Chapter 11 and the need to change our bankruptcy laws

Esteban García Nadal founding partner García Nadal & Cía.

Stephen Garcia Nadal

Chapter 11 (or Chapter 11) in the US is one of the most important financial reorganization procedures for companies in the world. And there are not a few Chilean companies that have used this mechanism: Enjoy, Alto Maipo, LATAM Airlines and Gildemeister, the last case being CorpGroup Banking, which achieved the approval of its liquidation plan that included, among other aspects, the sale of the shares owned by the firm in Itaú Corpbanca.

After the majority of these cases, it is inevitable that we ask ourselves why these companies, which have their main business in our country, decide to take the cause almost 8,500 kilometers away? The answers are multiple and very true: the high degree of specialization of this jurisdiction, the shorter processing times or the possibility of obtaining financing to continue operations are an advantage regarding the associated costs, both for companies and for creditors. . But, without a doubt, what these cases reveal is the urgent need to adjust our Reorganization and Liquidation Law.

“It is time to learn lessons to help those companies that are in financial trouble to reorganize their liabilities and resume their growth, with the consequent positive effect on employment and the country’s growth.”

The last major reform was carried out in 2014 and there are areas for improvement that must be addressed, such as strengthening the bankruptcy arbitration system, establishing bankruptcy procedures for debtor companies that are related to a business group, or establishing and regulating the figure of the financial advisor in matters of bankruptcy. company reorganizations. Also look at the positive aspects of US legislation and advance in the creation of specialized courts that allow greater agility in this type of process or open a market so that investors can invest and companies in difficulty have fresh resources to get out of bankruptcy, establishing financial incentives to attract investment funds and thus achieve greater growth and depth of the financial market.

This process is likely to be forced, since there are currently two bills in the North American Congress (Bankruptcy Venue Reform Act 2021 and Nondebtor Realese Prohibition Act 2021), which will prevent insolvent companies from going to a jurisdiction where they do not have the main seat. of their businesses. The foregoing will generate a greater number of reorganizations and liquidations in our country, given that large national companies will no longer have the escape route to be governed by Chapter 11 of North American legislation.

Seven years after the reform of the Bankruptcy Law, these cases open the opportunity to retrospectively review everything that its application has meant, especially on those points that could be improved or directly problematic that all the actors, such as lawyers, accounting consultants, financial advisors, inspectors, liquidators, debtor persons, debtor companies, and, especially, our Courts of Justice, have had to face, in order to strengthen our legislation based on this learning.

It is time to draw lessons to help those companies that are in financial trouble to reorganize their liabilities and resume their growth, with the consequent positive effect on employment and the country’s growth. And in the case of those businessmen and entrepreneurs who must close their businesses, have the opportunity to reinvent themselves and continue creating value.

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