CHILE: An Introduction to Bankruptcy/Restructuring

Reliance on Bankruptcy Proceedings 

Historically, a notable lack of confidence existed regarding companies in a state of insolvency, thereby creating formidable obstacles for them to extricate themselves from insolvency through the establishment of payment agreements designed to avert bankruptcy.

Law 20.720. 

To confront this issue, a solution was implemented through the enactment of Law 20.720. This legislation established a structured and improved mechanism allowing insolvent companies to propose a comprehensive payment plan within a judicial process known as the Reorganization Insolvency Proceeding. The primary objective was to enable these companies to sustain their business operations while ensuring full repayment of debts to creditors. However, the success of this mechanism hinges on a crucial prerequisite: the establishment of a foundation of trust among the involved parties.

Bankruptcy Reorganisation Proceedings 

Following the implementation of the Insolvency and Bankruptcy Law (20.720.), a notable number of 308 companies have engaged in bankruptcy reorganisation proceedings, with a commendable success rate of 64% for approved restructurings. These proceedings have facilitated the streamlined reorganisation of a substantial sum of USD4,859 million in restructurable liabilities. This outcome unquestionably attests to the market's expressed confidence in reorganisation proceedings as a potent instrument for surmounting business challenges and stimulating economic advancement.

It is imperative to acknowledge the profound influence of this trend on the nation's public and economic policies, which are primarily directed towards fostering a culture of proactive debt prevention, safeguarding the rights of both creditors and debtors, and emphasising the imperative of business continuity.

In light of this, it is noteworthy to emphasise the significance of distinguished enterprises characterised by their extensive tenure in the country and a substantial workforce. These companies have chosen to undergo reorganisation bankruptcy proceedings and, commendably, have achieved successful adherence to such procedures. Exemplary cases, such as Enjoy and Multitiendas Corona, have effectively restructured billions of dollars in liabilities amidst the challenges posed by a global economic and health crisis. As a result of these triumphs, these enterprises have preserved their operational continuity, safeguarded employment opportunities, and currently operate at full capacity. Nevertheless, the prevailing obstacles encountered by our clientele manifest through multifaceted factors, stemming from either their financial strain or the nature of their market operations. Notably, agricultural enterprises have suffered significant repercussions due to the escalating import costs of inputs, primarily resulting from the ongoing Russia-Ukraine crisis. Similarly, construction companies have faced adversity owing to diminished real estate demand attributable to exorbitant mortgage loan rates.

Nevertheless, it is crucial to approach the current circumstances with a sense of optimism and pragmatism, as Law 20.720 provides mechanisms to address the insolvency predicaments faced by our clients. These mechanisms facilitate the restructuring of their liabilities, ensuring the continuity of their operations. However, accomplishing this requires a meticulous examination of the company, necessitating dedicated efforts to analyse its cash flows, contingencies, and relationships with suppliers and other creditors. Through this comprehensive assessment, we can offer an agreement that, in conjunction with the trust established with these stakeholders, presents a payment plan that instills peace of mind and security for both the indebted company and its creditors.

Impact of the Amendment to Law 20.720. 

Aligned with the aforementioned, the amendment to Law 20.720. was enacted in August of this year, aimed at fostering the continuity of business operations for companies facing insolvency. This amendment extends the period of financial protection in bankruptcy from 30 to 60 days, affording ample time for both the debtor company and its creditors to resolve disputes and achieve mutually beneficial agreements. Moreover, the criteria for the debtor company to secure financing exceeding 20% of its recorded fixed assets are rendered more flexible. Additionally, the provision invoking the preference stipulated in Article 2472 N°4 of the Civil Code, wherein financiers recover their investments on preferential terms in the event of bankruptcy liquidation due to any cause, is eliminated.

Conclusion 

In conclusion, it is evident that while a definitive solution to the challenges encountered by insolvent companies remains elusive, contemporary legislative efforts demonstrate a clear commitment to fostering the continuity of business operations for such entities. By introducing new benefits and tools, the legislator aims to enhance economic stability and provide assurance regarding credit repayment to creditors. From our perspective, these developments represent significant advancements in this domain, inspiring us to maintain confidence in Bankruptcy Reorganization Procedures and cultivate trust between debtor companies and creditors, all in accordance with the prevailing legal framework.