In March, we outlined changes to the Chilean bankruptcy legislation that will go into effect later this year. These were the first changes since the legislation was lasted visited in the eighties.
As per our previous article, the legislation has two objectives that are positive for Chilean companies. First, it aims to give struggling companies greater judicial leeway to reach agreements with creditors and stay in business. Second, it aims to resolve the problems of companies unable to avoid bankruptcy in such a way that their assets can be used in the formation of new business, rather than being frozen.
In addition, regulations regarding cross-border insolvency have been adopted with the new legislation, which were previously not included.
The new regulation addresses:
(i) The procedures required for Chilean courts and agencies regarding insolvency proceedings commenced abroad;
(ii) the procedures required for foreign courts and agencies regarding insolvency proceedings commenced in Chile;
(iii) the procedures for a debtor who is undergoing insolvency procedures simultaneously in Chile and abroad; and
(iv) the procedures when foreign creditors wish to commence or participate in an insolvency proceedings in Chile.
The new Chilean insolvency law’s cross-border provisions provide that all creditors, Chilean or foreign, shall have the same rights regarding the commencement of an insolvency proceeding and with respect to creditor participation in those proceedings.
Furthermore, under the new Chilean insolvency law, a Chilean court that has recognized the pendency of an insolvency proceeding abroad may take any of the following actions:
(i) suspending the commencement or continuation of any individual proceedings against the debtor;
(ii) suspending any process against the debtor’s assets;
(iii) suspending the debtor’s right to transfer or encumber its assets;
(iv) demanding information regarding the debtor’s assets, business, rights, obligations or liabilities;
(v) requesting the appointment of a foreign receiver responsible for the administration or sale of the debtor’s assets located in Chile;
(vi) granting injunctions; and
(vii) decreeing any other measures that, under the new Chilean insolvency law, may be granted to Observers or Liquidators.
These new provisions will assist international investors, as they facilitate the cooperation between the insolvency institutions, the courts in Chile and courts from foreign jurisdictions.
The new Chilean insolvency law will result in a faster and less expensive insolvency procedure, with substantially more emphasis on reorganisation than liquidation, and will allow investors to acquire insolvent companies in a much safer, swift and efficient manner.