The attraction of company formation in Chile means that a great deal of international investors have entered the market in recent years. However, this doesn’t always work out, and if that’s the case you’ll need to know what to do to make sure you stay compliant and in good standing with the authorities. This article will walk you through your exit strategy as we look at the different steps for company liquidation in Chile.
Key takeaways for company liquidation in Chile
| 7 steps to liquidate a company in Chile | Shareholders’ Meeting Appointment of Liquidator Notice to Authorities (SSI and IPS) Publication of Notice Asset Liquidation and Debt Settlement Employee Settlement Account Closure and Tax Compliance |
| What is the timeframe needed to liquidate a company in Chile? | It should take approximately six months to a year to for company liquidation in Chile, if everything is in order. |
| What reasons are there to liquidate a company in Chile? | Financial insolvency, where a company is unable to pay its debts or sustain its operations. A change in the business environment, such as new competitors or changes in market demand. A strategic decision to exit a particular market or industry. |
| What causes involuntary liquidation in Chile? | Forced liquidation occurs when one of your own creditors initiates the proceedings. The creditor must bring an action for forced liquidation before a civil court |
What is company liquidation?
Liquidating a company is the process of shutting down all activities and redistributing company assets to creditors. There are various reasons why a founder may want to liquidate their company. The process essentially involves selling off all assets to pay its creditors and distributing any remaining funds among its shareholders.
One of the most common reasons for liquidation is financial insolvency, where a company is unable to pay its debts or sustain its operations due to a lack of revenue. Other reasons may include a change in the business environment, such as new competitors or changes in market demand, or a strategic decision to exit a particular market or industry. Additionally, a company may choose to liquidate if its shareholders wish to pursue other opportunities or investments.
The liquidation process involves completely selling all inventories, physical assets (such as machinery or furniture), and financial assets. Asset sales allow a company to repay its debts, creditors, and shareholders. After all, once a company has repaid all its debts, the company closes and ceases all commercial activity.
Law No. 20,720 and the Superintendencia de Insolvencia y Reemprendimiento, an autonomous government department with its legal personality linked to the Ministry of Economy, Development, and Tourism manage all insolvency proceedings in Chile.
The company must also register the dissolution in the Trade and Companies Register, known as the Boletín Oficial del Registro Mercantil (BORME), in all cases.
What is the process of company liquidation in Chile?
The process of liquidation in Chile needs some actions:
- Shareholders’ Meeting: The company’s shareholders convene a meeting and resolve to dissolve the company and initiate the liquidation process.
- Appointment of Liquidator: A liquidator is appointed, who can be a third party or the company’s legal representative. The liquidator oversees the liquidation process.
- Notice to Authorities: Formal notice of the company’s decision to dissolve and liquidate must be sent to the Tax Authority (Servicio de Impuestos Internos – SII), Social Security Administration (Instituto de Previsión Social – IPS), and other relevant authorities.
- Publication of Notice: A notice of the company’s dissolution and liquidation is published in the Official Gazette and a local newspaper to inform creditors and other interested parties.
- Asset Liquidation and Debt Settlement: The company proceeds to liquidate its assets and settle its debts, ensuring proper distribution of funds to creditors.
- Employee Settlement: Settlement of employee obligations, including payment of wages, severance, and other entitlements in accordance with labor laws.
- Account Closure and Tax Compliance: Closure of the company’s accounts and fulfillment of tax obligations, including the submission of final tax returns.
Foreign companies consider Chile’s compliance system to be one of the best in Latin America, known for its reliability and clarity. At the ‘company exit’ end of the process, liquidating your business and finding the right legal provider to assist you is relatively straightforward.
Before liquidation
Before you start the liquidation process of your company, make sure to carry out these steps first:
- Be up to date on your payments with the state: make sure to pay all outstanding Value-Added Tax (VAT), Impuesto Sobre la Renta de las Personas Físicas (IRPF) and other tax bills
- Pay your creditors: clear all invoices accumulated during your company’s operational life
- Asset allocation: before any liquidation, you must ensure that all assets are allocated to shareholders
- Contact a competent notary: present your company dissolution to a notary, who must sign and confirm everything in writing. This process will cost you about CLP$57,600 (equivalent to US$80)
Once you have made your declaration to a notary, you must decide one of three main liquidation options:
- Transfer of ownership: sale of the company
- Liquidation of the company
- Insolvency proceedings: when creditors cannot be paid, insolvency proceedings are requested.
Liquidation or insolvency proceedings
First of all, it is essential to specify that an insolvency processor is a judicial procedure whose objective is to achieve a rapid and total liquidation of all the assets (physical and financial) of a company, to pay its creditors. A creditor is a person who holds a right of claim, i.e., a person or entity (company, organization, etc.) to whom someone owes a sum of money.
If you want to liquidate your company in the Chilean legal system, the civil court in your company’s region will consider you as the debtor company facing receivables and debts, and the procedure will be carried out accordingly.
Voluntary procedure
When the debtor company requests them directly, bankruptcy proceedings are considered optional. If, as a liquidator, you wish to initiate the voluntary liquidation procedure, you must file a request for voluntary liquidation and the following information with a competent court:
- a) the list of your assets, their location and the charges that affect them
- b) List of your assets legally excluded from the liquidation
- c) The list of your current trials
- d) The status of your debts, with the name, address and contact details of the creditors and the nature of these debts
- e) The wage bill of your workforce, regardless of their contractual situation, with an indication of the labor and social security benefits due and, where applicable, any privileges
- f) All this with your liquidation report
Forced procedure
A forced liquidation occurs when one of your own creditors initiates the proceedings. The creditor must bring an action for forced liquidation before a civil court, on one of the following grounds:
- a) if you cannot pay your obligations to the applicant creditor
- b) If your company has not submitted sufficient assets within four days of the respective requirements, and there are two or more expired operational securities from different bonds, and at least two executions have been initiated against it.
Debtors can arrange the following agreements with their creditors:
- Preparing for settlement
- Allocate sufficient funds
- Participate in the reorganization process.
Once the court admits the trial, you will need a clear set of judicial processes. Many advise that your legal service provider or a trusted local legal expert accompany and guide you through the process.
Options for voluntary liquidation
When you organize your settlement, this is voluntary liquidation. In Chile, you can temporarily close your company before taking this liquidation decision. During this period, your company will temporarily suspend tax obligations and payments. You can resume your business activity at any time. If you choose this option, you’ll need to clarify or pay any tax arrears, provide an interim balance sheet, and submit stamped tax documents.
If you choose to close your company permanently, you will have to issue in addition to the closure of all activities. You’ll need to publish your decision to voluntarily liquidate (consented by the company’s partners) in the country’s official gazette or diary called Diario Oficial. You will need to request to close your municipal permit, to stop the municipality from sending invoices.
FAQs on company liquidation in Chile
Based on our extensive experience these are the common questions we receive from clients about liquidating an entity in Chile.
1. What is the process of liquidation in Chile?
Shareholders’ Meeting: The company’s shareholders convene a meeting and resolve to dissolve the company and initiate the liquidation process.
Appointment of Liquidator: A liquidator is appointed, who can be a third party or the company’s legal representative. The liquidator oversees the liquidation process.
Notice to Authorities: Formal notice of the company’s decision to dissolve and liquidate must be sent to the Tax Authority (Servicio de Impuestos Internos – SII), Social Security Administration (Instituto de Previsión Social – IPS), and other relevant authorities.
Publication of Notice: A notice of the company’s dissolution and liquidation is published in the Official Gazette and a local newspaper to inform creditors and other interested parties.
Asset Liquidation and Debt Settlement: The company proceeds to liquidate its assets and settle its debts, ensuring proper distribution of funds to creditors.
Employee Settlement: Settlement of employee obligations, including payment of wages, severance, and other entitlements in accordance with labor laws.
Account Closure and Tax Compliance: Closure of the company’s accounts and fulfillment of tax obligations, including the submission of final tax returns.
2. How long does it take to liquidate a company in Chile?
The liquidation process will normally take between (6) and (12) months, assuming the entity is in good standing and no rectification work is required.
3. What are the reasons to liquidate a company in Chile?
One of the most common reasons for liquidation is financial insolvency, where a company is unable to pay its debts or sustain its operations due to a lack of revenue. Other reasons may include a change in the business environment, such as new competitors or changes in market demand, or a strategic decision to exit a particular market or industry. Additionally, a company may choose to liquidate if its shareholders wish to pursue other opportunities or investments.
4. Can you be forced to liquidate a company in Chile?
A forced liquidation occurs when one of your own creditors initiates the proceedings. The creditor must bring an action for forced liquidation before a civil court, on one of the following grounds:
- a) if you cannot pay your obligations to the applicant creditor
- b) If your company has not submitted sufficient assets within four days of the respective requirements, and there are two or more expired operational securities from different bonds, and at least two executions have been initiated against it.
Debtors can arrange the following agreements with their creditors:
- Preparing for settlement
- Allocate sufficient funds
- Participate in the reorganization process.
Once the court admits the trial, you will need a clear set of judicial processes. Many advise that your legal service provider or a trusted local legal expert accompany and guide you through the process.
Biz Latin Hub can help with company liquidation in Chile
Our team can provide expert support on how to properly liquidate your company in Chile. Our Chile team can adequately support you through all stages of your company’s life, including exiting a market through liquidation, with our full suite of market entry and back-office services.
Feel free to contact us for personalized advice.
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