Chilean Legislation and Cross-Border Insolvency

By Sandoval, Ricardo | Texas International Law Journal, Summer 1998 | Go to article overview
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Chilean Legislation and Cross-Border Insolvency


Sandoval, Ricardo, Texas International Law Journal


I. INTRODUCTION

The Chilean Law of Bankruptcy has its origin in the Commercial Code of 1865 that came into force in 1867.1 It was inspired by the French Commercial Code of 18072 and by the Spanish Commercial Code of 1829,3 both of which regulated the insolvency of traders with particular severity. The articles of the Commercial Code were substituted by the rules of Law Number 4.558 of June 23, 1931.4 This regulation of insolvency made applicable the rules of that law to the debtor that was a trader, as well as to the debtor that was not a trader.5 The Commercial Bankruptcy regime was more severe and rigorous than the nontrader's regime.

Today, bankruptcy in Chile is regulated by Law Number 18.175 of October 28, 1982,6 which replaces Law Number 4.558 of 1931. Just like the old Law Number 4.558 of 1931, the new legislation designates the class of debtor subject to treatment under the Bankruptcy Law.7 Its provisions apply to every natural or juristic person, whether they practice commercial, industrial, mining, or agricultural activity, or whether they practice none of them at all.

Certainly, the debtor that practices commercial, industrial, mining, or agricultural activity (hereinafter, the qualified debtor) could be declared bankrupt for simply failing to pay a trade obligation; the qualified debtor is compelled to request his own bankruptcy before fifteen days since he ceased in the payment (suspension of payment) of the trade obligation. The retroactive effects of bankruptcy are wider for the qualified debtor, and his behavior becomes a matter in a criminal trial to decide if the debtor has or has not committed the crime of fraudulent bankruptcy. The obligation to request his own bankruptcy does not exist for the simple debtor that is not a trader (hereinafter, nonqualified debtor).9 Because this kind of debtor is represented by more complete and complex facts, there is no criminal trial in this case to decide if the crime of fraudulent bankruptcy has been committed.'o

In the context of the Chilean Bankruptcy Law, the debtor that finds it impossible to pay may propose to his creditors an extrajudicial agreement to avoid his bankruptcy." To satisfy this purpose, a debtor is able to propose a preventive judicial agreement and a nonqualified debtor is authorized to pay by general assignment in favor of creditors.12 These procedures are the only ones that do not deprive the debtor of the administration and the disposition of his assets or the forced liquidation of the assets to pay to the creditors. In Chilean law there are neither procedures to reorganize companies in economic difficulties nor procedures to recover them. However, in the presence of a preventive agreement presented by the debtor and supported by a minimum of fifty-one percent of the passive total, the debtor cannot be declared in bankruptcy by the Chilean courts. There will be no liquidation of such a debtor's assets in the term of ninety days because of the summons to the creditors to decide about the proposal of the debtor. If this term of ninety days expires and the proposal is not approved by the assembly of creditors, the judge shall declare the bankruptcy of the debtor.l3 When the debtor is declared in bankruptcy, he is inhibited from administering and disposing of his assets and their products or fruits, and he will be unable to appear in court, either as claimant or as defendant or respondent.l4 The administration and disposition of the debtor's estate will be, as a matter of law, exercised by a syndic who will fulfill the purposes of the insolvency proceeding. That is, the syndic will sell out the assets of the debtor and pay the creditors whose claims were marshaled in the insolvency proceedings with the resources obtained in the liquidation.15 During bankruptcy, there are other consequences for the debtor, such as the anticipated demandability of all his debts, the irrevocable settlement of the creditors, claims which remain in the same state that they were at the time of the judicial decision, the suspension of the right to individual execution, joinder of pending trials that affect the debtor's assets before the court that declared the bankruptcy, and some disabilities.

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