Archivo julio, 2006

Liability in company insolvency in Chile

This chapter addresses the issues on Multinational Enterprise Liability in Insolvency Proceedings from the perspective of the laws of the Republic of Chile, with particular focus on the Chilean Bankruptcy Act, Law No18,175, as amended (the Bankruptcy Act). Chile is a civil law system, the hierarchy of rules of which is headed by the political constitution, then the international treaties ratified by Chilean Congress and local statutes and, finally, the regulations duly enacted by the government. Chilean courts’ judgments are not mandatory beyond the cases upon which they are issued.
A. DOMESTIC FAMILY OF COMPANIES

1. If insolvency proceedings must be commenced for the family of companies, does your law permit a joint proceeding, ie, a single court file, a single judge, a single list of creditors, single notice list, or must the case for each member of the family proceed separately with no practical acknowledgment of the related proceedings?

The Bankruptcy Act does not provide for consolidated bankruptcy proceedings. Chilean laws are governed by the separate entity principle. Thus, separate bankruptcy proceedings must be instituted against each member of the family of companies with no practical acknowledgment of the related proceedings. Creditors of the different family companies, however, might coordinate their efforts by appointing the same official receiver or trustee (síndico) in the different bankruptcy proceedings.

In order to obtain the bankruptcy declaration against the members of the family of companies, creditors must file a separate bankruptcy application for each of them based on strict legal grounds.

Creditors may file a bankruptcy application against:

a debtor engaged in commercial, industrial, mining or agricultural activities who defaults in the payment of any mercantile obligation which entitles the petitioner creditor to bring a summary collection proceeding against him;
a debtor against whom three or more overdue payment instruments arising from unrelated obligations remain outstanding and on which summary collection proceedings might be brought against the debtor, provided that at least two such actions have been actually instituted and the debtor has not presented sufficient assets to satisfy those obligations and related court costs within four days from the date the debtor is served notice of the relevant claims; and
a debtor who has fled outside the territory of the Republic of Chile or has hidden, leaving his offices or premises closed, without having appointed an administrator or agent to take care of its assets, with authority to comply with his obligations and answer new suits. (See Art 43 of the Bankruptcy Act.)
As a result of the above, it is not required under Chilean law for declaring a debtor in bankruptcy that the debtor is in insolvency or is not capable of paying his debts as such debts become due and payable.

(a) What if the members of the family are organised under, or operate in, different locations within your country? Can a company from a distant location in your country commence its bankruptcy proceeding where its affiliate is located, if the affiliate has already commenced its bankruptcy proceeding?

The venue for bankruptcy cases is governed by Article 154 of Chilean Courts Constitutional Charter Code. A bankruptcy proceeding must be commenced in the jurisdiction where the domicile of the debtor is located. Therefore, depending on the domiciles of the different members of the corporate family of companies, bankruptcy proceedings for each of them could be spread throughout the country.

A debtor’s bankruptcy proceeding may not be commenced in the jurisdiction where its affiliate is located on the grounds that the affiliate has already commenced its bankruptcy proceedings there.

(b) To the extent your country has different types of insolvency proceedings (such as Chapter 11 reorganisation and Chapter 7 liquidation in the US), do the members of the corporate family all have to proceed under the same type of proceeding?

Bankrupt members of a corporate family do not have to proceed under the same type of proceeding. Creditors of each separate bankruptcy proceeding may independently and separately decide, in each case, whether to proceed with the liquidation of the bankrupt’s assets, sell the whole or a substantial part of the bankrupt’s business as an economic unit (venta como unidad económica), continue in whole or in part the operation of the bankrupt’s business (continuación del giro), agree or and execute a concordata or a scheme of arrangement with the bankrupt estate’s creditors (convenios de quiebra), or make a general assignment to the creditors of debtor’s assets (cesión de bienes).

2. Does your law permit, or prohibit, a single administrator/trustee/ receiver to administer the assets and the liabilities of the entire corporate family?

The Bankruptcy Act does not prohibit a single official trustee administering the assets and liabilities of the entire corporate family as a whole, but the assets and liabilities of each company remain the subject of separate bankruptcy proceedings.

After the last amendment introduced in 2005 to the Bankruptcy Act, creditors were given more latitude to appoint trustees, provided, however, that they are chosen from an official list of trustees in bankruptcy kept by the Ministry of Justice. Thus, there is no restriction on concerted creditors appointing the same trustee in different bankruptcy proceedings. In practice, however, creditors may find it difficult to agree upon the appointment of the same trustee in different bankruptcy proceedings, when the bankrupt companies have different creditors, or their credits represent different percentages of the total liabilities of the different bankrupt companies, or other conflicts of interest arise among the different bankrupt estates or other intervening parties.

(a) If so, is there a hearing for the court to determine whether the administration by a single party is appropriate? Are secured and unsecured creditors or other parties in interest allowed to object or be heard at such hearing?

No such hearing exists under the Bankruptcy Act when the bankruptcy of a debtor is requested by a creditor.

On each bankruptcy proceeding, the bankruptcy court shall appoint as interim trustee, one as regular and the other as alternate, those individuals included in the official list of trustees kept by the Ministry of Justice proposed by the petitioner of the bankruptcy proceeding. (See Art 44 of the Bankruptcy Act. )

If the bankruptcy is requested by the debtor on its own, the bankruptcy court shall appoint as regular and alternate interim trustees those chosen by the three major creditors through an ad hoc hearing. (See Art 42 of the Bankruptcy Act.)

At the first meeting of creditors, creditors may either ratify the trustees appointed by the bankruptcy court, or appoint definitive regular and alternate trustees from those included in the official list of the Ministry of Justice. With the affirmative vote of creditors representing the majority of the bankrupt liabilities, the trustee may be removed, and a new trustee shall be appointed by the creditors in a specially convened meeting of creditors. (See Arts 102, 106, 108 and 117 of the Bankruptcy Act.)

(b) What about joint representation by other professionals, such as law firms or accounting or auditing firms?

There is no restriction on each of the bankrupt companies of a corporate family being represented by the same law firm, accounting firm or other professionals in the different bankruptcy proceedings.

3. Does your law encourage or discourage overlapping boards or management teams for separate members of a corporate family?

Chile’s Corporations Act (Law 18,046) does not prohibit overlapping boards and/or management teams, but neither encourages nor discourages such overlapping.

A Chilean parent company and its subsidiaries may have similar or identical boards and management teams. But in discharging their duties, the individuals acting as directors, managers or officers of different companies, including directors who serve as members of the supervisory board or any other committee of the board upon which they may serve, have a loyalty and fairness duty towards each of the companies in which they serve and, as a result, they are expected to act at all times in the best interest of each such company.

Therefore, any such directors, managers or officers should refrain from making proposals, passing resolutions, adopting policies or assenting to decisions that do not pursue or seek the best interest of each of the companies in which they serve, but its own interest or those of its related parties. (See Arts 41, 42, 43, 44, 49 and 133 of Chile’s Corporations Act.)

Likewise, directors elected by any group or class of shareholders owe the same fiduciary duties that other directors have to the corporation and to the other shareholders, and cannot under any circumstances disregard their duties to the corporation or to the other shareholders that did not elect them based upon the fact that they are acting in the interest of the electing shareholders. (See 3rd paragraph of Art 39 of Chile’s Corporations Act.)

The law does not impose the above duties on the shareholders nor on the controlling shareholders of a corporation, except for the general duty that each of them must exercise their corporate rights with due respect to the rights of the corporation and those of the other shareholders. (See Art 30 of Chile’s Corporations Act.)

Members of the board of a parent company may attend the board meetings of the company’s subsidiaries but may not cast a vote at such meetings, and are entitled also to access the books and records of such each subsidiaries. (See Art 92 of Chile’s Corporations Act.)

(a) If the directors of a parent company are not directors of the subsidiary, but they either directly or indirectly manage the affairs of the subsidiary anyway, do your country’s laws render such people de facto or ‘shadow’ directors of the subsidiary?

No such de facto or shadow directors are expressly recognised by Chilean laws or its courts. Under Chile’s Corporations Act, directors have a non-transferable personal liability, which cannot be disclaimed or limited by any provision of the bye-laws of the corporation nor by a resolution adopted by its shareholders’ meeting. (See Art 41 of Chile’s Corporations Act.)

However, if the actions or omissions of the subsidiary’s board or management body qualify as criminal offences, such as a fraud or other wrongful actions or conducts, and the directors of the parent company participated or assisted directly or indirectly in those actions or omissions, they may be convicted as principal offenders, accomplices, or aiders and abettors, as the case may be.

(b) Do the duties or responsibilities of officers or directors of a family of companies change when the companies become insolvent? For example does their duty shift from a responsibility to the shareholders to a responsibility to the creditors. What if only one of the companies is insolvent?

Any company engaged in commercial, industrial, mining or agricultural activities is required to file for its bankruptcy within 15 days of it having ceased in the payment of a mercantile obligation. If it fails to do so before a creditor obtains the company’s bankruptcy, the Bankruptcy Act presumes that the bankruptcy was negligent and it may give grounds to a criminal prosecution of the company’s directors, managers and executive officers.

In this regard, it should be noted that the bankruptcy of any company engaged in any such businesses may become subject to a special criminal proceeding seeking to determine whether the bankruptcy was fortuitous, negligent or fraudulent; the last two may give rise to a criminal prosecution. Such proceedings may be requested by the meeting of creditors, any creditor on its own or the Public Attorney (Ministerio Público). (See Arts 41and 222 of the Bankruptcy Act.)

Companies and legal entities are not subject themselves to criminal liability, but any such liability is vested in their directors, administrators and executive officers, in addition to the civil liability that may arise to them from such actions. Generally, these individuals may be criminally prosecuted and convicted upon the bankruptcy of the company for which they work, whenever in the course of the business of the company under management and with due knowledge of its financial or economic status, they execute or take any action or concur in any omission, or authorise explicitly any such actions or omissions, sanctioned by the Bankruptcy Act as a case of negligent or fraudulent bankruptcy (some of which are mentioned in question 4 below). The general rules on conspiracy or complicity contemplated by Chile’s Criminal Code are applicable. Convictions give rise to penalties ranging from 61 days up to 10 years imprisonment. (See Arts 229 et seq of the Bankruptcy Act.)

If a corporation fails in the payment of one or more of its obligations, its board of directors must call for a shareholders meeting to be held within 30 days following such an event. At this meeting the board must report to the shareholders on the legal, economic and financial position of the corporation. If it is a listed corporation, the board of directors must also disclose that fact to the Superintendency of Securities and Insurance (Superintendencia de Valores y Seguros) and to the stock exchanges where the corporation’s stock and other securities issued by it are listed, on the next following business day. (See Art 101 of Chile’s Corporations Act and Arts 9 and 10 of Chile’s Securities Act (Law 18,045).)

When a corporation is adjudicated bankrupt and, generally, when it enters into a concordata or scheme of arrangement with its creditors, for the term the latter remains in effect, shareholders’ appraisal rights are suspended for the time it takes to pay all the debts of the corporation outstanding as of the moment any such appraisal rights of the shareholders were triggered. Further, in the event of such bankruptcy, the payment of the corporation’s debts shall prevail over any distributions to the shareholders for equity capital reductions. (See Arts 29 and 69 of Chile’s Corporations Act.)

Likewise, the directors or administrators of a bankrupt company are subject to criminal sanction if they have authorised the distribution of profits or dividends to the partners or shareholders of the company, having due knowledge that such profits or earnings are fictitious. (See Art 232 of the Bankruptcy Act.)

The bankruptcy of a commercial general partnership (sociedad colectiva) or of a limited or joint stock commercial partnership (sociedad en comandita) entails the bankruptcy of all its partners who by law are not only liable for the debts of the partnership to the whole extent of their property, but also are jointly and severally liable for such debts. (See Art 51 of the Bankruptcy Act.)

Based on the above discussion, it looks mostly clear that the directors and officers of a company or a family of companies, in the discharge of their duties, must give true consideration to the legitimate interest of creditors; even more, they have some sort of duty of care or fairness towards the creditors in the management and running of the companies on which they serve. To the extent they negligently or willfully fail to properly and efficiently manage such companies, these may end up bankrupt, in which case such directors and officers may become personally liable to creditors for the damages caused to them.

Such duty or responsibility, anyway and in all circumstances, is in addition to the primary duties and responsibilities that such directors and officers have towards each of the companies they manage, and all of their respective shareholders or partners.

Also, this duty or responsibility towards the creditors of the company or family of companies applies before as well as during the bankruptcy proceedings.

However, once a company or family of companies is adjudicated bankrupt, it should be noted that an official trustee appointed by the court takes charge of all the assets and business of each of the bankrupt companies and, therefore, the directors and officers of them become prohibited from their management. On such adjudication, all debts of the bankrupt become due and payable and all creditors are called to file their claims and participate in the proceedings in order to receive distributions arising from an orderly realisation of the bankrupt’s estate, a process led by the meeting of creditors, the trustee and the bankruptcy court.

The Bankruptcy Act prioritises and favours the prompt realisation of the bankrupt’s estate for the benefit of the general creditors, either through the regular bankruptcy liquidation procedures or through the approval by the creditors of a concordata or scheme of arrangement. The Act provides for various court-driven means to secure the more advantageous realisation of the bankrupt’s estate and to improve the recovery of their claims by the creditors.

4. Are there rules and do they change regarding members of the corporate family transferring assets among one another (such as by way of loans, capitalisation, other transactions) when the members are insolvent?

The Bankruptcy Act does not provide for special rules on transfers of assets or other related-party transactions among members of the same corporate family before the bankruptcy of one or more of them is adjudicated. But such transfers and transactions are more likely to become null and void by application of fraudulent conveyance rules, if made or entered prior to the bankruptcy adjudication but during the so-called ‘suspicious period’.

The trustee or any creditor or group of creditors may institute legal actions to declare null and void certain fraudulent sales, transfers and conveyances of the debtor’s assets, as well as certain fraudulent obligations incurred or payments made by the debtor within the ‘suspicious period’, which extends generally for two years before the debtor’s bankruptcy adjudication, when made with actual intent by the debtor, or by the debtor and the relevant creditor, as the case may be, to hinder, delay or defraud the general creditors, including, without limitation, those transfers in which the debtor receives less than reasonable market value at a time when the debtor has ceased in its payment as they become due.

Among those transfers and payments affecting the bankrupt estate that can be declared null and void when recovering the bankrupt’s assets or funds, as long as and only to the extent that such voidance and recovery proves beneficial to the bankrupt’s estate, those considered particularly fraudulent by law are the following, when made or performed within 10 days of the debtor’s cessation of payments and up to the date of its bankruptcy adjudication:

any transaction to settle or prepay an undue debt, whatever the manner in which made or performed;
any transaction to settle or pay debt due and payable if made in a manner different from the one originally agreed upon; and
any transaction aimed at providing security interest (pledges or mortgages) over the debtor’s assets to secure pre-existing obligations.
As to acts, contracts or transactions made or entered into by the bankrupt or its regular directors, managers and senior executives after the bankruptcy adjudication, including, without limitation, any transfer of assets, whichever the form it may take, they are all declared null and void if they involve the bankrupt’s estate. All such acts, contracts or transactions, as from the bankruptcy adjudication, need to be made by or through the trustee. (See Art 72 of the Bankruptcy Act.)

(a) Are cash sweep procedures allowed, that is, all cash from all subsidiaries is swept out to one account controlled by one of the family entities and then redistributed among the family members to pay bills?

Cash sweep procedures involving the cash of a bankrupt company are not allowed, neither immediately before the bankruptcy adjudication nor afterwards. Upon the bankruptcy adjudication, the bankrupt is prohibited, as a matter of law, from the administration of all its assets (except for assets that pursuant to law may not become subject to attachment or seizure). On such adjudication, all the bankrupt assets pass to the sole administration of the appointed trustee. (See Art 64 of Bankruptcy Act.) As a result, any such cash swap procedures in respect of bankrupt companies would be declared null and void as they would adversely affect the right of the general creditors involved in each of the different bankruptcy proceedings, thus breaking the general creditors’ pari passu principle.

But the meeting of creditors of each of the bankruptcy proceedings could agree to a cash sweep procedure in respect of all the bankrupt companies as a more efficient way of obtaining an advantageous asset realisation and debt settlement process of the bankrupt group as a whole, if in their opinion that procedure would result in a higher chance of recovery of their claims by the creditors. Although difficult to negotiate and secure this sort of scheme of arrangement involving various bankrupt companies of the same family group, it is not unusual in the case of large business conglomerates.

Cash sweep procedures among non-bankrupt companies are not prohibited per se, provided, in our opinion, that there is a reasonable business rationale for them, and that they do not jeopardise or adversely affect the interest of the general creditors of the different companies of the family group. Otherwise, once the bankruptcies are adjudicated, these arrangements made during the ‘suspicious period’ could be rendered null and void in protection of the general interest of the creditors of any of the companies involved.

(b) What if the redistribution results in a healthy subsidiary funding the shortfalls in another subsidiary that is losing money?

The creditors of the healthy subsidiary would certainly claim that their interest is being postponed or subordinated to the interest of those creditors of the subsidiary being funded on its shortfalls. Therefore, upon the bankruptcy of the healthy subsidiary, its unduly harmed creditors would certainly seek the annulment and voidance of all such fundings, and would also try to bring a criminal case against all those who authorised and intervened in such transactions on behalf of the healthy subsidiary, and most probably also against those who intervened on behalf of the funded company.

5. How does your law treat claims of one member of a corporate family against other members of the corporate family?

(a) Are such claims invalid or unenforceable?

The Bankruptcy Act does not discriminate between claims of a member of a corporate family against other members of the corporate family (‘intercompany claims’) and claims of third parties. Intercompany claims, as any third party claims, if duly filed, shall be valid and enforceable, unless objected to in a timely manner by the debtor, any creditor, or the trustee. The fact that a claim is an intercompany claim is not, by itself, a ground for objection.

Allowable claims entitle the relevant creditors to participate in the distributions of dividends made by the trustee with the proceeds derived from the realisation of the bankrupt’s estate.

(b) If not, are such claims on equal footing with those of third party creditors, or are they subordinated, or is there other treatment required or permitted under your law?

Intercompany claims are on equal footing with the claims of third party creditors since the Bankruptcy Act does not distinguish between them. In practice, however, intercompany claims will become subject to a much more vigorous and strict scrutiny by third party creditors and the trustee, to determine their lawfulness, validity and enforceability against the bankruptcy estate, as well as the reasonableness of the amounts claimed thereupon. This process may result in the objection of these claims and in their disallowance by a judgment of the bankruptcy court.

This scrutiny of intercompany claims or related-party claims will focus particularly on those that have arisen from transactions entered during the ‘suspicious period’, so as to determine whether they can qualify as a fraudulent sale, transfer and conveyance of the bankrupt’s assets or as a fraudulent obligation incurred by the bankrupt, thus allowing the trustee and the creditors to have such transactions declared null and void to the extent they adversely affect the interest of the general creditors of the bankruptcy estate.

These intercompany claims are not subject to equitable subordination nor to a specific claim recharacterisation process pursuant to the Bankruptcy Act.

A qualified exception to the equal footing principle governing intercompany claims lodged by members of a corporate family, and those lodged by third party creditors, relate to the fact that holders of intercompany claims are not allowed to vote at the meetings of creditors of any of the members of the corporate family. (See Art 190 of the Bankruptcy Act.)

6. Does your law allow for the pooling of assets and liabilities of all members of the corporate family, so that a creditor of one member becomes, in essence, a creditor of all members?

The Bankruptcy Act does not provide for the pooling of assets and liabilities of the members of a corporate family, nor for ‘substantive consolidation’ or ‘pooling agreements’. These agreements could only be secured through a concordata or a scheme of arrangement approved separately by the meeting of creditors of each of the bankrupt companies.

(a) If so, is such pooling automatic or does it require a factual showing and court involvement?

No pooling of assets and liabilities of different debtors is considered by the Bankruptcy Act.

(b) What proceedings (motion, request, trial, etc) are required for the court to order the pooling of assets and liabilities?

Not applicable.

(c) Does your country’s law contemplate any partial pooling of assets and liabilities?

Chilean laws do not contemplate any partial pooling of assets and liabilities in a bankruptcy scenario.

(d) If the pooling of assets and liabilities is called for, are there any protections for certain types of creditors, such as creditors with a lien or other security interest in particular assets?

Not applicable.

Generally, creditors with a lien or other security interest in particular assets, such as mortgagees, pledgees and creditors entitled by law to retain possession of an asset (acreedores hipotecarios, prendarios, or retencionarios) are not barred from foreclosing the secured assets during the bankruptcy proceedings and may apply immediately the proceeds raised upon such foreclosure in payment of the secured debt. But in three special circumstances such independent right of foreclosure may become barred during bankruptcy proceedings:

when the meeting of creditors resolves the continued operation of the business of the bankrupt and the secured creditor casts a vote in favour of such decision;
when the meeting of creditors resolves that all or a portion of the assets of the bankruptcy estate shall be sold as an economic unit and such unit encompasses secured assets, in which case the secured creditors’ priority claim must be made effective on the sale proceeds of such economic unit; and
when proposals for a concordata or scheme of arrangement are filed by the debtor so as to avoid its bankruptcy with the support of certain majorities of creditors, or when the debtor requests the appointment of an expert independent aider (experto facilitador), certain stay periods are provided by law for all foreclosures. (See Arts 71, 112, 115, 126, 177 bis, 177 ter and 177 quater of the Bankruptcy Act.)
7. How are secured creditors treated with respect to a family of companies? For instance, if a creditor has a security interest in the assets of one member of the family, and a guarantee from another member of the family, are both such claims valid in insolvency proceedings of the entire family?

Secured creditors must separately exercise their claims and preferences in each of the appropriate bankruptcy proceedings affecting the members of a corporate family. Their claims against each company remain unchanged.

8. Do your laws or courts provide for post-insolvency commencement of new financing that allows continued operation of the business and provides adequate protection to the lender who made the loan? Explain.

The trustee or two or more creditors may propose at any time the continued operation, either in whole or in part, of the bankrupt’s business (continuación efectiva del giro del fallido), for a term which may not extend more than one year, although it may be extended by the meeting of creditors once only for an additional one-year period. The continuation of the bankrupt’s business operation needs be approved at a meeting of creditors, by creditors entitled to vote representing at least two-thirds of the bankrupt’s outstanding claims. (See Art 112 of the Bankruptcy Act.)

A resolution must determine the scope and purpose of such business continuance and the assets it comprises, shall appoint an administrator (other than the trustee) and confer upon them specific authorities and powers, including the authority to obtain new financing. (See Art 113 of the Bankruptcy Act.)

The obligations and claims arising from the whole or partial continuation of the bankrupt’s business operation bind and may only be enforced on the assets comprised in it, but are granted priority status in right of payment over all the pre-existing, non-secured claims against the bankrupt’s estate. This priority may extend also to the secured claims whose holders consented to the continued operation of the business, but only when the estate’s unsecured assets are insufficient to satisfy in full these claims arising from the continued operation of the business. (See Art 114 of the Bankruptcy Act.)

9. Are directors and officers subject to civil or criminal sanctions if:

(a) Fraud or misrepresentation of a company’s finances are discovered?

Please see our general discussion on the civil and criminal liability of directors, administrators and officers in a bankruptcy scenario in question 3 above.

As stated above, the bankruptcy of companies engaged in commercial, industrial, mining or agricultural activities may become subject to a criminal process, to determine whether the bankruptcy was negligent or fraudulent. In this case the directors and officers of the bankrupt, as well as any other participant or intervening party, may be criminally prosecuted and convicted, and those convicted would jointly and severally be condemned to indemnify all the damages caused to the creditors for their wrongful actions or conduct.

If fraud or misrepresentation of a company’s finances is discovered during the bankruptcy criminal proceedings, directors and officers may be subject to criminal and civil sanctions for their participation.

Among other cases, a bankruptcy is presumed negligent when the bankrupt did not have or kept accounting books and records or inventories, or keeping them, they were not kept in regular and proper form as required by law so as to reflect the true situation of its assets and liabilities. Further, a bankruptcy is presumed fraudulent, among others, when the bankrupt has hidden assets, recognised false debts, made fraudulent or fictitious transfers and conveyances of property to defraud its creditors, hidden or destroyed its accountancy books and records or, generally, has willfully made any transaction that reduces its assets or increases its debts and liabilities, or failed to disclose or misrepresented information on the legal, economic and financial situation of the company, subject to disclosure pursuant to law. (See Arts 219 No 9, 220 Nos 1, 2, 3, 7, 11, 15 and 16, 232 and 233 of the Bankruptcy Act.)

(b) They allow the company to continue to operate while knowing it does not have the ability to pay the debt being incurred?

The mere fact that directors and officers decide to continue to operate the company’s business while knowing that it does or it will not have the ability to pay the debts being incurred, does not, by itself, subject them to civil or criminal sanctions. However, directors and officers running the company under such conditions assume high levels of risk. Since they presumably have or should have due knowledge on the bad business condition of the company, they may be subject to civil or criminal sanctions if the company’s business condition is worsened due to the continued operations.

The Bankruptcy Act, however, presumes the bankruptcy to be fraudulent when the company purchases merchandise with the purpose of selling it at a price lower than its regular market value, obtains financing at an interest rate much higher than those prevailing in the relevant market, or makes any other ruinous transactions to obtain funds and delay its bankruptcy. (See Art 220 Nos 8 and 9 of the Bankruptcy Act.)

(c) Same as (b) above but the directors believe that if some event occurs (eg, chance to obtain new contract in prospect, new equity infusion, or new financing) it will be able to save the company and pay its bills?

Our answer in (b) above does not change, but if the belief of such directors has some real and justified business grounds, it may improve their personal position.

B. INTERNATIONAL FAMILY OF COMPANIES

1. If one or more members of the corporate family is incorporated under or governed by the laws of another country, does that change your answers to any of the questions set forth above?

Pursuant to Chilean law, bankruptcy is a court proceeding with universal scope that purports to realise in an orderly fashion, in one single procedure, all of the estate of an individual or legal entity for the payment of its existing debts, subject to the priority rank set forth by law. It comprises all of the assets of a debtor, wherever located, and all of its creditors, whether domestic or foreign.

Since Chilean law is guided by the separate entity principle, the bankruptcy of a company does not entail nor cause the bankruptcy of other members of the same corporate family. This principle is not modified in the presence of family companies incorporated under or governed by foreign laws.

The Bankruptcy Act does not recognise the US doctrine of ‘consolidated insolvencies’ or ‘consolidated restructurings’, nor does it contemplate at all the coordination of creditors or pooling of assets with bankruptcy proceedings in other countries.

Therefore, the answers to the questions set forth above do not change if one or more members of a corporate family are incorporated under or governed by the laws of another country.

Further, Chilean law does not address specifically the various issues arising with cross-border bankruptcies, insolvencies or reorganisations of debtors, either individuals or companies. Therefore, in considering these issues, Chilean courts would apply Chilean rules of private international law, as well as any existing bilateral or multilateral treaties of which Chile is a party on the enforcement of foreign judgments.

Chile is a party to the multilateral treaty known as Código de Bustamante of 1928, the Inter-American Convention on Private International Law, but its provisions are limited to those signatory countries within Latin America. Its Book IV, Title I, contemplates some basic rules on international bankruptcy and concordata proceedings.

2. If insolvency/restructuring proceedings are instituted for corporate family members in different countries:

(a) What controls as to where the case must be filed (eg, centre of main interests, principal place of business, location of parent, etc)?

As set forth in our answer to question 1 above, under Chile’s Bankruptcy Act the jurisdiction where the domicile of a debtor is located controls where the case must be filed. Therefore, should the domicile of a debtor member of an international family of companies be located outside Chile, then Chilean law will control in respect of such debtor the place where the case must be filed.

(b) Do the courts attempt to exercise jurisdiction over the assets of the company filing domestically no matter where located (for example, overseas), or do they limit their jurisdiction to only those assets located in your country?

Under the Chilean Courts Constitutional Charter Code the debtor’s domicile shall determine jurisdiction on bankruptcy, concordata or scheme of arrangement proceedings. In the case of a company, its domicile is set forth in its constituent documents and, generally, it should be or is a location within the country where the company was incorporated.

This same rule is applied by Article 414 of the Código de Bustamante. Article 415 of this Code sets forth also that if the same individual or company has commercial establishments in several signatory countries, which are completely separate and independent from an economic standpoint, then there can be different proceedings for each such separate establishment.

Chilean courts, therefore, will not attempt to exercise bankruptcy or insolvency jurisdiction over companies not domiciled in Chile. But Chilean courts will have jurisdiction over the bankrupt’s assets located in Chile. As a matter of public policy, all assets and properties located in Chile are subject exclusively to the jurisdiction of Chilean courts.

(c) Would your courts enforce a court order from a foreign country that attempted to exercise jurisdiction over assets located in your country but owned by the company that is subject to the foreign insolvency proceedings?

As set forth in the above answer, all assets or properties located in Chile are subject exclusively to the jurisdiction of Chilean courts. Therefore, such courts would not enforce a foreign court order that attempts to exercise jurisdiction over assets located in Chile, although owned by a company that is subject to foreign insolvency proceedings.

On these assets and properties located in Chile, the trustee, the receiver or the creditors, as appropriate, would have to bring their legal actions in Chile to protect and preserve the rights of those creditors.

But Chilean courts would recognise and enforce in Chile a final and conclusive judgment for the payment of money rendered by a foreign court against a debtor, whether domestic or foreign, without any retrial or re-examination of the merits of the actions or proceedings that have taken place abroad, provided that the Chilean rules set forth in its Civil Procedure Code on the enforcement of foreign judgments are duly complied with.

(d) Has your country adopted any procedures (such as the Model Law on Cross-Border Insolvency) to address the various issues that arise in dealing with cases of cross-border insolvency?

Chile has not adopted any procedures to address the various issues that arise with cases of cross-border insolvency, such as the Model Law on Cross-Border Insolvency.

No hay Comentarios