Lending & Secured Finance 2016
|Author:||Mr Diego Peralta and Elena Yubero|
1.1 What are the main trends/significant developments in the lending markets in your jurisdiction?
According to the Chilean Banks and Financial Institutions Association ("ABIF"), during 2015 the growth of credit was a modest 4.2% with respect to 2014. The housing sector played a significant role due to certain amendments to the value added tax ("VAT") regime on the sale of real estate introduced by the 2014 tax reform, which produced an acceleration in this sector in order to benefit from an exemption regime. The energy sector continued being very active, with local banks increasing their involvement, where the trend is to step away from exposure to spot market prices and accept power purchase agreements (PPAs) with distribution companies as acceptable alternatives to the traditional PPAs. Finally, it is worth noting, the enactment of Law No. 20,855, in force since January 23, 2016, which in general terms, allocates to lenders the obligation to formally release mortgages or pledges without conveyance once the secured obligations have been fully paid.
1.2 What are some significant lending transactions that have taken place in your jurisdiction in recent years?
By amount and relevance in the banking industry, an unsecured loan from Scotiabank Chile to Cencosud Administradora de Tarjetas (CAT), a card issuer in the retail sector, for up to USD3 billion, as part of the acquisition by Scotiabank Chile of 51% of CAT, and the indirect acquisition of other related companies (including an insurance broker company).
By parties involved, the financing credit facility for up to USD 1,217 million for the development of the Alto Maipo Hydroelectric Project, a 531 MW run-of-the-river plant, owned by AES Gener (60%) and Antofagasta Minerals (40%). The deal involved the IFC, OPIC and IDB and several local and foreign banks in a highly controversial project in the vicinity of Chile's capital.
2.1 Can a company guarantee borrowings of one or more other members of its corporate group (see below for questions relating to fraudulent transfer/financial assistance)?
Following certain corporate requirements depending on the type of company involved, provided the guarantor benefits somehow from these operations, and subject to applicable insolvency, liquidation, reorganisation, moratorium or similar laws relating to or affecting creditors' rights generally, and general principles of fairness, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether considered in a proceeding in equity or at law), there is no restriction for this type of guarantee.
Additionally, note that, under Chilean General Banking Law, banks are not authorised to grant mortgages or pledges over physical assets, unless these agreements are granted in order to guarantee payment of the purchase price of those assets. Considering this, it has been construed that banks can provide guarantees over assets other than physical assets and subject to certain restrictions regulated by the Superintendency of Banks and Financial Institutions.
2.2 Are there enforceability or other concerns (such as director liability) if only a disproportionately small (or no) benefit to the guaranteeing/securing company can be shown?
Third party creditors or non-controlling equity holders could object to the transaction if it is not clear that it is in the best interest of the guarantor, or if the secured obligations are so disproportionate to the company's assets and other obligations that its enforcement could cause the company to become insolvent. For example, under Chilean Corporations Law, directors of corporations are jointly and severally liable for any damages caused to shareholders for their negligent or malicious actions, making it highly unlikely that the approval of a board would be secured for such a disadvantageous operation. Should the agreements cause the company's insolvency, there are actions for revocation which apply once the raeorganisation or liquidation procedures have started according to the Chilean Insolvency Law. Among the agreements that can be revoked are any pledge or mortgage granted by the insolvent company within a year before the insolvency proceedings (to guarantee debts previously acquired), and any act or agreement (including granting guarantees) entered into within two years before the insolvency proceedings, provided that (i) the counterparty has known the company's bad state of business, and (ii) that the agreement has caused damage to the other creditors, where damage means that terms and conditions were distant from the market's at the time of the agreement. On the other hand, article 2,468 of the Chilean Civil Code grants the creditors of an insolvent debtor the right to request the revocation of certain agreements entered by such debtor (acción pauliana) provided that: (i) the transaction causes damages to the creditors (the transaction executed increased the insolvency of the debtor); (ii) the debtor was aware of its poor business condition at the time of entering into such act or contract; and (iii) in case of onerous act or contract, the counterparty of the debtor was also aware of the poor business condition of the debtor.
2.3 Is lack of corporate power an issue?
Yes. The Chilean Civil Code establishes in its articles 2,151 and 2,160 that the principal shall not be obliged toward third parties by acts or agreements entered into by its agent if (i) the latter did not mention that he was acting on behalf of the principal, and (ii) if the agent acts beyond the limits of its mandate. Therefore, if the agent does not have sufficient powers of attorney, and does not show to the counterparty the agreement by means of which the powers were granted to him, he would not be able to act on behalf of the principal.
2.4 Are any governmental or other consents or filings, or other formalities (such as shareholder approval), required?
It depends on the company's structure and on the type of guarantee. In order to guarantee third party obligations, and if the guaranteed obligations exceed 50% of the corporation's assets, an extraordinary shareholders' meeting must be summoned in order to obtain approval. Nevertheless, if the guaranteed company is a subsidiary, the Board's approval suffices. Filings will depend on the type of guarantee, especially when the asset over which the guarantee is granted has been awarded by a public entity (e.g. concessions over public goods).
2.5 Are net worth, solvency or similar limitations imposed on the amount of a guarantee?
No. Nevertheless, please note that any operation executed between related parties needs to be done on the company's benefit, complying with the market's standards for price, terms and conditions, as previously explained above.
2.6 Are there any exchange control or similar obstacles to enforcement of a guarantee?
Currently there are no exchange control regulations. Payment in foreign currency is possible to the extent the parties have agreed such form of payment. Please note that in order to enforce a guarantee (as an accessory obligation) it is required that the obligations being secured comply with certain requirements, and in case of obligations governed by foreign law and subject to foreign jurisdiction, exequatur procedures have to be conducted. Subject to Law No. 18,010, regarding lending operations, transactions agreed in a foreign currency shall be payable according to the seller exchange rate of the payment date, which must be certified by a Chilean commercial bank. Please refer to our answer to questions 7.2, 7.3 and 7.7 in regard of the enforcement of foreign judgments procedure.
3 COLLATERAL SECURITY
3.1 What types of collateral are available to secure lending...
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