The World Bank's 2004 Report on the Observance of Standards and Codes for Chile reviewed the then-extant insolvency and creditor rights regime in the country. The report found that, on the whole, Chile was in reasonable compliance with modern expectations of a credit-based economy. Nonetheless, the report disclosed several shortcomings, primarily occasioned by the over-reliance on real-estate as collateral. Also, the World Bank found that Chile did not adequately address the problem of pledges, although a bill before the Congress (the Bill on Capital Market Reform II) contained provisions that would specifically address many of these particular issues. Another problem identified by the World Bank report had to do with the lack of alternatives to the judiciary in the area of enforcement, leading to an overburdening of the court system and excessive delays in case resolution. In 2006, the International Monetary Fund urged swift passage of the Bill on Capital Market Reform II as an important way in which to improve Chile's insolvency regime. In June 2007, according to the 2007 IMF Article IV consultation report, the Capital Markets II Reform Law was enacted.

General Overview

Chile's insolvency regime was assessed by the World Bank in a 2004 Report on the Observance of Standards and Codes. This report found that Chile's legal and institutional framework "reasonably complies with expectations of a modern, credit-based economy" (p. 1). The core legislation governing insolvency proceedings in Chile include the Civil Code of 2000, the Commercial Code of 1865, the Civil Procedures Code of 1902, and the Bankruptcy Law of 1982. Other laws and regulations also apply. According to the World Bank report, the regime suffers from a number of shortcomings, including an over-reliance by credit-issuers on real-estate as collateral and an underdeveloped pledge registration mechanism. Also problematic is the enforcement regime, which the World Bank found to be both lengthy and complicated. Further, the insolvency courts were perceived to be bogged down with an "excessive number of commercial enforcement procedures" (p. 1) added the World Bank report. Nonetheless, the World Bank acknowledged that, on the whole, the insolvency framework enjoyed a reputation for soundness and reliability. Chile's insolvency law, which governs both liquidation and reorganization proceedings, was described as integrated into the broader legislative framework. According to the World Bank, the lack of creditor classification within the insolvency law could be a significant shortcoming, given the predominance of secured over unsecured creditors. In addition, the report found that there could be greater development of the treatment of contractual obligations. Cross-border insolvency legislation was described as "antiquated and not responsive to solve main problems typically present in those cases" (p. 1). The World Bank suggested that there might be greater recourse to corporate workouts "if out-of-court plans approved by a majority of creditors [could be] converted into prepackaged restructuring plans binding dissenting minorities" (p. 1). The report also noted that Chile has not established specialized insolvency or commercial courts. Nonetheless, the World Bank found that insolvency practitioners enjoy independent professional status. Such practitioners fall under the supervision of an independent regulatory institution known as the Bankruptcy Commission. At the time of the World Bank report, the Bill on Capital Market Reform II that was before Congress aimed to enhance aspects of the Chilean creditor rights and insolvency regime. The bill was expected to address some of the concerns expressed above regarding the under-developed approach to handling pledges. In its 2006 Public Information Notice preceding the publication of that year's Article IV Consultations with Chile, the International Monetary Fund (IMF) urged the passage of this bill as an important step toward improving the Chilean insolvency regime. The subsequent 2007 IMF Article IV consultation report states that the Capital Markets II Reform Law had been enacted. The World Bank report offered a number of suggestions to reform Chile's insolvency regime. Most of these relate to the problem with dealing with pledges, which may be addressed when and if the pending Capital Market Reform II bill is passed into law. Otherwise, the World Bank suggested that, there should be legal reforms that would address the current system of enforcement in order to reduce delays and reduce the unpredictability of the process. Also, alternatives to the current judicial enforcement regime should be developed.

The World Bank's 2008 Doing Business snapshot of closing a business is based on three dimensions: time (in years), cost (as a percentage of the debtor's estate), and rate of recovery (in cents on the dollar). These dimensions were selected because they were seen as the factors that most likely disclose bottlenecks in insolvency systems. For Chile, it takes an average of 4.5 years to complete the business-closing process. The average cost of a business closing constitutes 15% of the debtor estate, and the recovery rate averages 23.8 cents on the dollar. This compares to a regional average of 3.2 years, 16.4%, and 25.9 cents on the dollar. Among member states of the Organization for Economic Co-operation and Development, the comparable figures are 1.3 years, 7.5%, and 74.1 cents on the dollar.