CHILE Law and Practice Contributed by: Macarena Ravinet and Federico Espinosa, Cuatrecasas
5.8 Priming Liens Priming Liens Under Chilean Law
Assignment of Receivables Release is documented through a written notice to the debtor and, if applicable, by cancelling the registra- tion. Notifying the debtor and third parties is crucial to prevent double payments. General Considerations Security is released upon full repayment or mutual agreement, with the creditor providing formal docu- mentation. In syndicated loans, the security agent co- ordinates the release. Notarial and registration fees apply but are generally modest. 5.7 Rules Governing the Priority of Competing Security Interests In Chile, the priority of security interests is governed by the Civil Code and special laws, establishing a statutory order of preference ( prelación de créditos ) among creditor classes. Secured creditors generally have priority over unsecured creditors; however, the specific ranking depends on the type of security and the nature of the claim. First-class credits, such as court costs, employee wages, and certain taxes, have the highest priority (even over secured creditors) in insolvency. Second-class credits are those secured by pledges over movable assets, with priority based on the order of perfection (registration or delivery). Third-class credits are secured by mortgages over real estate, ranked by registration order in the Real Estate Registry. Unsecured credits rank after all secured and privileged claims. The effectiveness and priority of security interests require compliance with perfection requirements: mortgages and pledges are prioritised by registration order, while assignment of receivables depends on notification or registration. Failure to perfect or register may result in loss of priority or unenforceability. Chilean law recognises contractual subordination, allowing creditors to agree to subordinate their claims, provided the agreement is executed before a notary and then notarised ( protocolizado ). Such agreements are binding and respected in insolvency, except where they conflict with statutory priority for privileged claims. Intercreditor and subordination agreements can vary priority among lenders, but cannot override the mandatory order for first-class credits.
Chilean law recognises certain statutory liens, known as “priming liens,” which arise automatically and take priority over a lender’s security interest – even if the lender’s security is duly perfected and registered. These liens, established in the Civil Code and spe- cial statutes, are especially significant in insolvency, enforcement, and foreclosure situations. Key Types of Priming Liens The most material priming liens include: • employee claims – wages, severance, and social security contributions owed to employees have first-class priority, paid before any secured or unsecured creditors; • tax claims – statutory priority is granted to certain tax obligations, such as unpaid property taxes and social security contributions (for instance, real estate tax liens can prime even registered mort- gages); • judicial costs and fees – court costs and judicial expenses related to collateral preservation or reali- sation may take precedence over secured credi- tors; • mechanic’s and materialman’s liens – contractors or mechanics who improve or repair property may have statutory liens that override pre-existing secu- rity interests; and • utility and public service charges – in some cases, charges for utilities or public services provided to a property may be prioritised over existing mort- gages or pledges. Mitigating Priming Lien Risks These statutory liens cannot be contractually waived or subordinated. Lenders mitigate risks through due diligence, covenants requiring compliance with privileged obligations, ongoing monitoring, reserve accounts or escrows, and, where possible, insurance to cover privileged claims.
93 CHAMBERS.COM
Powered by FlippingBook