The legal and institutional frameworkgoverning creditor rights and insolvency proceedings inChile reasonably complies with expectations of a modern,credit-based economy, although some shortcomings affect thefull effectiveness of credit risk management and resolution:Financial institutions over-rely on real estate ascollateral. Pledges are not enough developed becauselegislation on secured interests over movable assets isfragmented and the publicity and registration mechanism forpledges are not sufficiently reliable. Individualenforcement proceedings are lengthy and complicated, bothfor secured and unsecured creditors. Enforcement proceedingsusing executory instruments take 1 to 3 years, whereascreditors not enjoying such instruments use ordinaryproceedings whose duration is even longer (3 to 5 years).Insolvency legislation is integrated into the country'sbroader legal and commercial system, providing a liquidationproceeding whose average duration, however, is 2 to 3 years.The Insolvency Law also governs judicial reorganizationproceedings but classification of creditors for voting isnot allowed, which may be a relatively significant rigidityin an environment where most financial credit is secured.Treatment of contractual obligations in insolvency is notsufficiently developed in the Insolvency Law, which alsolacks clear provisions on how to deal with subordinationdebt agreements and financial contracts in bankruptcy.Provisions to deal with insolvency cases of a cross-bordernature are fairly antiquated and not responsive to solvemain problems typically present in those cases. Corporateworkouts would be significantly increased if out-of-courtplans approved by a majority of creditors were able to beconverted into prepackaged restructuring plans that binddissenting minorities. The judicial framework for commercialenforcement and insolvency proceedings is generallyperceived as being independent and reliable, although mostcourts deal with an excessive number of processes.Notwithstanding, there are no commercial courts nor courtsspecializing in insolvency in Chile. Insolvencyadministrators are independent professionals supervised bythe Bankruptcy Commission, a body meeting the requirementsof an independent regulatory institution. The Bill on SecondCapital Market Reform, submitted to Congress, is a relevantstep in the right direction to make Chilean creditor rightsand the insolvency system more effective.
PDF
download
878987797
028-85220240
