Chile : Insolvency and Creditor Rights Systems
The legal and institutional framework governing creditor rights and insolvency proceedings in Chile reasonably complies with expectations of a modern, credit-based economy, although some shortcomings affect the full effectiveness of credit risk management and resolution: Financial institutions over-rely on real estate as collateral. Pledges are not enough developed because legislation on secured interests over movable assets is fragmented and the publicity and registration mechanism for pledges are not sufficiently reliable. Individual enforcement proceedings are lengthy and complicated, both for secured and unsecured creditors. Enforcement proceedings using executory instruments take 1 to 3 years, whereas creditors not enjoying such instruments use ordinary proceedings whose duration is even longer (3 to 5 years). Insolvency legislation is integrated into the country's broader legal and commercial system, providing a liquidation proceeding whose average duration, however, is 2 to 3 years. The Insolvency Law also governs judicial reorganization proceedings but classification of creditors for voting is not allowed, which may be a relatively significant rigidity in an environment where most financial credit is secured. Treatment of contractual obligations in insolvency is not sufficiently developed in the Insolvency Law, which also lacks clear provisions on how to deal with subordination debt agreements and financial contracts in bankruptcy. Provisions to deal with insolvency cases of a cross-border nature are fairly antiquated and not responsive to solve main problems typically present in those cases. Corporate workouts would be significantly increased if out-of-court plans approved by a majority of creditors were able to be converted into prepackaged restructuring plans that bind dissenting minorities. The judicial framework for commercial enforcement and insolvency proceedings is generally perceived as being independent and reliable, although most courts deal with an excessive number of processes. Notwithstanding, there are no commercial courts nor courts specializing in insolvency in Chile. Insolvency administrators are independent professionals supervised by the Bankruptcy Commission, a body meeting the requirements of an independent regulatory institution. The Bill on Second Capital Market Reform, submitted to Congress, is a relevant step in the right direction to make Chilean creditor rights and the insolvency system more effective.