be noted that CIL provides that labour debts are not subject to restructuring under the CIL, since labour and social security debts with present and former employees are ruled by the Labour Code.

As mentioned in 2.1 Types of Creditors, CCC provides a preference order that distinguishes between five classes of credits, establishing the priority with which a debt will be paid in an insolvency procedure.

Additionally, CIL contains specific provisions in relation to expenses incurred in reorganisation or liquidation procedures, which otherwise would be considered unsecured creditors, vesting these with the preferences indicated in their respective provisions. Among these are the following.

• Loans – loans taken to finance the debtor’s operations during the reorganisation procedure will be paid under the terms agreed. In case the debtor’s reorganisation is not agreed, the amount to be paid will be considered as a first category credit, payable even before labour debts and taxes owed to the state (Article 74 CIL). The same rule will apply to loans obtained by the trustee to carry out the liquidation procedure (Article 2472 CCC).
• Critical vendors – the credits of suppliers or service providers that are essential for the operation of a company, whose date precedes the start of the reorganisation procedure and that in aggregate do not exceed 20% of the debt subject to the renegotiation procedure, will be paid on the dates originally agreed. This, provided that the supplier or service provider keeps supplying the company under the same terms that were applicable before the start of the restructuring procedure. In case the debtor’s reorganisation is not agreed, the credits arising from the supply or services provided along the reorganisation procedure will be considered as a first category credit, payable even before labour debts and taxes owed to the state (Article 72 CIL).
• Utility services providers – public utility services credits for supplies, provided after the start of the liquidation procedure, shall be considered a first class first category credit, payable even before labour debts and taxes owed to the state. Public utility services suppliers shall not be entitled to suspend the services, even after the start of the liquidation procedure, without the court’s approval. Suspension of the service without such approval shall be punished by the court (through fines) and their services shall be re-established as soon as the court orders it (Article 171 CIL).
• Business continuation expenses – if in a liquidation procedure creditors, through the creditors’ meeting, agree the continuation of the debtor’s activity, the expenses arising from such activities will be deemed a first category credit, payable even before labour debts and taxes owed to the state (Article 239 CIL). 

To secure payment of their credits, creditors may request from the debtor a security interest or personal guarantee. These can be classified as follows:

• pledges – constituted over the debtor’s movable property (eg, equipment or machinery, shares, intangible property, intellectual property, and bank accounts); and
• mortgages – constituted over the debtor’s real estate properties and exceptionally over vessels or naval artefacts beyond 50 tons of gross tonnage.

Before a reorganisation or liquidation procedure, creditors will be able to execute their liens/securities, by requesting from the court the forced sale of the debtor’s assets and payment with the proceeds of such sale.             

During a reorganisation procedure, creditors will not be able to enforce their liens or securities, since once the reorganisation resolution has been ruled by the court, the debtor will be vested with Insolvency Financial Protection (see 4.4. The Position of the Debtor in Restructuring, Rehabilitation and Reorganisation).

During the liquidation procedure, the secured creditors can execute their guarantees (mortgages or pledges) and get paid, provided that first-class creditors are covered.

Before the start of a restructuring or insolvency procedure, unsecured creditors may request from the competent court:

• injunctive relief, such as asking the court to prohibit the debtor from taking certain actions or transferring assets;
• early termination of the respective contract, along with damages; and
• enforcement of contractual obligations, along with damages.

Exceptionally, the law might provide specific remedies for creditors, for example: debtor’s goods retention in case of lease agreements.

Finally, creditors who possess an enforceable title (ie, documents that are expressly defined by law, that prove the existence of an undisputed obligation), against the debtor, may seek the fulfilment of the obligation through an “enforcement procedure”.

According to Article 102 of CIL, companies may celebrate with their creditors an extrajudicial reorganisation agreement, which can address all sort of matters related to restructuring the debtor’s assets and liabilities. In this vein, it is worth noting that entering consensual restructuring negotiations before the commencement of a formal statutory process is not mandatory under CIL.

For the agreement to be binding it must be:

• approved by two or more creditors, whose credits make up at least three-quarters of the debtor’s liabilities (Article 109 CIL);
• executed before a minister of faith recognised by the law (Article 104 CIL); and
• submitted to the competent court for approval, together with the relevant documents specified in Article 56 of CIL (detailed in 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation), and a list of all lawsuits and administrative proceedings that may have financial effects on the debtor.

Together with the filing of the extrajudicial agreement, a report issued by an overseer registered before the Superintendency must be submitted. Such report shall contain the overseer’s opinion regarding:

• whether the proposal is susceptible of being fulfilled, taking into consideration the debtor’s current state of business;
• the probable amount of recovery that would be obtained by each creditor in their respective categories, in the event of an insolvency liquidation proceeding; and
• whether the determination of the credits and their preference, proposed by the debtor, is in accordance with the law.

Upon the filing of the restructuring agreement and until its approval, the court will order:

• the prohibition to request the debtor’s forced liquidation, to initiate against it any enforcement procedures or executions of any kind or restitution of properties under lease trials, with the exceptions provided in the law (ie, labour lawsuits, among others);
• the suspension of the procedures already in place and suspension of the statutes of limitations terms;
• the prohibition against the debtor to encumber or dispose of its assets, except for those that are strictly necessary for the continuation of its business; and
• together with filing the agreement for approval, the debtor shall deliver to the overseer a copy of the agreement and the associated documentation which shall be published in the Bankruptcy Gazette and delivered to creditors by email.

Dissenting creditors, and creditors who have been omitted from the information submitted to the court in accordance with Article 107 of CIL, are allowed to challenge the extrajudicial agreement in the ten days after it has been published by the overseer in the Bankruptcy Gazette.

Within the ten-day term following the publication of the extrajudicial agreement, the court may summon all the creditors affected by the agreement for their formal acceptance before the court.

Once the agreement is accepted, or if the ten-day term expires without having the court summoned the creditors, nor having creditors challenge the agreement, or if challenged, once the claims have been rejected, the court will issue its approval decision. Upon such decision, the agreement will become binding and enforceable against all creditors, even against those who opposed it.

As mentioned in the preceding section, extrajudicial reorganisation agreements, once judicially approved, have the same effects as judicial reorganisation agreements. Thus, they can be invoked against the debtor and all its creditors. Credits will be deemed remitted, novated or renegotiated, as appropriate, according to Article 93 of CIL.

Material Requirements to Initiate the Procedure

Companies’ judicial reorganisation processes will always start upon the debtor’s request, either by directly requesting the court to start a procedure of this nature, or as a defence amid the hearing when summoned to discuss the start of the liquidation procedure. Although there are no specific legal grounds for starting a reorganisation procedure, it is understood that the debtor must have one or more creditors whose debts might be reorganised.

It must be pointed out that under CIL, the reorganisation of a group of related companies under a single procedure is not allowed. In such event, each company shall start its own reorganisation procedure.

Formal Criteria to Initiate the Procedure for Legal Entities

The debtor must submit the following documents (Article 56 CIL).

• List of all its assets, stating their commercial appraisal, location, and the encumbrances affecting them. It shall also indicate which of these assets are essential for its business.
• A list of all third-party assets pledged as collateral in favour of the debtor. It shall also indicate which of these assets are essential for the debtor’s business.
• A list of all the goods held but not owned by the debtor.
• The certificate referred to in Article 55 of CIL, for the determination of the liabilities subject to the judicial reorganisation agreements. This certificate must be issued by an auditor independent of the debtor. The liabilities established in this certificate shall consider the debts of the debtor, with a closing date no more than 45 days prior to the filing. Also, it shall contain an express indication of the credits that are secured by pledges or mortgages and the commercial appraisal of the assets acting as collateral. This certificate shall serve as the basis for determining all the quorums of creditors required for the adoption of any agreement, until the list of recognised credits is drawn up.
• If the debtor keeps full accounting records, it shall submit the balance sheet corresponding to its last fiscal year and a provisional balance sheet containing the financial and accounting information, with a closing date no more than 45 days prior to this submission.

The documents referred to above shall be signed by the debtor’s legal representative.

What can be Restructured Under a Reorganisation Procedure?

In a reorganisation procedure only the debtor’s debt existing up to the date of issuance of the reorganisation resolution can be restructured. Thus, debts arising after the reorganisation decision are not part of the procedure.

Shareholders of the debtor will not be part of the reorganisation procedure, unless they are also among the debtor’s creditors. In such event, they will be subject to the restrictions applicable to related persons and will not be able to vote in the reorganisation agreement proposal (Article 79 CIL).

How are Creditors Organised?

Creditors are organised in creditors’ meetings, where they vote on the debtor’s proposal and decide on matters affecting their interest in accordance with CIL.

How is the Value of a Creditor’s Claim Determined?

The value of the claims against the debtor is determined by the proof of claim that the creditors file in the procedure, along with all the supporting evidence of their credit. Such claim shall be filed within the term of 15 days counted from the notification of the reorganisation decision issued by the court. The proof of claim might be challenged by the debtor, overseer, or another creditor. If the claim is not challenged, the credit will be included in the recognised creditors list.

Creditors that do not submit their proof of claim within the referred term and that do not appear in the certificate referred to in Article 55 of CIL and discussed in 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation, will be entitled to request the compliance of the reorganisation agreement in relation to their credit before the court in charge of the procedure, provided that statutes of limitations applicable to the actions agreed therein, have not expired.

Measures to Facilitate the Debtor’s Restructuring

During the Insolvency Financial Protection, the individual enforcement actions against the debtor will be suspended (see 4.4 The Position of the Debtor in Restructuring, Rehabilitation and Reorganisation), and an overseer will be appointed as described in 1.3 Statutory Officers.

Dissenting Creditors

Creditors will discuss and vote separately by class or category in the creditors’ meeting called to approve or dismiss the reorganisation proposal. Each proposal will be deemed approved, if it is supported by the debtor and at least two-thirds of the creditors appearing at the meeting, representing two-thirds of the debt with voting rights of the respective Creditors' class or category. If such quorum is reached, the agreement will be applicable even to dissenting creditors.

Treatment of New Money in the Procedure

Loans contracted and the financing operations carried out by the debtor to finance their operations during the reorganisation procedure shall not be considered in the credit lists and shall be paid on the agreed dates (see 4.4 The Position of the Debtor in Restructuring, Rehabilitation and Reorganisation).

If for any reason the liquidation resolution is issued, the contracted loans and other credits originated by virtue of other financing operations that have taken place during the Insolvency Financial Protection shall be paid with the preference of a first category credit established in number 4 of Article 2472 of the CCC.

Typical Timelines and Milestones

The procedure begins by the debtor filing before the competent court a request for the initiation of the reorganisation proceeding.

The court must analyse whether all the requirements for starting such procedure are met, and if fulfilled, the court will rule the reorganisation resolution within five days, designating the overseer previously nominated by the three largest creditors.

Once the court rules the reorganisation resolution, it will initiate the 60-day term of Insolvency Financial Protection, which might be extended up to 120 additional days. In addition, this resolution shall contain an order to the debtor to publish the resolution, through the overseer in the Bankruptcy Gazette and submit to the court its proposal for a judicial reorganisation agreement.

The creditors must file their proof of claims, within 15 days following the publication of the court’s decision in the Bankruptcy Gazette.

The overseer must present a list of all the credits filed in the procedure, which will initiate the period in which creditors and the debtor may challenge the credits filed.

At least ten days before the creditors’ meeting to approve or reject the proposal, the debtor must file a reorganisation agreement proposal (the “Proposal”).

The creditors may vote in writing the Proposal once the overseer’s opinion on the feasibility of the proposal is published in the Bankruptcy Gazette and until the day before the date of the creditors’ meeting called to hear and decide on the Proposal. After such date, they shall vote attending to the creditors to accept or reject the proposal.

The creditors’ meeting will be held after being called by the court to hear and decide on the Proposal. The date of such meeting will be the date on which the Insolvency Financial Protection term expires.

In case the Proposal is accepted by the creditors, credits will be deemed remitted, novated or renegotiated, as appropriate, and according to Article 93 of CIL the minutes of the creditors’ meeting approving the proposal must be published in the Bankruptcy Gazette.

Approval of the Proposal

The reorganisation agreement shall be deemed approved and become effective upon expiration of the term to challenge it (five days from its publication in the Bankruptcy Gazette after being approved at the creditors’ meeting). The competent court might declare it either ex officio, or upon the request of any interested party or the overseer.

Once a copy of the minutes of the creditors’ meeting recording the favourable vote of the agreement, together with a copy of the judicial resolution approving it, and its certificate of enforceability is authorised by a minister of faith or notarised before a notary public, it shall be deemed enforceable for all legal purposes.

Termination of the Reorganisation Procedure

The reorganisation procedure can end:

• if the reorganisation agreement is approved. The Proposal will be deemed to be agreed when it has the consent of the debtor and the affirmative vote of two-thirds or more of the creditors present at the meeting, representing at least two-thirds of the total debt with voting rights;
• if the reorganisation agreement is rejected by the creditors or does not have the debtor’s consent, the court shall finish the reorganisation procedure issuing the liquidation decision;
• if the debtor withdraws the Proposal before the creditors’ meeting, the court shall finish the reorganisation procedure issuing the liquidation resolution; and
• if the debtor does not attend the creditors’ meeting, the court shall finish the reorganisation procedure issuing the liquidation decision.

Approval of the Reorganisation Agreement

The reorganisation agreement is not subject to an overall fairness test. The CIL establishes and regulates expressly how the agreement is carried out; the judge cannot rule against the law.

The approval of the reorganisation agreement must be declared by the court by ruling its decision after the approval of the creditors’ meeting (see 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure).

Effects of Breaching the Reorganisation Agreement

If the debtor fails to observe the terms of the reorganisation agreement, or if the state of the debtor’s business has worsened to such an extent as to give rise to fear of prejudice to such creditors, any affected creditors may request the court to declare a breach of the reorganisation agreement, according to Article 98 CIL.

Once the breach of the agreement has been declared, the court will issue the liquidation resolution.

In addition, it must be pointed out that the agreement may be declared void if the debtor’s assets or liabilities are overstated or concealed and/or if some actions became known after the expiration of the term for contesting the agreement.

The statute of limitations to sue the breach or annulment of the agreement is one year from the date on which the breach occurred.

Debtor’s Insolvency Financial Protection

Upon the start of the reorganisation procedure, the debtor will be vested with Insolvency Financial Protection for a term of 60 to 180 days. This period is intended to facilitate the debtor reaching an agreement with its creditors.

While this protection is in force, no insolvency procedure and/or enforcement procedures of any class can be initiated against the debtor. Also, the enforcement procedures already in place will be suspended. Likewise, no liquidation resolution can be initiated or declared, and property restitution procedures may not be started. Exceptionally, labour trials shall be allowed to start/continue if the conditions provided in the law are fulfilled.

Also during such term, the existing contracts will remain in full force and creditors cannot terminate these, nor enforce the guarantees associated with such contracts, due to the start of a reorganisation procedure. If such mandate is breached by a creditor, payment to such creditor can be postponed until all debts under the reorganisation agreement, including those of the debtor’s related persons, are paid in full.

Debtor’s Management Restrictions

The debtor will be subject to the limitations imposed by law. In this vein, it will keep administration of its assets but will be subject to the supervision of an overseer. Similarly, the debtor may not encumber or dispose of its assets, except for those whose disposal or sale are part of its ordinary course of business, or those whose sale is strictly necessary for the normal development of its business.

During the Insolvency Financial Protection and to finance its operations, the debtor may dispose of assets whose value does not exceed 20% of its accounting fixed assets and may contract loans and/or carry out other types of financing operations, provided that these do not exceed 20% of its liabilities indicated in the accounting certification, a circumstance that must be certified by the overseer.

The sale, contracting of loans or other financing operations exceeding the amounts indicated in the preceding paragraph, as well as any operation with the debtor’s related persons, shall require the authorisation of the creditors representing more than 30% of the debtor’s debt.

Under CIL, related persons are persons who are in any of the situations referred to in Article 2 No 26 of CIL.

See 1.3 Statutory Officers.

In a reorganisation proceeding, the main office holder is the overseer. The main function of the overseer is to facilitate agreements between the debtor and its creditors, ease the negotiation of the Proposal, as well as supervising the company’s business operations.

Among their duties are the following.

• Take possession of the books and other accounting, financial or tax documentation of the debtor’s operations.
• Incorporate and publish in the Bankruptcy Gazette a copy of all the background information and resolutions ordered by this law.
• Request/make the registrations and notifications required by the reorganisation resolution.
• Qualify the powers of attorney to appear at the creditors’ meetings and to inform the court about their legality, when appropriate.
• Request the precautionary and conservation measures over the debtor’s assets that are necessary to protect creditors’ interests, without prejudice to agreements that they may adopt in this respect.
• Report to the court and to the Superintendency any act or conduct of the debtor that may imply a negligent or fraudulent administration of its business.
• Render a monthly account of its activities and of the debtor’s business to the Superintendency, and the creditors, as well as submit any observations it may have on the administration of the debtor’s business.
• Ensure the correct and timely compliance with the debtor’s labour and social security obligations, with respect to workers on current labour contracts and those whose contracts were terminated before and after the commencement of the procedure. In the event of non-compliance by the debtor, they shall report this circumstance to the court and to the Superintendency.

Shareholder Status in a Reorganisation Procedure

A debtor’s shareholders will not be part of a reorganisation process unless they are among the debtor’s creditors (for example, if they have funded the debtor). In such event, they will be subject to the restrictions imposed by the CIL on the debtor’s related persons.

Nevertheless, CIL establishes some limitations that affect shareholders when the debtor is subject to a reorganisation agreement, such as restricting modifications of the company’s by-laws and the powers of attorney. Similarly, any transfer of the shares issued by the debtor shall not affect creditors’ rights and must be authorised by the overseer prior to its execution. Such limitations will not be applicable to publicly traded companies.

Furthermore, the debtor is not allowed to distribute sums to its shareholders or partners, under any concept, either directly or indirectly, whether by way of capital reduction, forgiveness of loans granted, and/or distribution of dividends before having paid 100% of the obligations arising from the judicial reorganisation agreement, unless the creditors expressly authorise it in the manner determined by the agreement.

Creditor Rights in a Reorganisation Procedure

Creditors have the right to participate in the process as indicated in 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure.

As mentioned in 1.2 Types of Insolvency, there are two types of liquidation procedures: forced liquidation and voluntary liquidation.

Forced Liquidation

Material requirements to initiate the procedure

Any creditor shall be entitled to request the start of a liquidation procedure in the following cases (Article 117 of CIL):

• if the debtor ceases to pay an obligation, evidenced by an enforceable title that has become due, being such obligation inherent to the debtor’s business activity;
• if there are two or more overdue enforceable titles against the debtor, arising from different obligations and at least two enforcement procedures have been initiated, and the debtor has not provided sufficient funds or assets to cover its liabilities within the term of four days following the respective payment requests; and
• if the debtor or its managers are not found and have left their offices or establishments closed, without appointing an agent with sufficient powers to comply with their obligations and answer new claims. In such event, even a creditor with a non-overdue credit might file the liquidation request.

Similarly, the competent court will initiate the liquidation procedure ex officio, in the following cases:

• if the debtor fails to file the Proposal within the term provided in the reorganisation procedure (Article 57 number 4 of CIL);
• if the creditors do not approve the reorganisation agreement (Article 96 of CIL);
• if the debtor withdraws the Agreement Proposal, after it has been notified to creditors (Article 77of CIL); and
• if the debtor fails to attend the meeting called to rule on the reorganisation agreement (Article 81 of CIL).

Formal requirements to start the procedure

The creditor shall file its claim before the competent court, indicating the legal grounds and the supporting facts upon which the liquidation lawsuit is based. The claimant shall attach to such claim (Article 118 of CIL):

• the supporting documentation; and
• a cashier check or bank bond for USD4,207 approximately, to cover the initial expenses of the proceeding and trustee’s fees.

Voluntary Liquidation

Material requirements to initiate the procedure

To start a voluntary liquidation procedure, the debtor must file a request before the competent court. The law does not provide specific grounds for requesting voluntary liquidation. However, it is understood that it must have at least one unpaid debt.

Formal criteria to start the procedure

Together with the petition mentioned above, the debtor shall submit the following documents (Article 115 of CIL).

• A list of its assets, their location, and the encumbrances affecting them, as well as its participation in companies and communities.
• Certificate evidencing its ownership of the assets indicated in the application whenever such documentation is available.
• A list of the assets legally excluded from the bankruptcy procedure.
• A list of the pending lawsuits, if any.
• A list of the existing debts, including the contact details of each creditor and the type of debt.
• A list of the existing employees, if applicable, pointing out the amounts owed to these.
• If the debtor keeps complete accounting records, its last balance sheet.
• A copy of the electronic tax folder.
• A copy of the historical banking statements in relation to the existing accounts associated with the debtor, issued no more than 30 days prior.
• Affidavit stating that the background information is complete and reliable.

All these documents must be signed by the debtor’s representative.

Initiation of the Procedure

The procedure starts with a request from the debtor or a creditor (depending on if the procedure is forced or voluntary). However, as mentioned in 5.1 The Different Types of Liquidation Procedure above, it might be initiated ex officio by the competent court.

The court, after reviewing the creditor of debtor’s petition compliance with CIL requirements, will rule the liquidation resolution.

Once creditors are notified of the liquidation resolution, through a publication in the Bankruptcy Gazette by the trustee, they have 30 days to present their proof of claim, if they wish to participate in the creditors’ meeting. The first creditors’ meeting will take place 32 days after the publication of the liquidation resolution. After this date, creditors are still allowed to file their proof of claim, but they must adhere to the acts already executed in the process.

After the period to file the proof of claims has expired, creditors, along with the trustee and the debtor, will have a term of ten days to challenge the credits. In case the credits are challenged, the trustee will promote an agreement for the creditors and the debtor. If there is no agreement, the credits will be considered as challenged and the trustee will make a report containing a list of the challenged credits, publish it in the Bankruptcy Gazette, and file it to the court.

After this, the court will call the parties to a hearing to rule on the credits challenged. The resolution of this hearing will order the incorporation or modification of the credits if applicable to include them in the recognised credits list. In case the term to challenge the credits is expired and if there were no credits challenged, they will be recognised.

The trustee will seize the debtor’s assets and proceed with their sale according to the instructions agreed in the creditors’ meetings. In this respect, the law provides different alternatives for the sale of the debtor’s goods. The law establishes the deadline to sell the debtor’s assets at four months for movable goods and seven months for real estate goods, counted from the date of the first creditors’ meeting or from the date it should have been held in the second citation. These terms might be extended by four months, by decision of the creditors’ meeting.

Then, upon the fulfilment of the conditions required by the law, the trustee will propose to creditors the delivery of funds in proportion to the amount of their respective credits, observing the order of precedence provided in the law.

Finally, upon the liquidation of all the assets, the trustee shall render its final account and the process will be finished.

Upon the termination of the procedure, and save for the exceptions provided in the law, the unpaid balances shall be deemed extinguished by operation of law and for all legal purposes.

Effects of the Procedure

Upon the issuance of the liquidation decision by the court, the management of the company will be transferred to a trustee. The debtor will not lose ownership over its assets. In addition:

• all civil lawsuits pending against the debtor shall be joined to the liquidation proceeding;
• the debtor will not be able to appear in court as plaintiff or as defendant in relation to the assets subject to the liquidation proceeding, but it will be able to act as an intervener;
• the right of creditors to individually enforce any obligation against the debtor shall be suspended; and
• all monetary obligations shall be deemed due and payable, so that creditors may file their proof of claims in the proceedings.

Main Tasks of the Trustee

The trustee represents the general interests of the creditors and the rights of the debtor in judicial and extrajudicial proceedings insofar as they may be of interest to creditors.

Among the trustee’s main tasks, are the following:

• to seize and inventory the debtor’s assets;
• to sell the debtor’s assets to pay creditors;
• to collect the debtor’s receivables;
• to contract loans to cover the expenses of the proceeding;
• to request accountability from anyone regarding the debtor’s assets;
• to request from the debtor all the necessary information that might be needed for the adequate development of the liquidation procedure;
• to execute the decisions adopted by the creditors’ meeting; and
• to settle and conciliate labour credits with the prior agreement of the creditors’ meeting.

Effects on Pre-insolvency Existing Agreements

CIL does not regulate the effects of the start of a liquidation procedure on the debtor’s contracts. Thus, they do not terminate automatically, but contracts might allow the parties to terminate them.

Exceptionally, CIL states that sales contracts may be terminated in cases where the debtor is the buyer and has breached the contract, and that labour contracts will be terminated upon the issuance of the liquidation decision.

The procedure can end in the following ways.

• By the courts issuing the termination decision after all the assets have been sold and there are no more funds to pay to creditors. In such event, the trustee will submit for approval their final report to the court and the superintendency, summoning creditors to attend a creditors’ meeting to explain the content of the final report. Creditors might contest the final report within 15 calendar days counted as from the creditors’ meeting date. If the report is not contested, the final report shall be considered approved. Then, upon the court decision issued either ex officio or upon request from one of the parties involved, all the debtor’s restrictions will be lifted, and the pending debts will be written off.
• If a reorganisation agreement is approved within the procedure (Article 257 of CIL).

Shareholders’ Status in a Liquidation Procedure

A debtor’s shareholders will not be part of a liquidation process unless they are among the debtor’s creditors (for example, if they have funded the debtor). In such event, they will be subject to the restrictions imposed by the CIL on the debtor’s related persons, and thus won’t be able to vote on the creditors’ meeting, nor be considered in the calculation of voting quorums.

Creditors’ Rights in a Liquidation Procedure

Creditors (whether secured or not), have the right to participate in the process through creditors’ meetings and decide how the debtor’s assets will be sold. To participate, they must file their proof of claim attaching the supporting documentation of their credit, within the term indicated in 5.2 Course of the Liquidation Procedure. If the existence of the credit is not challenged either by the debtor, the trustee or another creditor, their credit will be acknowledged and included as part of the recognised credits. The law allows filing the proof of claim after the expiration of such term, but late creditors shall accept the acts already executed along the process.

The law allows the liquidation of assets through different procedures:

• simplified sell, which applies in case the asset value does not exceed the amount of approximately USD205,000, among others; and
• ordinary sell, which implies selling goods through public auctions, or as part of an ongoing business or through a direct purchase by a third party. In the latter case, the offer made by such third party shall be approved at the creditors’ meeting.

Secured creditors can exercise their rights on the assets given as collateral, and be paid preferentially through their sale, provided that payment for first-class creditors is secured, covered or paid.

Pre-insolvency Lawsuits and Injunctive Measures

Upon the start of a liquidation procedure, pre-insolvency lawsuits will be joined, injunctive measures will be eased, and any embargo or seizure imposed on assets subject to the liquidation procedure will be rendered without effect as of the date of the Liquidation Resolution (Article 148 of CIL).

Furthermore, as indicated in 5.2 Course of the Liquidation Procedure, all the existing enforcement procedures will be suspended.

The following should also be noted.

• Debt set-off – the issuance of the Liquidation Resolution prevents any offsetting that has not already occurred by the sole operation of law between reciprocal obligations of the debtor and the creditors, unless such set-off refers to related obligations, derived from the same contract or the same negotiation, regardless if these obligations become due on different dates.
• Lease retention right – the retention right in case of the debtor’s breach of a lease contract, cannot be declared after the start of the liquidation procedure. However, if declared before the start of it, it will grant the creditor a second-class preference to obtain payment of its debt, through the sale of the goods retained.

Chile adopted the UNCITRAL Model Law on Cross Border Insolvency in 2014, by including these rules in Chapter VIII of the CIL. These rules are intended to facilitate the recognition of foreign insolvency procedures that produce effects in Chile, through co-ordination between local and foreign courts, ensuring the enforcement of international procedures.

This regulation will not apply to insolvency procedures regulated in the Banks General Law (DFL 3 of 1997), nor Insurance Companies, Corporations and Stock Exchanges (DFL 251 of 1931).

Finally, in case of contradiction between the provisions contained in the treaties subscribed by Chile that are currently in force and Chapter VIII of the CIL, the provisions contained in such treaty shall prevail.

Under CIL, the factor used to determine if a local court is competent to open a restructuring or insolvency procedure in Chile is the domicile of the debtor. The law also allows the recognition of foreign procedures involving local companies with domicile in Chile, provided that such procedure is considered as an insolvency procedure under CIL. For such purpose, the debtor shall have its main business centre or a business establishment in the country where the foreign insolvency procedure is being carried out.

CIL considers as the debtor’s establishment the place in which they carry out on a non-transitory economic activity with human resources and goods or services.

In any case, CIL establishes that local courts or the Chilean Insolvency Superintendency can refrain from adopting measures ordered by a foreign court if they are against Chilean public order.

CIL will apply to any reorganisation or liquidation procedure of a debtor with domicile in Chile, except as provided otherwise by the local law.

In case of cross-border insolvency procedures, CIL’s Chapter VIII will apply in the following cases.

• When a foreign court or representative requests assistance from the competent courts, insolvency administrators and other bodies involved in insolvency proceedings under CIL or other special insolvency rules in connection with a foreign proceeding.
• When assistance is requested in a foreign state in connection with insolvency proceedings being conducted under CIL or under other special rules relating to insolvency.
• When foreign insolvency proceedings and Chilean insolvency proceedings are being conducted simultaneously in respect of the same debtor under CIL or other special rules relating to insolvency.
• When creditors or other interested persons, who are in a foreign state, have an interest in requesting the commencement of insolvency proceedings or in participating in insolvency proceedings being conducted under CIL or other special insolvency rules.

CIL allows the recognition of foreign procedures. Recognition will be granted provided the conditions set forth in Article 316 of CIL are met. The conditions are the following.

• The foreign proceeding must be a collective proceeding, whether judicial or administrative, including an interim proceeding, conducted in a foreign state under a law relating to insolvency, in which the debtor’s assets and affairs are subject to the control or supervision of the foreign court or foreign representative for the purpose of reorganisation or liquidation.
• The person requesting the recognition must be a person or body that has been empowered in a foreign proceeding to administer the reorganisation or liquidation of the debtor’s assets or affairs or to act as a representative of the foreign proceeding.
• The application for recognition is submitted together with:
1. an authorised copy of the decision evidencing the foreign proceeding initiated and appointing the referred representative; or
2. a certificate issued by the foreign court attesting the existence of the foreign proceeding and the appointment of the foreign representative; or
3. any other document issued by an authority of the foreign state in the territory of which the said proceedings have been instituted, and which enables the competent court to be fully convinced of the existence of the foreign proceedings and the appointment of the foreign representative; and
4. an affidavit containing the identification details of all the foreign procedures currently in force known by the representative.
• The recognition request must be filed before the competent court in accordance with Article 303 of CIL. In this vein, the competent court or authority will be the ordinary courts, the arbitration courts when it is their duty to intervene and the Superintendency when an Insolvency Procedure for Renegotiation of the Debtor has been initiated. In matters of co-operation with foreign courts, the functions of the competent courts shall also be exercised by the insolvency administrators when so required by the Superintendency.

CIL establishes the following principles.

• Co-operation and direct communication between a Chilean court and foreign courts or foreign representatives (Article 324 CIL).
1. In cases where cross-border insolvency rules apply, the court shall co-operate as far as possible with foreign courts or foreign representatives, either directly or through the insolvency administrators.
2. The competent court shall have the power to communicate directly with the foreign courts or foreign representatives or to seek information or assistance directly from them.
3. All co-operation and direct communication shall be published in the Bankruptcy Gazette within two days of their execution.
• Co-operation and direct communication between insolvency administrators and foreign representatives (Article 325 CIL).
1. In cases where cross-border insolvency rules apply, the insolvency administrator shall co-operate as far as possible with foreign courts or foreign representatives either directly or indirectly.
2. The competent court shall be entitled to communicate directly with the foreign courts or foreign representatives to obtain information directly from them.
3. All co-operation and direct communication pursuant to this article shall be published in the Bankruptcy Gazette.

Some examples about the way in which the courts co-operate in cross-border cases are the following (Article 326 CIL).

• The appointment of a person or body to act under the supervision of the court having jurisdiction.
• The communication of information by any means the court of competent jurisdiction deems appropriate.
• The co-ordination of the administration and supervision of the debtor’s assets and affairs.
• The approval or implementation by the courts having jurisdiction of agreements relating to the co-ordination of proceedings.
• The co-ordination of proceedings being conducted simultaneously with respect to the same debtor.

Foreign creditors shall enjoy the same rights as national creditors regarding the proceedings, and their participation (Article 312 CIL).

The duties of the directors of a company are not established systematically in the law, however they can be found primarily in the Chilean Corporations Law (Law 18.046), along with other legal documents, such as the Chilean Corporations Law Regulation (Decree 702, Ministry of Finance).

Among these duties, the Chilean Law of Corporations provides for:

• the duty to provide information on the legal, economic, and financial situation of the company (Article 46);
• the duty of diligence (Article 41); and
• the duty of reserve (Article 43).

These duties must be performed taking into consideration the shareholder’s best interest, looking to optimise the company’s results and profitability, in accordance with the national legislation, rules of the Financial Market Commission, and the by-laws of the company.

In case that a company is unable to comply with its obligations, or a bankruptcy liquidation procedure is initiated, the Chilean Corporations Law establishes that the board of directors must call a shareholder meeting in the next 30 days of this event, to inform shareholders of the legal, economic, and financial situation of the company.

In the case of publicly traded companies that are not able to fulfil their obligations, the board of directors, in the absence of the manager, must also inform the Financial Market Commission of this situation.

Members of a board of directors who cause damages, in violation of their duties established in the law, by-laws of the corporation, or rules of the Financial Markets Commission (see 7.1 Duties of Directors), can be held liable for damages caused to third parties, the company or shareholders.

Damages caused by infringement of their duties, or as a consequence of the decisions supported by them, make the directors jointly and severally liable to the corporation, the shareholders and third parties, of their fraudulent or culpable actions, unless they can prove their lack of participation, or opposition to the acts or omissions that cause damages.

Finally, the law provides that in case of any loss caused to the assets of the corporation, as a result of a violation of the law, any of the company’s directors, shareholders, or group of shareholders representing at least 5% of the shares issued by the corporation, may sue for damages against the responsible party, for the benefit of the corporation (Article 133 bis of Chilean Corporations Law).

Article 50 of the Chilean Corporations Law provides that the provisions applicable to the directors shall also be applicable to managers and chief executives, as far as they are compatible with the responsibilities inherent to their position or function.

Overseers and trustees are responsible for the slightest fault on complying with their legal obligation and must deposit with the Superintendency an amount determined by law as a guarantee of faithful performance of their tasks.

Directors and officers who cause damage as well as being jointly and severally liable, are also subject to all the civil, administrative and criminal sanctions that apply to their actions.

These sanctions include (where applicable):

• imprisonment or reclusion (Article 134 Chilean Corporations Law);
• ineligibility to hold office as director (Article 35 Chilean Corporations Law); and
• fines (Article 16 Chilean Securities Market Law).

Transfer of assets preceding the reorganisation/liquidation procedure may be reversed to ensure that the debtor’s estate is preserved, and creditors are protected. CIL allows creditors and/or the overseer and/or the trustee (as applicable), to file a revocatory action in the following cases.

Subjective Revocation: Article 288 of CIL

Any act or contract executed by the Debtor with a third party within the two years preceding the start of the insolvency procedure may be revoked if the following requirements are met:

• the action has been executed with the third party knowing about the poor state of the debtor’s business; and
• the act or contract has been harmful to the creditors or alters the par condiction creditorum among the creditors. For this purpose, the act or contract will be deemed harmful if it was executed without observing the applicable market conditions.

Also, CIL allows creditors and/or the overseer and/or the trustee (as applicable), to seek the reversal of any by-law amendments performed in the last six months, if they imply a reduction of the debtor’s assets.

Objective Revocation: Article 287 of CIL

Any of the following acts or contracts executed by the debtor within one year preceding the start of a liquidation or reorganisation procedure.

• Early payments made by the debtor to a creditor, in which the debtor has waived the payment term previously agreed by the parties.
• Payments made by the debtor of an overdue debt to a creditor in different conditions than those originally agreed.
• Any mortgage pledge agreed over debtor’s assets to secure already existing debts.

In the case of gratuitous acts or contracts, or if any of the acts or contracts referred above is executed by the debtor with a related party, even indirectly through a third party, the term referred in the preceding paragraph will be extended to two years.

The debtor may avoid the revocation proving that the act or contract executed did not cause prejudice to the creditors.

Consequences of a Successful Claim

The final judgment accepting the claim will revoke the contract or action impeached and order its reversal.

In both liquidation and reorganisation proceedings, CIL allows creditors and/or the overseer and/or the trustee (as applicable), to initiate claims seeking the reversal of transactions/transfers, as well as the annulment of by-law amendments and agreements between the shareholders/partners, if these imply a reduction of the debtor’s assets (Article 289 CIL).

If these claims are successful, assets transferred through the annulled transaction, or their equivalent value, will return to the debtor’s estate.