As one of the most stable and prosperous countries in South America, Chile is considered a model of political and financial transparency in the region. Over the past decade, its economy has grown strongly. GDP grew by 4% in 2018, and is expected to grow by another 3.4% in 2019 and 3.2% in 2020, according to its central bank.
Chile’s attractiveness stems from its wealth of natural resources, stability of its macroeconomic system, high growth potential, legal certainty, low level of risk, and the quality of infrastructure. Foreign investors are contributing about US$8.224 billion to the economy (+28% / 2017) to enjoy these benefits.
Chile has a system of foreign business-friendly regulations for expansion into its thriving market, enabling companies to explore new commercial opportunities. But what happens if things don’t go as you planned? If your business is not succeeding as you’d hoped, you can consider your exit strategy.
We take a look at the different steps to follow to liquidate a company in Chile.
All insolvency proceedings in Chile are managed by Law No. 20,720 and the Superintendencia de Insolvencia y Reemprendimiento.
What is company liquidation in Chile?
In the world of finance, business, and economics, liquidating a company is a process that consists of shutting down all activities and redistributing the assets of a company to creditors. This typically occurs when a company is no longer able to pay its financial obligations (debts, loans, or others), it is said to be insolvent. However, businesses that are interested in exiting a market may liquidate voluntarily. This is a smart move if a company cannot foresee a profitable future in the market it’s in.
The liquidation process consists of the sale of all inventories, physical assets (such as machinery or furniture), and financial assets. The sales of assets allow a company to repay its debts, creditors, and shareholders. After all, debts are repaid, the company formally closes down, ceasing all commercial activity.
Responsible authorities for liquidation procedures
All insolvency proceedings in Chile are managed by Law No. 20,720 and the Superintendencia de Insolvencia y Reemprendimiento, an autonomous government department with its legal personality and linked to the Ministry of Economy, Development, and Tourism.
In all cases, the dissolution of a company must also be registered in the Trade and Companies Register, known as the Boletín Oficial del Registro Mercantil (BORME).
The process to liquidate in Chile
Chile is known for having a reliable and clear compliance system for foreign companies – considered one of the best in Latin America. 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
In the Chilean legal system, if you want to liquidate your company, you will be considered as the debtor company.
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, in order 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.
In the Chilean legal system, if you want to liquidate your company, you will be considered as the debtor company, a company facing receivables and debts. The procedure will be carried out in a civil court in your company’s region.
Voluntary procedure
Bankruptcy proceedings are considered optional when they are requested directly by the debtor company. 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
If one of your creditors against you initiates the proceedings, this is considered a forced liquidation. 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 there are two or more expired operational securities, from different bonds, and at least two executions have been initiated against your company, and you have not submitted sufficient assets within four days of the respective requirements.
Debtors can arrange the following agreements with their creditors:
- Preparing for settlement
- Allocate sufficient funds
- Participate in the reorganization process.
Then, once the court has admitted the trial, a clear set of judicial processes will be required, let 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.
Need support to liquidate? Biz Latin Hub can help
Our team can provide expert guidance on how to properly liquidate your company in Chile. With our full suite of market entry and back-office services, our Chile team is equipped to support you through all stages of your company’s life, including exiting a market through liquidation.
Contact us at [email protected] for personalized advice.
Learn more about our team and expert authors.