CHILE Law and Practice Contributed by: Alvaro Moraga Fritz and Sebastián Moraga Nazar, Moraga & Cía.
capital increases, subject to restrictions on pay - ments and share sales. The rules regarding insolvency and forced liqui - dation of banks are set out in paragraph I, Title XV of the LGB. The LGB distinguishes two sce - narios: • voluntary liquidation, which is governed by Law No 20,720 (the “Bankruptcy Law”); and • all other insolvency situations, which are regulated by the provisions of the LGB. The CMF is responsible for determining the sol - vency of banks. If a bank defaults on an obliga - tion, the manager must immediately notify the CMF, which will assess the bank’s solvency. If solvency is deemed insufficient, the CMF will take appropriate measures under the LGB. If the CMF determines that a bank lacks the sol - vency to continue operating or that the security of depositors or other creditors requires its liqui - dation, the LGB mandates the revocation of the bank’s licence and declaring it subject to forced liquidation. This decision requires prior approval from the Central Bank of Chile. The LGB outlines several legal presumptions under which the CMF may conclude that a bank lacks the solvency to continue operating or that depositors’ or creditors’ security demands its liquidation: • insufficient basic capital – if basic capi - tal, minus accumulated losses reported in financial statements, is less than 3% of risk- weighted assets or 2% of total assets, both net of required provisions, as per Article 67; • insufficient effective equity – if effective equity, minus accumulated losses reported in financial statements, is less than 5% of risk-
weighted assets, net of required provisions, as per Article 67 of the LGB; • projected critical losses – if accumulated losses in two consecutive financial state - ments suggest that, if proportional losses continue over the next six months, the company will fall into one of the situations described in the preceding two points; • rejection of emergency credits – if the com - pany holds overdue emergency credits with the Central Bank and their renewal is denied, provided the commission has issued a sub - stantiated report opposing renewal; and • payment suspension – if the bank suspends payments on its obligations, including those to clearing houses. The CMF’s resolution must be substantiated and must designate a liquidator, who must complete the process within three years. The liquidator will have the powers, duties and responsibilities specified under the LSA and must comply with the obligations imposed by the LGB. Currently, no specific legal requirements are applicable to banking activities concerning envi - ronmental, social and governance (ESG) mat - ters. However, from a regulatory perspective, Gen - eral Regulation No 461, issued by the CMF, establishes certain requirements that issuers of publicly offered securities must include in their annual reports – a framework that is also appli - cable to banks. Accordingly, banks must report how they inte - grate a sustainability approach into their opera - 9. ESG 9.1 ESG Requirements
102 CHAMBERS.COM
Powered by FlippingBook