CHILE Law and Practice Contributed by: Macarena Ravinet and Federico Espinosa, Cuatrecasas
5.2 Floating Charges and/or Similar Security Interests Absence of the Floating Charge Concept Chilean law does not recognise the concept of a “floating charge” as it exists in common law jurisdic- tions, such as the US, England, or Australia. In those systems, a floating charge allows a lender to take a security interest over a shifting pool of present and future assets, with the debtor retaining the ability to deal with those assets in the ordinary course of busi- ness until the occurrence of a crystallisation event. In Chile, the legal framework is grounded in civil law principles, which necessitate specificity and clarity when establishing security interests. This means that, in practice, lenders seeking comprehensive security packages must combine several types of security agreements to cover the borrower’s relevant asset base. Security Over Present and Future Assets While Chilean law does not permit a single, universal security interest over all present and future assets of a company, it does allow for the creation of security interests over a broad range of asset classes, both present and, in some cases, future. However, each type of asset must be individually identified or at least determinable at the time the security is granted. No Crystallisation Mechanism There is no legal mechanism in Chile for the “crys- tallisation” of a floating security interest into a fixed charge upon default or insolvency. Each security inter- est remains limited to the assets specifically described in the relevant agreement and perfected according to law. Market Practice and Structuring Solutions To approximate the effect of a floating charge, Chilean market practice often involves: • granting pledges without conveyance over broad categories of movable assets, with language designed to capture after-acquired property within the defined class; • using security agent structures to hold security on behalf of all lenders, facilitating the administration and enforcement of multiple security interests; and
• Assignment of receivables: (a) executed by public or private instrument; (b) notification to the debtor is required for the as- signment to be effective against the debtor and third parties; and (c) registration may be required for certain types of receivables (eg, those arising from public concessions). Consequences of Non-Compliance Failure to comply with the applicable perfection requirements generally renders the security interest ineffective against third parties. This means that, in the event of insolvency or enforcement, the lender will not have priority over other creditors and may lose the benefit of the collateral. In some cases, the security may be entirely unenforceable. Timing and Costs Timing • The process of executing and registering security interests can vary. Mortgages and pledges without conveyance typically require several days to a few weeks, depending on the efficiency of the notary and registry offices. • Assignments of receivables and pledges over shares can often be completed more quickly, espe- cially if no registration is required. Costs • No taxes are imposed on the creation or perfection of security interests, but notarial and registration fees apply. • Fees vary depending on the value of the secured obligation and the registry involved. For example, real estate registry fees are typically a small per- centage of the secured amount, subject to mini- mum and maximum thresholds. • Additional costs may include legal fees, translation, and legalisation of documents if foreign parties are involved. • The borrower generally bears these expenses and must be considered when structuring a financing.
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