Stabilisation and restructuring law in Chile

COVID-19 epidemic arrived in Chile in the last days of February. As of this date, reports informed that approximately 30,000 people are infected and 320 people have died due to this virus. Since March 15, the government and municipalities have adopted multiple measures to control the propagation of this virus, and to minimize damages in the Chilean economy. In the following answers, CMS Carey & Allende provides a brief explanation of the economic measures that Chilean government and regulatory institutions have adopted and/or implemented as of this date. It is highly probable that additional measures will be taken in the following days and months.

The following short-term compensation schemes have been implemented:

1. Payment of all invoices issued by the State: The respective providers must invoice all the products that are sold and service that are provided to the State. Normally, the State has the obligation to pay these invoices on a 30, 60, 90 or 180 days term. In order to help providers, the State has informed that all invoices will be paid in full in the first days of April, accelerating any payment term. This measure will grant immediate liquidity for companies in approximately USD 1 billion. Also, any invoice that is issued from April will be paid on a 30 days term.
2. USD 500 million capitalization of a public bank: Banco Estado, a bank that is owned by the State, has been capitalized in USD 500 million. The aim of this measure is to permit this bank to finance people and small and medium enterprises (“SME”). This measure will increase the credit capacity of this bank in approximately USD 4.4 billion.
3. Economic Emergency Plan: The government will allocate USD 11,750 million to face the economic crisis caused by the Coronavirus
4. COVID-19 Bonus: The government will provide a bonus for 2 million unemployed people. The total amount that will be provided is USD 130 million.
5. Solidarity Fund: The State created a solidarity fund of USD 100 million to address social emergencies due to the drop-in sales.
6. Emergency Family Income: The government will provide an additional bonus for USD 802 million that will benefit at least 4.5 million people. Each person will receive approximately USD 85.

The following measures have been adopted and/or implemented:

1. Installments Deferral: Possibility of deferring up to six installments in the payment of mortgage loans. The deferral is not considered as a renegotiation of the loan agreement.
2. Mortgages Surplus: The Financial Market Commission, public body that supervised bank and financial activities in Chile, will issue a regulatory amendment to allow the use of surplus mortgage guarantees to guarantee new loans to SMEs.
3. Margin Calls: The Financial Market Commission issued an amendment to the treatment of the amount in cash that banks must maintain as collateral for the margin of variation of derivative operations cleared bilaterally. In periods of high volatility in the exchange rate, "margin calls" are generated by derivative contracts that are held with banking institutions.
4. Basel III: The Financial Market Commission has already begun a review in the implementation schedule of the Basel III standards for the Chilean market.

The following medium to long-term stabilization measure have been adopted and/or implemented:

1. Constitutional State of Exception: A State of Catastrophe was decreed for 90 days from March 19 and it is currently in full force.
2. Quarantine: This measure has been adopted in locations with high number of infected people. More than 60% of the communes of Santiago (capital city of Chile) are under quarantine.
3. Curfew: A national curfew was decreed between 22:00 and 05:00 hrs. from March 22 to reduce social contact and facilitate the inspection of people who must comply with mandatory quarantine.
4. Employment Protection Law: Employers and employees have the possibility of accessing a temporary suspension of their labor agreements. Employees maintain their social security and remain with their contracts. The employer must continue to pay the social security contributions, and the employees will be able to access the payment of wages from the unemployment insurance. The law benefits 4.5 million people, with formal salaried jobs for a fixed and indefinite term, which are affiliated to unemployment insurance.
5. Economic Emergency Plan: The government will allocate US $ 11,750 million to face the economic crisis caused by the Coronavirus.
6. Education: Classes are suspended indefinitely and work is being done to promote the continuity of studies.
7. Commerce: Since March 21, cinemas, theatres, restaurants, pubs, discotheques, gyms and independent sporting events that gather the public are closed and cancelled indefinitely.
8. Transport:  Public transport will continue to operate, but with greater sanitation measures and new schedules.
9. Border Control: The closure of land, sea and area borders for the transit of foreign people was decreed as of March 18. This will not affect the entry and exit of cargo or carriers, to continue guaranteeing the normal supply of the country. The government decreed customs and sanitary cords in specific areas of the country to control the spread of the virus between regions

The governments and other public entities have presented all these measures. EU and antitrust bodies must not be notified. 

The majority of the measures do not establish requirements. However, some benefits are contemplated only to companies denominated small and medium enterprises, which are companies that met the following requirements:

1. Average gross income in the last three years does not exceed 75.000 UF (approximately USD 2.5 millions); and,
2. At the time of SMEs starting activities, its effective capital must not exceed 85,000 UF(approximately USD 2.8 millions).

Regarding the right of employers to suspend employment agreements, a new requirement has been approved which consists in the impossibility to distribute dividends above the obligatory minimum (30% of the last fiscal year earnings)  during the suspension period.

Not decreed so far.

Subsidiaries and branches of foreign holding companies domiciled or with operations in Chile can apply in the same terms than entities controlled by local companies.

The Financial Market Commission have recommended the banks to maintain an adequate risk management and establish prudent dividend distribution policies, based on the exposure and risks they face in the new situation. It is the responsibility of the corporate governments of each entity to ensure that this occurs.

According to general rules. No measures have been adopted. 

Only measures to avoid insolvency events have been adopted and implemented. Insolvency regulation has not been amended.

None.

None.