Vol 4 (2007) - Issue 1

Article preview

Information on Bankruptcy Law in Chile

Under Chilean law, insolvency is considered the financial situation of the patrimony, a complex and general financially deficient situation, which puts the debtor in a situation where he is not able to fulfill his obligations.
In Chile, the legislation on the subject consists of legal norms aiming to prevent insolvency, eradicate it and, finally, repair – to the extent this is possible – its damaging effects. For this purpose, said norms rule the assignments of the goods for the benefit of creditors, the preventive and judicial debtor-creditor settlements, the proceedings of the bankruptcy, the compulsory winding up of certain determined financial institutions,
banking and insurance entities, and the like.
The main objective for the legislator, at the moment of establishing the relevant norms, is the protection and custody of three important legal issues: (a) assurance
of public credit, (b) appropriate operation of the market in general and (c) the equal protection before the law of the creditors, or par conditio creditorum.1
Notwithstanding the enormous importance within the competent legislation that the institution of asset cession has, as well as the compulsory winding up, these are not directly the subject of this study. We will review them only briefly or not at all, and focus more precisely on the proceedings of the bankruptcy.
The bankruptcy proceedings are mainly ruled by Law 18.175, and modified by laws 20.073 and 20.080.

Bankruptcy proceedings

General issues
Every creditor is entitled to request individually the fulfillment of the obligations the debtor has entered into with him. For this purpose, the Law entitles him to satisfy his credit through a particular means of executive proceedings – in last instance – with the product resulting from the auction made for this purpose.
Nevertheless, this right of individual pursuit is suspended when the debtor is affected by a general complex financial situation which hinders him from complying with his obligations, reaching an insolvency level. At that moment, the executions will not be submitted to the common legislation, but will be subject to the regulations of the bankruptcy Law (article 71, in relation to number 1, both of the Law).
According to article 1 of the Law, the bankruptcy proceeding is a general and compulsory proceeding with the purpose to foreclose or realise in one proceeding all the goods and assets of the bankrupt in order to pay all his/hers debts and liabilities.
As a result, the bankruptcy law suit is (a) universal, meaning it will cover the total patrimony of the debtor, and not only singular assets are included, and (b) collective,
involving all the creditors of the bankrupt, and not only some of them.