Insolvency and reorganization

MARCO LEGAL

Legal framework and proceedings

The system provides three central insolvency proceedings.

Reorganization. Restructures liabilities and assets so the viable company continues operating.

Liquidation. Orders the sale of the non-viable debtor’s assets to pay its creditors.

Debtor renegotiation. An administrative procedure allowing individuals to restructure their debts.

Added to these, since the reform, are a simplified reorganization and a simplified liquidation for micro and small enterprises.

INSTITUTIONS

Institutions of the insolvency system

The system rests on three pillars.

Superintendence of Insolvency and Reentrepreneurship (Superir) Superintendence of Insolvency and Reentrepreneurship (Superir). Regulatory body. It oversees liquidators, receivers, intervenors, insolvency auctioneers and other persons under its control. It administers debtor renegotiation, the only central administrative-track procedure. It maintains the Receivers’ Roster and the Liquidators’ Roster, public registries of certified, supervised professionals. It administers the Insolvency Bulletin, a free public platform where resolutions are published. Notices are served through the Bulletin, not the Official Gazette, and deadlines to verify claims run from that electronic publication.

Receiver and liquidator They are the technical bodies. The receiver takes part in reorganization, fosters agreements and safeguards creditors’ interests; it does not take over management, since the debtor retains control. The liquidator takes part in liquidation, realizes the debtor’s assets and pursues payment per the statutory priority order; unlike the receiver, it does take over representation of the debtor’s assets once liquidation is declared.

Tribunales ordinarios Chilean law has no special insolvency courts. The court of the debtor’s domicile has jurisdiction. Banks, financial institutions, insurance companies and other regulated entities are subject to special regimes, separate from the general regime of Law No. 20,720.

REORGANIZATION

Reorganization insolvency proceeding

Reorganization is the heart of the system. It seeks an agreement between the debtor company and its creditors allowing it to keep operating, because creditors recover more from a going concern than from a liquidated one.

Commencement. Filing by the debtor company before the competent court, with an inventory of assets and liabilities and a list of creditors. In parallel, the debtor requests the Superintendence to appoint a receiver (Art. 22, Law No. 20,720). Once requirements are met, the court issues the Reorganization Resolution (Art. 57, Law No. 20,720).

Insolvency financial protection. From notification, and for an initial period of sixty days, no liquidation may be commenced against the debtor, nor executory proceedings, enforcement of any kind, or repossession in lease proceedings. The period may be extended, under Article 58, by up to one hundred twenty additional days, subject to the creditor support the law requires. During protection, existing contracts remain in force and the law prohibits early unilateral termination, early acceleration of obligations and enforcement of security based solely on the commencement of the proceeding. A creditor breaching this prohibition is subordinated in the payment order.

Forms of the agreement. The judicial reorganization agreement is reached within the proceeding. The out-of-court one is negotiated outside the procedural framework and, to be enforceable against non-parties, must be submitted for judicial approval.

Simplified reorganization. The 2023 reform introduced a simplified version for micro and small enterprises (Law No. 21,563).

REORGANIZATION

Creditor deadlines and agreement quorum

Creditor deadline. After the Reorganization Resolution, creditors have fifteen days from notification to prove their standing, indicating their representatives’ powers to review, amend and adopt the agreement (Art. 57 No. 6, Law No. 20,720). The liabilities are determined based on the list of claims the debtor submits and the objection regime of Articles 70 and 71.

Meeting decisions are adopted by weighted majorities. The general rule is an absolute majority of creditors entitled to vote. For the most important decisions, such as approving the agreement, the law requires a special quorum of two-thirds of total verified or recognized liabilities entitled to vote (Art. 79). Once reached, the agreement must be approved by the court, and the judicial reorganization agreement binds all parties, even creditors who did not participate. If no agreement is reached, the company is declared in liquidation.

15 days 60 + 120 2/3 to prove standing from notification days of insolvency financial of voting liabilities to approve the protection, initial and extendable agreement

LIQUIDATION

Liquidation insolvency proceeding

Liquidation applies when the company is not viable. The liquidator realizes the assets and distributes the proceeds per the statutory priority order.

Voluntary or forced commencement. In the voluntary case, the debtor starts the proceeding if it meets the requirements and has not already commenced a reorganization. In the forced case, any creditor may sue to commence it only if a ground under Article 117 of Law No. 20,720 exists, including ceasing to pay an obligation evidenced by an executory title. The 2023 reform added a simplified liquidation shortening deadlines and eliminating creditor meetings, unless requested (Law No. 21,563). Effects of the declaration. The court appoints the liquidator, who takes over representation of the debtor’s assets. All judicial actions consolidate before the court hearing the liquidation. The debtor loses administration of its attachable assets; the declaration does not transfer ownership to creditors, but suspends the power to dispose until claims are paid. Individual enforcement is suspended. As an exception, pledge and mortgage creditors retain the right to separately pursue their security, but must likewise verify their claims.

Creditor deadline. Thirty business days from publication of the declaration in the Insolvency Bulletin to verify claims with supporting evidence. Day periods are computed in business days under Article 7 of Law No. 20,720. Only claims on the recognized-claims list take part in the distribution. This period differs from the fifteen-day period in reorganization.

CREDITOR PRIORITY

The creditor priority order

The debtor’s assets form the estate, which the liquidator realizes to pay creditors. As a general rule, claims are paid pro rata, unless a statutory preference applies. The priority order is set by the Civil Code (Arts. 2470 et seq.) and Law No. 20,720 itself.

First class (Art. 2472 Civil Code). General privilege. Includes court costs in creditors’ general interest, proceeding administration and asset realization costs, worker wages and family allowances, unpaid social security contributions and certain Treasury claims for withholding and surcharge taxes.

Second class. Pledge claims, paid from the proceeds of the pledged asset.

Third class. Mortgage claims, paid from the proceeds of the mortgaged property.

Fourth class and beyond. Other preferred claims. Common or unsecured claims are paid only from the remainder.

The law allows a payment plan alternative to the default statutory order, provided it does not contravene the preference order or the recognized amounts. Once the proceeding ends, obligations predating its commencement are extinguished by operation of law, and the debtor regains administration of any remaining assets.

CROSS-BORDERINSOLVENCY

Renegotiation and crossborder insolvency

Debtor renegotiation Debtor renegotiation is the route for individuals who do not qualify as a debtor company. Unlike reorganization and liquidation, which are judicial, it is an administrative procedure before the Superintendence of Insolvency and Reentrepreneurship, allowing personal debts to be restructured with its mediation. For a foreign company or investor it matters when the counterparty is an individual, such as a guarantor, surety or sole proprietor, whose insolvency is channeled through this route rather than the company proceedings.

FOREIGN CREDITORS

Foreign creditors and security

Law No. 20,720 makes no distinction between Chilean and foreign creditors. The resolution declaring liquidation may be served on creditors located outside Chile, inviting them to appear and verify their claims within the statutory deadline, on equal terms with local creditors and subject to the same priority order.

Foreign creditors in Chile. They may appear in Chilean insolvency proceedings and exercise the rights the law recognizes, including claim verification. If a foreign insolvency proceeding must have effect in Chile, its recognition is requested under Chapter VIII, normally by the foreign representative with counsel in Chile; once recognized, the representative may seek measures to protect related assets or interests.

Chilean creditors abroad. They may request the Superintendence of Insolvency and Reentrepreneurship to act on their behalf, and Chilean courts may communicate directly with foreign courts. Where cooperation is not accepted under the foreign jurisdiction’s framework, they must resort to traditional recognition through an international letter rogatory.

For recognition and enforcement of foreign judgments, including those issued in insolvency proceedings, the Chilean system applies a framework based mainly on the international treaties signed with the jurisdiction of origin. Absent a treaty, the principle of reciprocity governs. Without a treaty or reciprocity, enforcement may proceed on the basis of general principles of law, provided the judgment does not contravene Chilean public policy or jurisdiction rules. Once the requirements are met, there is no restriction preventing the return of assets to a foreign representative, on the same terms as to a Chilean one.

The law also regulates set-off of related obligations, relevant for international financial creditors. The general rule prohibits set-off not carried out before notice of the liquidation resolution, with an exception for related obligations: those which, even in different currencies, derive from derivative transactions — futures, options, swaps and forwards — entered into between the same parties under the same master agreement. The rule authorizes the Central Bank to set the general terms applicable to those agreements. When valid set-off yields a net amount payable by the debtor company, that amount is added to the liabilities.

COMPARISON

The insolvency proceedings, side by side

↳ Comparison table available in the PDF