The first South American country to join the OECD, Chile is one to the fastest growing Latin American economies. But despite making considerable progress in reducing poverty, inequality is still a massive challenge needing to be faced.
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The legal and institutional framework
governing creditor rights and insolvency proceedings in
Chile reasonably complies with expectations of a modern,
credit-based ... Show More +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. Show Less -