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Bankruptcy and insolvency; special rules on banks and financial institutions

In Chile, a person may be declared bankrupt on his own behalf or following an application by a creditor. Those persons carrying out a commercial, industrial, mining or agricultural activity have the duty to file a bankruptcy petition within 15 days after defaulting in the payment of any mercantile obligation.

Creditors, in turn, may make a bankruptcy application:

  • when their debtor is a person dedicated to a commercial, industrial, mining or agricultural activity and defaults in the payment of any mercantile obligation;

  • when the debtor, against whom three or more overdue documents are outstanding on which summary executive actions might be based and against whom two such actions have actually been instituted, does not satisfy claims within four days;

  • when a debtor has absconded; and

  • when the settlement made by him with his creditors is annulled.

Chilean bankruptcy law calls for official receivers to be appointed by the bankruptcy court from a listing of authorized receivers approved by the government. Upon a declaration of bankruptcy all debts of the bankrupt fall due, and an official receiver takes charge of the assets and business of the bankrupt, collects sums due and notifies creditors to file their claims within 30 days from the date of the notification. Foreign creditors are given additional time depending on their place of residence, which is designated in the notice sent to them.

The receiver reports on the claims received and makes a list of creditors. Creditors' meetings are held on the dates and times fixed at the first meeting of creditors and whenever requested by the receiver, the bankrupt or creditors representing one-fourth of the total liabilities of the bankrupt. The receiver must distribute assets whenever sums available amount to at least 5% of total liabilities.

Bankruptcy may be: (i) fortuitous; (ii) culpable; or (iii) fraudulent. In the latter two cases the bankrupt is subject to criminal prosecution and cannot be discharged until he has served his sentence and unless all his liabilities are paid.

The bankruptcy proceedings are suspended when the assets are insufficient to pay the costs of the proceedings. During the period of suspension, creditors may bring individual actions against the debtor.

Bankruptcy proceedings are terminated and the debtor is discharged: (i) upon agreement of the creditors; (ii) when all claims are paid or a bond is given to secure their payment; (iii) upon the expiration of two years after the approval of the final report of the receiver, provided the bankruptcy was fortuitous and the debtor has not been convicted of fraud.

Offers of composition made before the bankruptcy declaration require the consent of all creditors. Those offers made afterwards can be considered once the receiver has filed a list of recognized credits and provided the debtor was not guilty of fraud. In this case a meeting of creditors is called and the composition is accepted if agreed to by the debtor and two-thirds of the creditors present at the meeting, if this majority represents three-quarters of all the liabilities. Objecting creditors may appeal to court against the composition. Foreign creditors who have not yet appeared are considered as objecting.

Unless under voluntary liquidation, banks and financial institutions may not be declared insolvent. The General Banking Act provides that if certain specified adverse circumstances exist at any bank which adversely affect its financial condition, its board of directors must correct the situation within 30 days from the date of receipt of the relevant financial statements. If the board is unable to do so, it must call a special shareholder´s meeting to increase the capital of the bank by the amount necessary to return the bank to financial stability. If the shareholders reject the capital increase, if it is not effected within the term agreed on at the meeting, or if the Superintendency of Banks and Financial Institutions (SBIF) does not approve the board´s proposal, the bank will be barred from increasing its loan portfolio beyond that stated in the financial statements presented to the board and from making any further investments in any instrument other than in instruments issued by the Central Bank of Chile (CBC).

In such a case, or in the event that the board of directors of a bank determines that the bank may be unable to make timely payment in respect of its obligations, or if a bank is under the provisional administration of the SBIF, the bank may receive a two-year term loan from another bank. The terms and conditions of such a loan must be approved by the directors of both banks, as well as by the SBIF, but need not be submitted to the borrowing or lending bank´s shareholders for their approval. In any event, a creditor bank cannot grant interbank loans to an insolvent bank of an amount exceeding 25% of the creditor bank´s effective net worth. The board of directors of a bank that may be unable to make a timely payment of its obligations must present a reorganization plan to its creditors in order to capitalize the credits, extend their respective terms, forgive debts or to take other measures for the payment of the debts. If a bank fails to pay a debt it must notify the SBIF which shall determine if the bank is solvent.

The SBIF may determine that a bank should be liquidated for the benefit of its depositors or other creditors when the bank does not have the necessary solvency to continue its operations. The SBIF must revoke a bank´s authorization and order its mandatory liquidation subject to agreement by the council of the CBC if it makes this decision or if the reorganization plan of such bank has been rejected twice. The resolution by the SBIF must state the reason for ordering the liquidation and must name a liquidator, unless the superintendent himself assumes this responsibility. When a liquidation is declared, all deposits on checking accounts, other demand deposits received or obligations payable on sight incurred in the ordinary course of business, other deposits unconditionally payable immediately or within a term of less than 30 days and other time deposits and receipts payable within 10 days are required to be paid by using existing funds of the bank, its deposits with the CBC or its investments in instruments that represent its reserves. If these funds are insufficient to meet these obligations, the liquidator may dispose of the rest of the bank´s assets as needed. If necessary, the CBC will lend the bank the funds necessary to pay these obligations. Any such loans are preferential to any claims of other creditors of the liquidated bank.

Cristián Eyzaguirre

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