According to the report issued by the Financial Markets Commission (Comisión para el Mercado Financiero ‒ CMF), the Chilean banking regulator, at the close of year 2023 the total placements of the banking system and co-operatives experienced a marginal growth of 0.02%. This increase was significant as it broke the downward trend observed in the two previous months, where a decline of 0.82% was recorded in November 2023. The increase for the month of December was mainly attributed to the increase in placements for housing by the banking system. This suggests that the banking sector may have increased its activity in mortgage lending during that period, which could be attributable to factors such as favourable interest rates, housing demand in the market, or government policies aimed at incentivising home purchases. 

In Chile, various market players are part of the financial landscape, namely:

• local banks, which provide traditional banking services and have extensive market knowledge;
• international banks, which bring global expertise and diverse financial products to Chile;
• direct lenders, which offer alternative financing options with flexibility and tailored solutions;
• debt funds, which are significant investors in debt markets, contributing to liquidity and efficiency;
• fintech companies, which innovate with technology to offer digital financial services; and
• regulatory authorities, which oversee and regulate the financial sector, ensuring compliance and stability.

The COVID-19 crisis deeply impacted businesses in Chile, as evidenced by variables such as sales, employment, connections with suppliers and imports. In this context, the Central Bank of Chile, in addition to conventional and unconventional monetary policy measures, implemented special credit measures and temporary adjustments to provisioning regulations in co-ordination with the CMF and the Ministry of Finance. Vast numbers of companies rapidly accessed these programmes, as a result of the need to alleviate financial pressures and also due to programmes that were targeted and designed to take into account the range of adverse effects. In addition, as a consequence of COVID-19, several companies decided to reorganise their debts under the provisions of the Chilean Insolvency Law.

On the other hand, the war in Russia and Ukraine and the conflict in the Middle East have significantly increased indicators of geopolitical risk and financial volatility, which may affect consumption and investment globally. The main consequences for Chile are a significantly higher price for certain commodities, energy and food, and slightly lower growth among trading partners, particularly in Europe. Financial conditions relevant to Chile have not been materially affected, although the risk of reversal is perceived as higher.

In Chile, there are several types of debt finance transactions commonly utilised by businesses and individuals. Among those, the following main transactions should be noted.

Bank Loans

These are loans provided by banks to legal entities or individuals, typically with fixed or variable interest rates and structured repayment terms. In the case of loans granted to legal entities, it is common to see a bilateral loan (where only one bank acts as lender), club-deals and a syndicated loan. Syndicated loans are usually structured as secured transactions (with pledges or mortgages over the assets of the operating companies), with the participation of a bank acting as administrative agent and/or collateral agent.

Revolving Credit Facilities

Revolving credit facilities provide borrowers with access to a line of credit that can be drawn upon as needed. It is very common for financings in Chile to have a bank opening a credit facility to a local borrower, to cover its requirements as needed during the availability period. Revolving facilities are very common for short-term loans and to cover working capital needs. There are also facilities for the issuance of letters of credit and performance bonds. These facilities are typically provided by commercial banks and may be secured by collateral.

Project Finance

Project financing is normally related to the financing of large-scale infrastructure, energy and natural resource projects. Chile has seen significant growth in project finance activity in recent years, particularly in sectors such as renewable energy (photovoltaic and wind-farm projects), infrastructure, mining, transportation and telecommunications.

Corporate Bonds

Companies can issue bonds to raise capital, either as long-term or short-term debt instruments to be publicly offered. These debt securities are issued with fixed interest, although certain short-term instruments may be provided at a discount. The applicable regulation has been changing in order to facilitate the registration process before the securities market regulator. 

Government Bonds

The Chilean central government and state-owned enterprises may incur debt financing and issue bonds to finance their activities, both in the local and international market. Regional government entities and municipalities are not allowed to incur public debt. 

Securitisation

Although less active than a few years ago, there are securitisation transactions where a legal entity sells certain assets to a regulated entity that creates a separate estate for these purposes and issues securitisation debt instruments to be placed with the public. 

Factoring

A very used source of liquidity for certain types of entities is factoring. There is a number of institutions (factoring institutions) that purchase accounts receivable at a discount, giving the seller a mechanism to obtain financing. This provides immediate cash to the seller, but at the cost of a percentage of the receivables’ value.

Leasing

Financial leasing is also common in Chile, in particular for the financing of the acquisition of certain kinds of assets (such as equipment, machinery and real estate) or as a way to obtain liquidity in the case of a leaseback transaction. 

Chile’s banking system is largely privately owned (except for the state-owned bank Banco del Estado de Chile), with a significant presence of foreign-owned subsidiaries (11 out of 20 banks). The largest players in Chile are, in terms of market share, Banco Santander (Spain), Banco de Chile (local), Banco del Estado (state-owned) and Banco de Crédito e Inversiones (local). In addition to the local banks and the subsidiaries of foreign banks, there are three branches of foreign banks registered in Chile.

Debt finance transactions in Chile are typically structured to meet the specific needs of borrowers and lenders while taking into account regulatory requirements and market conditions. The following are some of the most common structures for debt finance transactions in Chile.

Term Loans

Term loans are one of the most common types of debt financing in Chile. These loans have a fixed or variable interest rate and a specified repayment term, typically ranging from a few years to several decades. Term loans can be obtained from commercial banks, other financial institutions participating in the lending market, or private lenders, and they are often used to fund working capital, new projects, acquisitions or refinancing existing debt.

Syndicated Loans

Syndicated loans involve multiple lenders, in the case of Chile these are usually commercial banks and, in certain cases, involve other institutions such as insurance companies. Lenders՚ syndicates in Chile are often used for large-scale projects or corporate acquisitions that require substantial funding. The advantages of syndicate loans are flexibility in terms of structure and repayment terms and the opportunity to build relationships with lenders for future financing needs. On the other hand, some disadvantages could include dependency on a small group of lenders, subject to changes in lending terms or withdrawal from the syndicate.

Project Finance

Project finance structures are often used to finance large-scale infrastructure, energy and natural resource projects in Chile. In project finance transactions, lenders provide financing based on the projected cash flows of the project, and the project’s assets and revenues serve as collateral for the debt. Project finance deals in Chile may involve a combination of debt and equity financing from domestic and international lenders and investors.

Bonds

Debt securities issuances are another common form of debt financing in Chile. Companies, the government and other types of issuers can issue bonds to raise capital from investors. Long-term debt securities (bonds) and short-term debt securities (commercial papers or efectos de commercio) allow issuers to have access to funds from a broad range of potential investors, including institutional investors (typically banks, pension funds, insurance companies, investment funds, etc) and retail investors. There may be less access and flexibility to negotiate with the lenders, as compared to banking financings, since most waivers, consents or amendments shall need a bondholders՚ meeting and the registration process before the regulator. Convertible debt instruments that give investors the option to convert the debt into equity at a later date are not very common in Chile.

In Chile, debt finance transactions typically involve the following key documentation.

Term Sheet

In most loans or facilities granted by banks the first document that is discussed is the term sheet. It contains the main terms and conditions of the financing, such as a description of the lenders, borrowers and guarantors, amount, term, interest rate, security package, representations, covenants, etc. Once this document is agreed, the rest of the documentation is drafted.

Credit Agreement

This is the primary document that outlines in detail the terms and conditions of the loan, including the principal amount, interest rate, repayment schedule, representations, covenants, fees, expenses, assignment, governing law, jurisdiction, etc. It may also specify any collateral requirements to be contained in the rest of the financing documentation. 

Promissory Note

A promissory note (pagaré) is a notarised Chilean-law-governed note issued by the borrower in favour of each lender to document each loan granted by such lender. This instrument serves to document the loan and allows for its enforcement via summary collection proceeding to recover the principal and interest amounts due and payable under the loan. 

Security Documents

A set of security documents is always part of a secured financing. The most common are pledges over shares of the borrower and/or operating subsidiaries, pledges over personal property or movable assets (such as inventory, equipment, machinery, etc), pledges over credits or right under relevant contracts, mortgage over real estate, personal guarantee of parent company or other affiliates of the borrower, mandates, etc. 

Other

The list of closing documents may also include due diligence reports, certificates and declarations, shareholders’ and board resolution approving the financing and granting powers of attorney, etc. Although these are not very common in pure domestic transactions, legal opinions may be requested from legal counsels to the borrower and/or the lenders, which usually refer to due existence and good-standing of the parties, powers of attorney and the validity and enforceability of the transaction documents under Chilean law.

Local Banks

When the lender is a local bank, it may be easier for certain types of borrowers to reach an agreement. It may be easier for them to negotiate in Spanish (the official language of Chile) and to discuss the particularities of a certain sector or industry, the market conditions and regulatory requirements. Local banks can also lend both in pesos (the Chilean local currency) or US dollars, which gives a local borrower additional alternatives.

Foreign Banks

They may offer broader financing options, but this may entail additional complexity and costs in the transactions. It is very common in financing of a certain  size or in project financing to have foreign or international financial institutions acting as lenders. 

Multilateral Institutions

These institutions participate in financings to local borrowers, which opens other sources of financing for them. However, there are potential additional costs in terms of regulatory and compliance requirements. 

Institutional Investors

Some institutional investors, in particular insurance companies, are permitted to be part of a syndicated loan that is led by a licensed bank. This is something that has been seen more often in recent times. 

In cross-border loan documentation involving Chile, several specific Chilean matters should be included. The following are the usual Chilean specific terms contained in cross-border loan documentation:

• reference to the Chilean promissory notes to be issued by the borrower to document the loan and the regulation related to the mechanics of issuance, legalisation and delivery of the promissory notes;
• reference to the creation and perfection of security interests over Chilean assets;
• representations and warranties specifically related to local matters;
• covenants related to local matters;
• reference to compliance with foreign exchange controls (reporting the FX transaction to the Central Bank) and compliance with local taxation related to foreign loans (tax treatment, withholding tax obligations and gross-up clauses);
• conditions precedent to closing and/or disbursement involving Chilean matters, usually related to delivery of promissory notes, payment of stamp taxes, execution and perfection of security documents, etc;
• the governing law and jurisdiction for dispute resolution, certain matters being required to be governed by Chilean law and subject to Chilean courts (eg, matters related to assets located in Chile); and
• references to certain Chilean laws and regulations, such as financial market regulations, anti-money laundering laws, data privacy regulations, bankruptcy laws, etc. 

In Chile, the typical guarantee and security package provided in connection with debt financings can vary depending on the specific terms negotiated between the parties involved. However, some common types of guarantees and security arrangements in debt financings in Chile include the following.

Mortgage

A mortgage (hipoteca) may be created over, among others, real estate, mining property, water rights, usufruct rights, aircraft and vessels. The mortgage over real estate property is perfected by means of a public deed executed before a Chilean public notary, registered in the corresponding Real Estate Registry. More than one mortgage can be created over the same property and, in such case, priority among existing mortgages will be given in the order of their respective registrations.

Pledge

A pledge is a kind of security interest that can be created over movable assets. There are different types of pledges, such as the civil pledge (to secure any kind of obligations), the commercial pledge (to secure commercial obligations) and the pledge without conveyance (where the pledgor maintains the possession of the pledged asset). Using these pledges, a security interest can be created over any type of movable assets, such as personal property, contractual rights, receivables, securities, shares, monies deposited in bank accounts, after-acquired property and concession rights.

Civil Pledge

This has a wide scope, as it may apply to any moveable property, including all kinds of personal rights and credits. Although any obligation may be secured by this pledge, it is not commonly used since it shall secure obligations of a civil nature (as opposed to commercial obligations) and the pledgor must deliver the pledged asset to the secured party, losing the ability to use it.

Commercial Pledge

This aims to secure commercial obligations. It is not possible to secure future obligations – only currently existing and determined obligations – and its only requirement is that the material possession of the pledged property is not held by the pledgor.

Pledge Without Conveyance

This is probably the most common pledge used in financing transactions. It allows any kind of corporeal or incorporeal, present or future, moveable assets to be pledged in order to secure own or third-party obligations, present or future, irrespective of whether such obligations are determined or undetermined at the time of the pledge agreement. It must be perfected by executing a public deed before a notary public or a private document duly authorised and registered by a notary public. The pledge agreement has to be registered in the Registry of Pledges Without Conveyance kept by the Civil Registry Service. If the pledged asset is subject to mandatory registration in any other specific registry (eg, motorised vehicles), a reference to the pledge agreement shall be annotated in such registry. One or more pledges of this kind can be created over the same asset and, in such case, priority among them will be given according to their registration order. The parties can also create priorities among pledges in the same pledge agreements.

Guarantees

The most widely used guarantee instrument that is requested by creditors in Chile is the joint and several guarantee (fianza y codeuda solidaria) where the guarantor (individuals or legal entities) assumes the borrower’s payment obligations in solidum and as codebtor. In local financings, it is usually included as a clause in the credit agreement, but it can also be contained in a separate document (normally executed by means of a public deed before a notary public). In cross-border loans, a separate local document is executed. In addition, guarantors execute an aval, which is the personal guarantee to secure the payment of the sums owed under a promissory note and is part of the same promissory note. 

Conditional Assignments of Rights

The conditional assignment of rights in a widely used tool in Chile, particularly in project financing. Although it is not technically a security, it may give lenders a certain level of control over material contracts of the borrower.

In the case of guarantees, if the guarantor is a Chilean person or entity with assets situated in Chile, it is advisable to have the guarantor execute a Chilean law governed guarantee instrument (fianza y codeuda solidaria) enforceable in a Chilean court. If the guarantor is foreign, or if a Chilean has substantial assets located in another jurisdiction, it may be advisable to use a foreign law governed guarantee agreement subject to the courts of those jurisdictions. 

In the case of security or collateral over property or assets situated in Chile, which are subject to Chilean law and Chilean courts, first, depending on how the financing is structured, the security package to be requested should consider the kind of assets involved as these will determine the proper security instrument to be used; eg, a mortgage in the case of real property or a vessel or a pledge in the case of personal or movable assets or rights and, in the latter case, the type of pledge instrument.

Depending on the type of security instrument that is chosen and executed, certain formalities shall be followed to perfect the security. This usually consists of registration in public registries, annotation in the issuer’s shareholders’ registry for pledges over shares, notification to third parties, etc. It is common to include in the financing documentation the perfection of the security package as a condition precedent for disbursement, or a specific covenant requiring the borrower to complete the perfection process within a certain period of time. 

Enforcement of security interests over property or assets situated in Chile must be carried out in the courts of Chile and subject to the procedural laws of Chile. 

Finally, in the case of legal entities, the creation of a security interest over corporate assets will require the relevant corporate authorisations, powers of attorney and compliance with any limitations contemplated in the charter or by-laws of the entity creating the encumbrance and the applicable corporate governance laws and regulations. 

Intercreditor arrangements in debt financings in Chile are of great relevance in defining the rights, priorities and obligations of creditors, in particular in syndicated loans and financing where there are different types of creditors (eg, in certain project financings it is common to see a group of senior lenders and also a different entity acting as VAT lender). They establish the order of repayment, enforcement of creditor rights and regulate how to manage collateral. An intercreditor arrangement may also include subordination agreements, mainly giving certain creditors preference in payment rights.

In Chile, both legal and contractual subordination are recognised. 

Pursuant to Chilean law, there is a general principle of equality among creditors. However, some credits are characterised as “preferential” as long as their preference or seniority is recognised exclusively by the law. In other words, the parties are not permitted to establish preferences by contract or otherwise. All other credits or claims rank pari passu. First-class credits recognised by law include judicial costs incurred for the general benefit of creditors, bankruptcy expenses, remunerations of workers, social security contributions, tax withholdings and surcharges and workers severance payments. Credits secured by any kind of pledge or mortgage are preferred credits of the second and third class, respectively, and shall be preferable to any other credit of a lower class, but not to a “first-class” credit.

Contractual subordination involves voluntary agreements between creditors, often outlined in subordinated debt agreements. Subordination agreements are enforceable under Chilean law with respect to the parties who executed those agreements before a notary public following certain formalities, and such agreements grant the “preferred” creditors a preference to be paid before the “subordinated” creditors with respect to the subordinated obligations.

It should be noted that Chilean law recognises subordination agreements between unsecured creditors (acreedores valistas); the court or trustee in an insolvency in Chile is required to enforce the agreed subordination stipulations.

In a non-insolvency scenario, in the case of non-payment of a secured obligation or the occurrence of another acceleration event, the secured parties can initiate a judicial procedure seeking enforcement of the relevant security document. 

In general, the procedure must be carried out before a Chilean court and the sale of assets must be made through a public auction. Chilean law provides for different enforcement procedures, depending on the security interest that it is created.

Mortgage Over Real Estate

Chilean law regulates an enforcement procedure under the Chilean Civil Procedure Code for every obligation that is determined or readily calculable, currently payable, whose statute of limitations has not expired, and that is supported in an enforcement title (título ejecutivo). The secured creditor may initiate the enforcement procedure by filing a claim to a Civil Court, submitting the enforcement title and requesting the issuance of a writ of enforcement and seizure against the mortgagor. The competent court will review the enforcement title and, if it complies with the legal requirements, it will order the enforcement and the seizure of sufficient assets for the payment of the debt. The borrower will then be notified of the enforcement proceeding and will be required to pay the debt. The borrower will have a legal term of four to eight days (depending on whether it is required to pay in the same jurisdictional territory where the court is located or not) to raise any of the limited defences and oppositions to enforcement expressly established by law. If the opposition is rejected and a final judgment is rendered, the auction of the mortgaged asset may be held. 

Commercial Pledges

Decree Law No 776 regulates the procedure to be followed before court for the enforcement of a commercial pledge. If it is created over rights, the law entitles the pledgee to collect the rights granted as collateral, directly against the counterparty, without the need of a judicial enforcement proceeding against the principal debtor. In this case, the pledgee is deemed by law as the legal representative of the grantor of the pledge, so it may use all legal means to obtain the payment of the corresponding claims against the counterparty of the relevant contracts. 

Pledge Without Conveyance

Article 29 of Law No 20,190 establishes that the pledge without conveyance shall be enforced in accordance with the general rules of the enforcement proceedings in Chile with certain changes. The competent court will examine the enforcement title and, if it complies with the legal requirements, it will order the enforcement and the seizure of sufficient assets for the payment of the debt. The pledgor will then be served the enforcement proceeding and will be required to pay the debt, having the above-described four to eight days to raise the defences and oppositions to enforcement established by law. Once the pledgor has been served, the secure creditor may request the immediate auction of the collateral, even if opposition has been raised. Once the pledged assets have been auctioned and the final judgment has been issued (ie, the appeals filed against it, if any, have been rejected), the credit will be liquidated, and the court will order payment to the secured creditor with the sums from the auction.

In general, a final, valid and conclusive judgment for the payment of a sum of money rendered by a foreign court will be recognised and enforced by the courts of Chile without any retrial or re-examination of merits of the original action, provided that the following conditions are met:

• if there is a treaty between Chile and the relevant foreign country with respect to the enforcement of judgments, the provisions of said treaty shall be applied;
• if there is no treaty, the judgment will be enforced if there is reciprocity as to the enforcement of judgments (ie, the court of the foreign country enforces a judgment of a Chilean court under comparable circumstances);
• if it can be proved that there is no reciprocity, the judgment cannot be enforced in Chile; and
• if reciprocity cannot be proved, the judgment will be enforced if it has not been rendered by default within the meaning of Chilean law.

In any event, the judgment shall not be contrary to the public policy of Chile or to the Chilean jurisdiction and shall not affect in any way properties located in Chile, which are, as a matter of Chilean law, subject exclusively to the jurisdiction of Chilean courts. 

The above-described process, which is carried out at the Supreme Court of Chile, known as exequatur and regulated in Article 242 et seq of the Civil Procedure Code, has the purpose of having the foreign judgment recognised as res judicata by the courts of Chile. If the Supreme Court grants the exequatur (recognition), it will order the enforcement thereof by the competent Chilean court in accordance with the general rules.

In general, Chilean Law No 20,720 (the “Insolvency Law”) regulates two different proceedings applicable to private legal entities and certain individuals: reorganisation and liquidation. 

Liquidation

Liquidation opens a judicial proceeding that leads to an orderly sale of the debtor’s assets so that the proceeds of such sale are used to pay its creditors. During the proceeding, the debtor loses control of the management of its assets and operation, which is handed to a liquidator (liquidador) who will manage the company and control (along with the creditors, acting through creditors’ meetings) the sale of the assets, among other duties. Once the procedure is terminated, all debts that remain unpaid at the end of the liquidation proceeding will be considered remitted by the sole operation of law.

Other than the liquidation proceeding, the Insolvency Law contemplates reorganisation proceeding as an alternative means of seeking the rescue of a debtor.

Reorganisation

The Insolvency Law allows a debtor to enter into an agreement with its creditors to restructure its assets and liabilities in a judicial proceeding followed before ordinary courts. In a reorganisation proceeding, the debtor aims to agree a plan with its creditors to restructure its debts and assets to allow the debtor to continue its business. If the debtor is not able to agree to a reorganisation agreement with its creditors, the court will declare its liquidation. 

During the proceeding, the debtor does not lose the administration of its business, but it is subject to a certain degree of supervision from a court-appointed trustee (veedor). In addition, although the debtor continues managing its business, there are certain acts that will require the approval of its creditors.

The proceeding also grants an “insolvency financial protection” or automatic stay during which:

• no forced liquidation may be requested, nor can the enforcement of judgments or executions of any kind or restitution in lease proceedings be initiated against the debtor;
• the processing of the aforementioned trials that have been initiated prior to the reorganisation procedure shall be suspended and the extinctive prescription periods are also suspended; and
• all the contracts executed by the debtor will maintain their terms and payment conditions; such contracts may not be unilaterally terminated early, be accelerated or guarantees made effective, invoking the commencement of the reorganisation procedure as a ground.

The credit of the lenders that contravenes these restrictions will be postponed until all the creditors to whom the reorganisation agreement will affect are paid. 

Reorganisation proceedings will end with the approval of the judicial reorganisation agreement, which will be binding on the debtor and its creditors in each class or category. Once the reorganisation proceeding is finished, the debtor may continue its business as normal. Nevertheless, the reorganisation agreement may establish that the debtor will remain subject to the intervention of the former veedor, the obligation to report to a “creditors’ committee”, or other kind of obligations.

Out-of-Court Reorganisation Agreement

The Insolvency Law also regulates out-of-court reorganisation agreements, which allow debtors to agree a restructuring plan with the creditors out of court; it is then submitted to the court for approval. 

Enforcement Rights

In a reorganisation proceeding, the debtor will enjoy an “insolvency financial protection” (protección financiera concursal) for 60 business days, which can be extended on two occasions for up to 120 additional business days if supported by the creditors. During this insolvency financial protection, all contracts entered into by the debtor and the payment conditions thereof will remain in force. Consequently, they may not be unilaterally terminated early or accelerated, nor may any collateral thereunder be enforced, based on the commencement of a reorganisation proceeding. If a creditor contravenes this ban, its credit will be postponed until all other creditors are paid. Additionally, during a reorganisation proceeding, creditors may not demand the early payment of obligations based on the legal acceleration recognised by the Civil Code in the case of the debtor’s notorious insolvency.

In a liquidation proceeding, the rights of the creditors to individually enforce their rights against the debtor are suspended. But, secured creditors are entitled to initiate or continue their legal actions to enforce their rights over the collateral subject to mortgages or pledges, while securing the payment of certain preferential credits. However, there are certain events that suspend the rights of secured creditors to exercise their rights over the relevant collateral (eg, sale of assets as an economic unit and the continuation of the economic activities of the debtor if the creditor accepts the terms thereof). Likewise, compensation or set-off (the reciprocal extinction of debts) that has not occurred by the operation of law before the liquidation procedure is not permitted, except in the case of related obligations derived from the same contract or from the same negotiation, even if they are enforceable in different terms.

Claw-Back Actions

The Insolvency Law regulates the acciones revocatorias concursales, that is, legal actions that the insolvency trustee or creditors acting for the benefit of the estate may file to request the court to order the revocation or undoing of certain transactions, contracts and agreements, including a payment made by way of set-off, retrospectively.

The insolvency trustee must, and the creditors may, challenge transactions of the debtor executed during the one-year-period preceding the initiation of the reorganisation or liquidation proceeding with respect to:

• any payments in anticipation of their stated maturity or term, including a payment by way of set-off;
• any payment made in a manner that was different from the one originally agreed; and
• the creation of any collateral or security interests over assets of the debtor to secure obligations previously incurred.

The one year look back period will be extended to two years if any of the foregoing transactions or agreements involved a related party or lacked due consideration.

In addition, transactions, contracts and agreements that the debtor executed during the two-year-period preceding the initiation of the reorganisation or liquidation proceeding may be likewise challenged if:

• the other party knew of the bad condition of the businesses of the debtor at that time; and
• the challenged transaction causes loss or detriment to the estate or alters the equal position that all creditors of the estate must have. 

If a claw-back action is granted, the party that received the benefit must return it to the debtor’s estate and its relevant credit against the company will be considered as postponed and, therefore, paid after unsecured creditors. However, under certain circumstances, those effects can be avoided if the party that entered into the transaction affected by the claw-back action pays to the estate the amount that the court declares as the damage suffered by the estate as a consequence of the objected transaction.

Payments

In a liquidation, creditors are paid in accordance with the following the mandatory preferences established by the law:

• first class: judicial costs incurred in the general interest of the creditors, necessary funeral expenses of the debtor, last sickness expenses of the debtor, bankruptcy expenses (mainly, administration and foreclosure of the assets), employees’ salaries (capped), employees’ social security payments, necessary living expenses the debtor and their family, employees’ severance payments (capped), taxes owed to the Chilean government or its agencies and others expressly contemplated in special statutes;
• second class: claims of the hotelier for their lodging charges up to the amount of the debtor’s belongings in their possession, claims of the transporter for transportation charges up to the amount of the debtor’s cargo in its possession and claims of the pledgee over the pledged property;
• third class: claims of a mortgage secured by a valid mortgage;
• fourth class: sundry credits mostly based on family law obligations;
• fifth class: all unsecured claims; and
• Lastly, contractually subordinated claims and legally postponed claims.

In the case of a reorganisation proceeding, certain expenses incurred and facilities granted during the insolvency financial protection will be preferred.

Stamp Tax

Loan documents (such as a loan agreement or a promissory note) and loans granted from abroad are generally subject to a stamp tax at a rate of 0.066% per month or a fraction thereof calculated on the aggregate principal amount of the loans and capitalised interest thereon, with a limit of 0.8%. 

Withholding Tax

Interest payments to any person domiciled or resident abroad are subject to (i) a 4% withholding tax, provided that such payments are made to a foreign or international bank, foreign pension fund, foreign insurance company or foreign or international financial institution qualified as such for purposes of Article 59 No 1 letter (b) of the Chilean Income Tax Act, provided that it has not entered into, and has declared that it has not entered into, any structured agreement that allows the transfer of interests under the financing to another person domiciled or resident abroad which, if directly receiving the interests from the borrower, would not qualify for lowered withholding tax rate; or (ii) a 35% withholding tax to the extent paid to any other person domiciled or resident abroad.

Thin Capitalisation

Interest payments to any person domiciled or resident abroad are subject to a surtax of up to 35% on the portion of interest associated to the indebtedness of the borrower deemed to be “excessive” when such interest is paid to “related entities” pursuant to the terms of the Chilean Income Tax Act. 

Others

Any other payment made to a lender domiciled or resident abroad (other than on account of principal) may be subject to withholding tax at a rate of up to 35%, with certain exceptions; eg, a payment corresponding to a financial commission that is deemed a comisión mercantil within the meaning of the Commercial Code of Chile shall be exempted from withholding tax, a payment that is deemed a technical assistance service shall be subject to a 15% withholding tax, etc.

Tax Treaties

Chile has entered into tax treaties with numerous countries to prevent double taxation and reduce withholding tax rates on cross-border interest payments. 

As a general rule, no regulatory considerations, government authorisations or approvals are required in connection with a local borrower’s ability to negotiate, execute and perform its obligations in a cross-border debt financing transaction where the lender is a party incorporated and operating in a foreign jurisdiction. However, the following is a summary of some matters to consider. 

• Pursuant to the provisions of Chapter XIV of the Foreign Exchange Regulations (Capítulo XIV del Compendio de Normas de Cambios Internacionales) issued by the Central Bank of Chile, the terms and conditions of cross-border credit transactions and certain related actions must be reported by the borrower to the Central Bank of Chile.
• Pursuant to the Chilean Tax Code, a corporate borrower must comply with a number of reporting obligations before the Chilean Internal Revenue Service (Servicio de Impuestos Internos). 
• Foreign currency transactions (inflows and outflows) involved in a cross-border financing must be carried out in the so-called formal currency market, which is comprised by the banks established in Chile, stockbrokers, broker dealers and legal entities domiciled and resident in Chile engaged in foreign exchange transactions, authorised by the Central Bank of Chile. 
• Chilean Law No 18,010 on money credit transaction contains certain specific regulations related to the maximum permitted interest rate (which is not applicable to credit transactions with foreign or international banking or financial institutions), interest capitalisation, prepayments and fees. 
• If a credit facility is offered, booked, documented, executed and performed outside of Chile, such lending activities will not subject the offshore lender to any licensing or registration in Chile, whether the offshore lender may be acting as a lender, administrative agent, bookrunner, arranger, collateral agent or otherwise. 
• There are no limits on the amount that unregulated local borrowers may borrow. However, regulated clients such as insurance companies, commercial banks, institutional investors, pension funds, government agencies, investment funds and other types of regulated entities may be subject to legal and regulatory limitations, restrictions or special requirements. 
• There are no restrictions or limitations on the interest rate/spread that an offshore lender may charge to local borrowers. 
• Credit Facilities may be denominated in any currency including in pesos, the Chilean legal currency.
• The proceeds of a credit facility may be disbursed either locally in Chile and/or abroad. There are no appreciable advantages from disbursing the proceeds outside of Chile (except in case of the creation of a pledge, lien or other encumbrance on such proceeds, the foreclosure of which may be more effective if such proceeds are held abroad).
• Subject only to certain foreign exchange Central Bank reporting requirements discussed above, borrowers are generally free to buy, sell, transfer and remit any foreign currency in respect of a credit facility. 

To ensure the legality, validity, enforceability or admissibility into evidence in Chile of the loan transaction documents, it is not necessary that they be filed or recorded with any governmental authority in Chile except for:

• the submission of a fully executed original of the relevant loan document together with a Spanish translation thereof;
• the authorisation of the signatures on the promissory note by a Chilean notary public; and
• payment of the stamp tax.

The government of Chile, its agencies, entities and state-owned companies may incur debt as a borrower under a cross-border credit facility, waive sovereign immunities and submit to the laws and courts of another jurisdiction provided certain prior authorisations by the Ministry of Finance of Chile and formalities provided for in the applicable laws that govern public finances have been granted.