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The International Comparative Legal Guide to:
Project Finance 2015 4th Edition A practical cross-border insight into project finance Published by Global Legal Group, with contributions from: Abuda Asis & Associates Advokatfirmaet Ræder DA Ali Budiardjo, Nugroho, Reksodiputro Angola Legal Circle Advogados (ALC Advogados) BMT Law Chambers Boga & Associates Bonelli Erede Pappalardo Brigard & Urrutia Clayton Utz Cuatrecasas, Gonçalves Pereira El-Borai & Partners Etude Kabinda/Avocats DRC Gorrissen Federspiel GRATA Law Firm Hajji & Associés Heuking Kühn Lüer Wojtek Khan Corporate Law Koep & Partners
Kyriakides Georgopoulos Law Firm Leges Advokat Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados Milbank, Tweed, Hadley & McCloy LLP Minter Ellison Rudd Watts Mozambique Legal Circle Advogados (MLC Advogados) Nagashima Ohno & Tsunematsu Odvetniki Šelih & partnerji, o.p., d.o.o. Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz Philippi, Prietocarrizosa & Uría Ploum Lodder Princen Severgnini, Robiola, Grinberg & Tombeur Torres Plaz & Araujo Vieira de Almeida & Associados, Sociedade de Advogados, RL Walder Wyss Ltd.
The International Comparative Legal Guide to: Project Finance 2015 General Chapter: 1
Why the World Needs Project Finance (and Project Finance Lawyers…) – John Dewar & Oliver Irwin, Milbank, Tweed, Hadley & McCloy LLP 1
Country Question and Answer Chapters: Contributing Editor John Dewar, Milbank, Tweed, Hadley & McCloy LLP Head of Business Development Dror Levy Sales Director Florjan Osmani Commercial Director Antony Dine Account Directors Oliver Smith, Rory Smith Senior Account Manager Maria Lopez
2
Albania
Boga & Associates: Renata Leka & Besa Velaj (Tauzi)
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Angola
Angola Legal Circle Advogados (ALC Advogados): Catarina Levy Osório & Irina Neves Ferreira 17
4
Argentina
Severgnini, Robiola, Grinberg & Tombeur: Carlos María Tombeur & Matías Grinberg 25
5
Australia
Clayton Utz: Bruce Cooper & Peter Staciwa
33
6
Botswana
Khan Corporate Law: Shakila Khan
44
7
Brazil
Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados: Pablo Sorj & Filipe de Aguiar V. Carneiro 52
8
Chile
Philippi, Prietocarrizosa & Uría: Marcelo Armas M. & Daniel Parodi N.
62
9
Colombia
Brigard & Urrutia: Manuel Fernando Quinche & César Felipe Rodríguez
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12 Egypt
El-Borai & Partners: Dr. Ahmed El Borai & Dr. Ramy El Borai
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13 England & Wales
Milbank, Tweed, Hadley & McCloy LLP: Clive Ransome & Munib Hussain 103
14 Germany
Heuking Kühn Lüer Wojtek: Adi Seffer
15 Greece
Kyriakides Georgopoulos Law Firm: Ioanna I. Antonopoulou & Elisabeth V. Eleftheriades 126
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16 Indonesia
Ali Budiardjo, Nugroho, Reksodiputro: Emir Nurmansyah & Freddy Karyadi 137
17 Italy
Bonelli Erede Pappalardo: Catia Tomasetti & Simone Ambrogi
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18 Japan
Nagashima Ohno & Tsunematsu: Masayuki Fukuda
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19 Kazakhstan
GRATA Law Firm: Shaimerden Chikanayev & Lola Abdukhalykova
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20 Kosovo
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21 Morocco
Hajji & Associés: Amin Hajji
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22 Mozambique
Mozambique Legal Circle Advogados (MLC Advogados): Paula Duarte Rocha & Ana Berta Mazuze 192
23 Namibia
Koep & Partners: Peter Frank Koep & Hugo Meyer van den Berg
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24 Netherlands
Ploum Lodder Princen: Tom Ensink & Alette Brehm
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25 New Zealand
Minter Ellison Rudd Watts: Tom Fail & Steve Gallaugher
217
26 Norway
Advokatfirmaet Ræder DA: Marit E. Kirkhusmo & Kyrre W. Kielland
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27 Philippines
Abuda Asis & Associates: Cornelio B. Abuda & Jehremiah C. Asis
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ISBN 978-1-910083-39-0 ISSN 2048-688X
28 Portugal
Vieira de Almeida & Associados, Sociedade de Advogados, RL: Teresa Empis Falcão & Ana Luís de Sousa 244
Strategic Partners
29 Serbia
Petrikić & Partneri AOD in cooperation with CMS Reich-Rohrwig Hainz: Milica Popović & Ksenija Boreta 254
30 Sierra Leone
BMT Law Chambers: Glenna Thompson
263
31 Slovenia
Odvetniki Šelih & partnerji, o.p., d.o.o.: Blaž Ogorevc & Tilen Terlep
271
32 Spain
Cuatrecasas, Gonçalves Pereira: Héctor Bros & Jaume Ribó
281
33 Switzerland
Walder Wyss Ltd.: Thomas Müller-Tschumi & Alexandre Both
292
34 USA
Milbank, Tweed, Hadley & McCloy LLP: Eric F. Silverman & Simone M. King 301
35 Uzbekistan
Leges Advokat: Nizomiddin Shakhabutdinov & Nail Hassanov
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36 Venezuela
Torres Plaz & Araujo: Federico Araujo & Juan Carlos Garantón
320
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Chapter 8
Chile
Marcelo Armas M.
Philippi, Prietocarrizosa & Uría
1 Overview 1.1
What are the main trends/significant developments in the project finance market in Chile?
As the Chilean economy has a significant mining sector, project finance has been regularly used for many years in the financing of mining projects. Energy and infrastructure projects have also increased in recent years, and almost all of them have been financed through project finance structures. Lately, new regulations have been enacted in Chile requiring the use of non-conventional renewable energy sources in electricity generation, implementing international carbon emission regulations and restricting the use of fresh water in the mining industry. As a result of this, we have seen an increase in renewable generation projects (including river hydroelectric projects, geothermal and wind projects) and desalinisation plant projects, most of which have been financed through project finance structures. 1.2
What are the most significant project financings that have taken place in Chile in recent years?
The most significant project financings in recent years have been in the mining sector (namely the Esperanza, Pelambres, Caserones, Sierra Gorda and Antucoya projects), and the energy sector (the Chacayes, Hydrochile and Punta Palmeras power projects). Desalination projects, such as the Cleanairtech desalination plant project, have increased due to the requirements for desalinated water in the mining industry.
2 Security 2.1
Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?
Under the Chilean legal system, collateral must be specific, which means that the encumbered assets must be identified. Additionally, there are different forms of securities applicable to certain types of assets. Therefore, normally a project financing will involve a number of different collateral deeds covering different categories of assets. It is important to consider that Chilean law, as with all civil law legal systems, provides for the creation of personal rights, i.e. those which can be enforced against a specific person or counterparty (such as a credit), and rights in rem, which can be
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Daniel Parodi N.
enforced in respect of a specific asset against any third party. In such respect, only pledges and mortgages are considered encumbrances that grant a right in rem over the encumbered asset. Other forms of securities such as conditional assignments or assignments by way of collateral, have been adapted from other jurisdictions. However, they are not security interests from a strictly legal point of view, but only contractual obligations, the effectiveness of which could be affected by a bankruptcy situation on the part of the borrower. 2.2
Can security be taken over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground)? Briefly, what is the procedure?
Real property is encumbered through a mortgage, which must be executed by a public deed granted before a Chilean notary public and registered in the real estate registry of the area where the property is located. Plants, machinery and equipment can be pledged through a pledge without conveyance, which is granted by public deed or by a notarised private instrument, and registered in the Registry of Pledges without Conveyance. Although in theory a plant could be pledged as a unit, the standard practice is to specify the most valuable and relevant parts in order to ensure that the pledgee will be able to enforce its preference on such parts, even if they have been separated from the plant and transferred to third parties. 2.3
Can security be taken over receivables where the chargor is free to collect the receivables in the absence of a default and the debtors are not notified of the security? Briefly, what is the procedure?
Security over receivables is created by a pledge on credits, and such pledge will only be perfected vis-à-vis the borrower under the receivable when it has consented to the pledge or when it has been notified of the pledge through a judicial notification. The most common case of security on receivables in a project finance is the pledge on sales contracts in respect of minerals, and in such cases the counterparties under each sales agreement expressly consent to the pledge. Please be advised that in those cases the pledges become effective only in the event of default, but it is legally possible to agree that the secured party will collect on the receivables even before the default occurs. 2.4
Can security be taken over cash deposited in bank accounts? Briefly, what is the procedure?
Chilean law does not permit the creation of a pledge on accounts –
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2.5
Can security be taken over shares in companies incorporated in Chile? Are the shares in certificated form? Briefly, what is the procedure?
Security can be taken over shares in a Chilean corporation. If the secured obligation is a direct obligation of the owner of the shares, the normal form of pledge is a pledge over securities in favour of banks governed by a special statute. If the borrower under the secured obligation is not the same entity as the holder of the shares (normally this is the case in a project finance, in which the shareholders of the borrower are requested to pledge their shares), the pledge normally used is the commercial pledge established in the Chilean Commercial Code. The normal execution procedure requires the execution of a public deed before a Chilean notary public, the delivery of the certificates representing the shares and the registration of the pledge in the shareholders’ registry of the company; such registration must be made by a notary public. Shares of Chilean corporations are always issued in certificated forms (shares certificates or titles), and the delivery of the shares certificates is an element of perfection of the pledge. Finally, shares can also be pledged under a pledge without conveyance. The normal execution procedure requires the execution of a public deed before a Chilean notary public or the execution of a notarised private instrument, the registration of the pledge in the Registry of Pledges without Conveyance and the registration of the pledge in the shareholders’ registry of the company; such registration must be made by a notary public. As a pledge without conveyance, the delivery of the certificates representing the shares is not required, which is useful when pledging shares whose titles have not been physically issued.
2.8
Are any regulatory or similar consents required with respect to the creation of security over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground), etc.?
No consent is required in connection with mortgages, or in connection with pledges that are created on a physical asset as opposed to a right or credit. In such case, the mortgage or pledge will grant the pledge a right on the asset, which can be enforced against any third party, provided the registration process has been complied with. It is precisely this registration that constitutes the means of publicity of the encumbrance, and grants it a priority over any third party claim. Regulatory consents are required in the case of pledges of rights that are granted by a governmental resolution. In project finance, it is usual for the investment made by the project sponsors to be brought into the country under a foreign investment contract with the Chilean government represented by the Foreign Investment Committee; such contract will grant the investor the right to remit abroad the proceeds from the liquidation of its investment. In all such cases the lenders will request that rights such as those of foreign investors be encumbered in their favour; such encumbrance is made through a conditional assignment, which must be notified to the Foreign Investment Committee.
3 Security Trustee 3.1
Regardless of whether Chile recognises the concept of a “trust”, will it recognise the role of a security trustee or agent and allow the security trustee or agent (rather than each lender acting separately) to enforce the security and to apply the proceeds from the security to the claims of all the lenders?
The cost of perfecting the security will depend on the type of assets and their number; it is not possible to provide a referential price.
Chile recognises the institution of the Collateral Agent, which is an entity that has been appointed locally to accept the collateral on behalf of the lenders, and to exercise any rights that the lenders may have in respect of the collateral. The appointment of the Collateral Agent is made in a public deed executed by the lenders and the borrower, and every time a new lender becomes party to the syndicate of lenders, it should execute an accession deed, in order to become a secured party in respect of the existing collateral. Pursuant to the appointment deed, the Collateral Agent will be entitled to take enforcement action upon instructions from the lenders, and deliver to the lenders the proceeds from such enforcement action. Please note that the local Collateral Agent is normally a local entity, and is different from the Administrative Agent, which is always a foreign bank that represents the lenders. The Administrative Agent will be the entity that will instruct the local Collateral Agent to take any action in respect of the collateral in Chile.
2.7
3.2
2.6
What are the notarisation, registration, stamp duty and other fees (whether related to property value or otherwise) in relation to security over different types of assets (in particular, shares, real estate, receivables and chattels)?
Do the filing, notification or registration requirements in relation to security over different types of assets involve a significant amount of time or expense?
The registration process will depend on the type of security being created. The registration of a pledge on shares in the shareholders’ registry of the company is the simplest and most expedient of all registrations, which can be perfected immediately. Registration in the registries of commerce (in the real estate and pledge subregistries) and the Registry of Pledges without Conveyance are considerably slower and even vary from registry to registry, some of which are more efficient than others.
Chile
only the money deposited in the accounts can be pledged; this will require the creation of a new pledge on each new money deposit made in the specified accounts. For these purposes, the borrower should grant in favour of the Chilean account bank or collateral agent a power of attorney authorising the execution of the pledges on behalf of the borrower. It is important to consider that, as under Chilean law the traditional pledge is perfected with the conveyance of the pledged asset, the accounts to be used in the pledge on money should not be current accounts of the borrower, but internal accounts of the bank, in order to ensure that conveyance has taken place and that, therefore, the pledge has been perfected.
Chile
If a security trust is not recognised in Chile, is an alternative mechanism available (such as a parallel debt or joint and several creditor status) to achieve the effect referred to above which would allow one party (either the security trustee or the facility agent) to enforce claims on behalf of all the lenders so that individual lenders do not need to enforce their security separately?
Chilean law does contemplate the existence of a trustee.
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Chile reorganisation process – will have access to all the debtor’s books and documents but the debtor does not lose the administration of its business. This procedure’s purpose is to restructure the debtor’s assets and liabilities in agreement with its creditors. The period between the notification of the Reorganisation Decree and the date in which the judicial reorganisation agreement is executed, is called the Financial Protection Period; such period can have a maximum duration of 30 days, extendable up to two consecutive additional periods of 30 days; such extensions will be granted at the request of the debtor, to the extent they are supported by two or more creditors representing at least 30% of the total credits (i.e. secured and unsecured credits), in the case of the first extension request, and at least 50% of the total credits, in the case of the second extension request. Additionally, the Financial Protection Period can be further extended once, in each of the following circumstances: (i) if the majority of the creditors agree to suspend the creditors’ meeting in which the reorganisation agreement will be discussed, a new meeting will be called within the next 10 days and the Financial Protection Period will continue in force until the new meeting; and (ii) if the creditors reject the proposed reorganisation agreement they can offer the debtor the possibility to submit a new proposal, in which case a new meeting will take place 20 days after the meeting in which the agreement was rejected and during that time period the Financial Protection Period will continue in force. Thereafter, no further extension of the Financial Protection Period will be permitted, and the maximum possible length of the Financial Protection Period is 120 days.
4 Enforcement of Security
Chile
4.1
Are there any significant restrictions which may impact the timing and value of enforcement, such as (a) a requirement for a public auction or the availability of court blocking procedures to other creditors/the company (or its trustee in bankruptcy/ liquidator), or (b) (in respect of regulated assets) regulatory consents?
Chilean law requires that every mortgage or pledge be enforced through a public auction carried through a court procedure. It is not possible for a secured party to take self-help measures in respect of the encumbered assets. The only exception to the general rule is the pledge on credits, which allows the secured party to collect on the credit when it becomes due, and apply to the outstanding debt any proceeds from that collection. As a consequence of the foregoing, the enforcement of a mortgage or pledge will normally be subject to the usual delays associated with any court proceeding. With respect to regulatory consents, as indicated in question 2.8 above, they are only required in respect of certain rights, such as the assignment of rights under foreign investment contracts, or pledges of concessions granted by government entities. In all such cases, since the enforcement of the collateral will result in the assignee becoming the holder of such assigned rights, it will have to undergo the same approval process before the relevant governmental entity as any other applicant that requests such right or concession. 4.2
Do restrictions apply to foreign investors or creditors in the event of foreclosure on the project and related companies?
There are no restrictions for foreign investors or creditors. Foreign exchange regulations were liberalised many years ago, although there can be no assurance that future restrictions will not be imposed. In general, investors and lenders will be subject to the rules and regulations in force at the time they intend to remit the proceeds from their investment or loan. The only exception is the investors that perfect their investment under a foreign investment agreement with the Chilean government, since such agreements always grant to the investors a guaranteed access to the regulated foreign exchange market in order to obtain foreign currency and remit abroad the proceeds from their investments. Although it has been debated whether lenders under loans that were granted in connection with the foreign investment could benefit from such guaranteed access in connection the payments of principal and interest, in our view the protection would only be applicable to remittances of proceeds associated with the equity investment.
5 Bankruptcy and Restructuring Proceedings 5.1
How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the security?
The Chilean Insolvency and Liquidation Law (in force since October 2014) provides two different proceedings for insolvent debtors: A.
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The Reorganisation Procedure: In this procedure only the debtor may submit a request of voluntary reorganisation to the court. The Veedor – the public official in charge of the
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During the Financial Protection Period the law imposes a stay of execution that prevents all creditors from taking any enforcement of their credits and from recovering any leased asset solely as a result of a default due to the Reorganisation Procedure.
B.
The Liquidation Procedure: In this procedure the debtor or one of its creditors must submit a request of liquidation to the court. After the court’s Liquidation Decree the Liquidador – the public official in charge of the liquidation process – will take over the administration of all of the debtor’s present assets. There is no minimum requirement for the amount of debt or number of creditors that can submit a request of liquidation of a debtor.
The Liquidation Decree imposes a stay of execution that prevents creditors from taking any independent enforcement of their credit rights; nevertheless, secured creditors are exempted from such stay and can enforce their mortgages and pledges, provided there are sufficient funds to cover any credits that have a preference pursuant to applicable law.
5.2
Are there any preference periods, clawback rights or other preferential creditors’ rights (e.g. tax debts, employees’ claims) with respect to the security?
According to the Insolvency and Reorganisation Law, revocation actions can be enforced against the following acts undertaken by the debtor within one year prior to the commencement of the insolvency proceedings: a.
All voluntary prepayments. When Chilean law refers to prepayments it refers to voluntary prepayments and does not include mandatory prepayments upon acceleration.
b.
All payments of past-due debts which are made in a different form of payment than the one agreed in the original agreement.
c.
All mortgages, pledges or other collateral granted by the debtor in order to secure already existing obligations.
In the case of gratuitous acts, i.e. those in which the debtor did not receive any reciprocal benefit, and also in the event that any of the above listed transactions may have been entered into with related
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Additionally, any other actions undertaken or any other agreements executed by the debtor within two years prior to the commencement of the insolvency proceedings may be revoked if both of the following circumstances are proven in trial: a.
the counterparty had knowledge of the bad state of business of the debtor; and
b.
the act causes losses to the bankruptcy creditors or alters the equality that should exist among the creditors, taking into consideration their preferences as set forth by the law.
In connection with preferential credits, the bankruptcy regulations set forth which credits will have priority over any other credit: such preferred credits include social security payments, workers’ compensations and unpaid taxes. 5.3
Are there any entities that are excluded from bankruptcy proceedings and, if so, what is the applicable legislation?
Banks are subject to a special insolvency procedure set forth in the Banking Law. Government-owned companies and entities created by law are not subject to bankruptcy proceedings; if they become insolvent, their obligations should be assumed by the central government through the ministry to which the company was responsible. 5.4
Are there any processes other than court proceedings that are available to a creditor to seize the assets of the project company in an enforcement?
No, any attachment of assets must be made through a court procedure; no self-help measures are permitted under Chilean law. 5.5
Are there any processes other than formal insolvency proceedings that are available to a project company to achieve a restructuring of its debts and/or cramdown of dissenting creditors?
The Insolvency and Reorganisation Law has created two different settings by which a debtor and its creditors may agree on a reorganisation/restructuring of the debtor’s debts and assets, prior to entering a liquidation procedure: 1.
2.
Reorganisation Procedure: In this procedure only the debtor may submit a request of voluntary reorganisation to the court. The Veedor – the public official in charge of the reorganisation process – will have access to all the debtor’s books and documents but the debtor does not lose the administration of its business. The purpose of this procedure is to allow a debtor to restructure its assets and liabilities in agreement with its creditors. Simplified Reorganisation Agreement: In addition to the judicial reorganisation process, any debtor may enter into a simplified debt restructuring agreement, with two or more creditors representing three quarters of the total debts of the borrower, or of a class of such debts (i.e. credits that are secured with mortgages or pledges and unsecured credits). Such agreement must be filed with a court and published on the website of the bankruptcy regulator; within 10 days of such publication, the court may summon any creditor that may be affected by the agreement. If no creditor presents an objection during such period, or if such objections are resolved, the court will issue a resolution approving such reorganisation agreement.
5.6
Please briefly describe the liabilities of directors (if any) for continuing to trade whilst a company is in financial difficulties in Chile.
The directors of a Chilean stock corporation have three general and fundamental duties: care; loyalty; and honesty. If directors do not comply with the referred duties, they shall be liable for the damages caused to the company, shareholders and third parties. In addition, please note that directors are also subject to criminal liability, since our Penal Code punishes the agents or those who resemble them, such as managers and legal representatives of legal entities, in mismanagement and misappropriation cases. Moreover, if the company is declared bankrupt, the directors can be criminally charged if they incur specific actions and/or omissions during their functions (e.g. if the company made disproportionate donations, if it hid assets, or if it assigned its assets to third parties after a liquidation procedure has commenced).
Chile
parties, the time limit will be extended up to two years prior to the commencement of the insolvency proceedings.
Chile
6 Foreign Investment and Ownership Restrictions 6.1
Are there any restrictions, controls, fees and/or taxes on foreign ownership of a project company?
There is no restriction on foreign individuals or entities owning a project company in Chile. 6.2
Are there any bilateral investment treaties (or other international treaties) that would provide protection from such restrictions?
Chile has entered into a large number of bilateral investment protection treaties, which provide, among other matters, for fair and equitable treatment, non-discrimination provisions, limitations on expropriation, and most-favoured-nation clauses in some cases. 6.3
What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected?
The Chilean Constitution recognises and protects property rights. Expropriation is only permitted in the case of a public necessity and requires the payment of adequate compensation. In addition, the Foreign Investment Statute (Decree Law 600) sets forth certain rights and benefits for foreign investors, including tax invariability.
7 Government Approvals/Restrictions 7.1
What are the relevant government agencies or departments with authority over projects in the typical project sectors?
Any project likely to have an environmental impact and which is included in a list of projects and activities set forth in the law, must obtain environmental approval from the Environmental Assessment Service. In addition to that, each project will be subject to different permits from other authorities, depending on the type of project, such as the Forestry Authority, the Ministry of Health, the Water Authority and the Maritime Authority. Municipal permits are also required in respect of construction activities.
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Chile
7.2
Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?
Certain security documents granted in Chile (mortgages, certain pledges on assets and pledges on shares) should be registered in public registries in order to be valid and enforceable in Chile. Also, borrowers shall report to the Central Bank of Chile the financial terms and conditions of the loan agreements they enter into with foreign lenders, although non-compliance with such obligation will not affect the enforceability of the loan agreement and the rights of the lenders. Finally, in the case of foreign documents, in order for them to be admissible as evidence in judicial proceedings in a Chilean court, they must be translated into Spanish by an official translator of the Chilean Ministry of Foreign Affairs. 7.3
Does ownership of land, natural resources or a pipeline, or undertaking the business of ownership or operation of such assets, require a licence (and if so, can such a licence be held by a foreign entity)?
The only licence requirement is the municipal licence granted by municipality of the domicile of the business, which requires the payment of an annual fee. No licence is required for the ownership of real estate, but such ownership requires the payment of a property tax. Mining concessions for exploration require the payment of a fee. All such licences can be held by a foreign entity. 7.4
Are there any royalties, restrictions, fees and/or taxes payable on the extraction or export of natural resources?
A special Mining Industry Tax or Royalty is applicable to copper mining activities with annual sales of 12,000 metric tons of fine copper or more; the effective tax burden will be calculated depending on the volume of annual sales. This tax is in addition to the regular income tax applicable to the mining activities. 7.5
Are there any restrictions, controls, fees and/or taxes on foreign currency exchange?
Chile 7.7
Can project companies establish and maintain onshore foreign currency accounts and/or offshore accounts in other jurisdictions?
Yes, they can. 7.8
Is there any restriction (under corporate law, exchange control, other law or binding governmental practice or binding contract) on the payment of dividends from a project company to its parent company where the parent is incorporated in Chile or abroad?
No, but the payment will be subject to withholding taxes as set forth in question 7.6. 7.9
Are there any material environmental, health and safety laws or regulations that would impact upon a project financing and which governmental authorities administer those laws or regulations?
The Environmental Law requires that any project likely to have an environmental impact and which is included in a list of projects and activities set forth in the law, must obtain an environmental approval from the Environmental Assessment Service. The environmental approval will cover environmental and most health matters, will impose on the company the obligation to obtain specific permits from different governmental entities, and may also impose restrictions on the project. Safety laws and regulations are also applicable to projects, although compliance with them will not be as complex as compliance with the environmental regulations. 7.10 Is there any specific legal/statutory framework for procurement by project companies?
No, procurement is subject to general civil and commercial law.
8 Foreign Insurance 8.1
Are there any restrictions, controls, fees and/or taxes on insurance policies over project assets provided or guaranteed by foreign insurance companies?
No, the only obligation is that certain transactions must be made through regulated entities such as banks and must be reported to the Central Bank of Chile.
No, there are not.
7.6
8.2
Are there any restrictions, controls, fees and/or taxes on the remittance and repatriation of investment returns or loan payments to parties in other jurisdictions?
As a general rule, the remittance of profits or dividends from Chile to a party located abroad is subject to a 35% withholding tax. In the case of dividends, any corporate tax paid by the operating company on the income relating to those dividends (currently at a rate of 18.5%) can be used as a credit against the withholding tax. In case of interest payments on foreign loans, they will be subject to a reduced 4% withholding tax rate in the case of loans granted by offshore banks and financial institutions.
Are insurance policies over project assets payable to foreign (secured) creditors?
Yes, as general rule, insurance policies are always endorsed in favour of the lenders, who are appointed as loss payees in the same.
9 Foreign Employee Restrictions 9.1
Are there any restrictions on foreign workers, technicians, engineers or executives being employed by a project company?
No, there are not.
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10.1 Are there any restrictions, controls, fees and/or taxes on importing project equipment or equipment used by construction contractors?
There are no restrictions on importing project equipment or construction equipment. 10.2 If so, what import duties are payable and are exceptions available?
The general import duty is 6%; however, lower rates may be applicable pursuant to applicable tax treaties with different jurisdictions. Temporary admission of equipment can also be an option.
11 Force Majeure 11.1 Are force majeure exclusions available and enforceable?
Yes. Under the Chilean Civil Code force majeure is defined as an unforeseen event that is impossible to avoid. It must be noted that, in order to qualify as force majeure, an event must render the fulfilment of the obligations impossible, not just more burdensome.
12
Corrupt Practices
12.1 Are there any rules prohibiting corrupt business practices and bribery (particularly any rules targeting the projects sector)? What are the applicable civil or criminal penalties?
There is no specific regulation regarding criminal activities and corrupt practices in project sectors. However, depending on the nature of the specific project, certain activities can be considered criminal activities under antitrust laws, foreign exchange regulations, banking regulations, tax regulations, customs regulations, corporate confidentiality regulations, regulations on bribery of government officers, etc. The penalties associated with such types of conduct may range from fines to imprisonment, depending on the nature of the crime.
13 Applicable Law 13.1 What law typically governs project agreements?
It will depend on the type of agreement and the counterparties. Contracts entered into with a local counterparty will be subject to Chilean law; others entered into with non-Chilean parties may be subject to foreign law. 13.2 What law typically governs financing agreements?
Normally they are governed by foreign law, usually New York law; however, lenders always request promissory notes governed by Chilean law for collection purposes.
13.3 What matters are typically governed by domestic law?
Any collateral granted on assets located in Chile must be governed by Chilean law. Promissory notes are also governed by Chilean law.
14 Jurisdiction and Waiver of Immunity 14.1 Is a party’s submission to a foreign jurisdiction and waiver of immunity legally binding and enforceable?
Chile
10 Equipment Import Restrictions
Chile
Yes, except that in the case of transactions with the Chilean government, immunity cannot be waived in respect of certain assets. Also, article 226 of the Mining Code of Chile prohibits the attachment and judicial sale of a debtor’s mining concessions and installations and other goods permanently dedicated to exploration or extraction of minerals relating to those mining concessions, except with respect to mortgages. However, a debtor may consent to such attachment and sale, provided that the consent is given in the same judicial proceeding in which the attachment and sale is sought.
15 International Arbitration 15.1 Are contractual provisions requiring submission of disputes to international arbitration and arbitral awards recognised by local courts?
Yes, they are. 15.2 Is Chile a contracting state to the New York Convention or other prominent dispute resolution conventions?
Chile is a party to the New York and Panama Conventions, the PanAmerican Convention on Private International Law and the ICSID Convention. Additionally, Chile has executed: several free trade agreements, including with the United States, the European Union, China, Canada and Japan; economic complementation agreements, including with MERCOSUR; and over 40 bilateral investment treaties recognising arbitration as one of the available dispute resolution mechanisms. 15.3 Are any types of disputes not arbitrable under local law?
Criminal matters and certain family matters, such as alimony disputes and matters involving the representation and rights of minors, cannot be submitted to arbitration. 15.4 Are any types of disputes subject to mandatory domestic arbitration proceedings?
Among the most relevant matters subject to mandatory arbitration are those relating to the partition and liquidation of estates, issues arising from the rendering of accounts by administrators and issues arising between partners or shareholders in a company or corporation.
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Philippi, Prietocarrizosa & Uría
Chile
16 Change of Law / Political Risk
granting cure periods in respect of the contracts. The negotiation of such agreements is complex, as some local counterparties refuse to become obligated under foreign law and subject to foreign courts.
Chile
16.1 Has there been any call for political risk protections such as direct agreements with central government or political risk guarantees?
We have not seen any such concerns in recent project financings.
17
Tax
17.1 Are there any requirements to deduct or withhold tax from (a) interest payable on loans made to domestic or foreign lenders, or (b) the proceeds of a claim under a guarantee or the proceeds of enforcing security?
Interest payments are subject to a 4% withholding tax, provided they are paid to a lender that is a foreign bank or a foreign financial institution. Payments to other lenders are subject to a 35% withholding tax. Please also note that as a general rule loans are subject to a stamp tax at a current rate of 0.4%, which will increase to 0.8% on 1 January 2016. 17.2 What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?
Investments are subject to the general 35% withholding tax. The only benefit is the 4% withholding applicable to interest payments made on offshore loans granted by foreign banks and financial institutions and on bonds issued by Chilean issuers.
18
Other Matters
18.1 Are there any other material considerations which should be taken into account by either equity investors or lenders when participating in project financings in Chile?
One of the complexities that we have seen in recent project financings is the request by the lenders of direct agreements to be entered into by counterparties to the project company, including EPC contractors, operators, offtakers and energy suppliers, by which those counterparties enter into direct commitments with the lenders,
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18.2 Are there any legal impositions to project companies issuing bonds or similar capital market instruments? Please briefly describe the local legal and regulatory requirements for the issuance of capital market instruments.
The public issue of securities in the local market is only permitted to the extent both the securities and the issuer are registered with the Chilean Superintendency of Securities and Insurance (“SVS”). Nevertheless, the SVS has issued a general resolution pursuant to which certain offers will not be considered public offerings to the extent they are addressed to a limited number of institutional investors defined by the regulations of the SVS, that they are not made through mass media, and that the issuer provides to the investors information as to the fact that the securities are not registered in Chile. The issuance of bonds or securities abroad does not have any restriction or special requirement, other than those applicable to standard loan financing.
19
Islamic Finance
19.1 Explain how Istina’a, Ijarah, Wakala and Murabaha instruments might be used in the structuring of an Islamic project financing in Chile.
This is not applicable in Chile. 19.2 In what circumstances may Shari’ah law become the governing law of a contract or a dispute? Have there been any recent notable cases on jurisdictional issues, the applicability of Shari’ah or the conflict of Shari’ah and local law relevant to the finance sector?
This is not applicable in Chile. 19.3 Could the inclusion of an interest payment obligation in a loan agreement affect its validity and/or enforceability in Chile? If so, what steps could be taken to mitigate this risk?
This is not applicable in Chile.
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Chile
Marcelo Armas M.
Daniel Parodi N.
Philippi, Prietocarrizosa & Uría El Golf 40 p. 20 Las Condes Santiago Chile
Philippi, Prietocarrizosa & Uría El Golf 40 p. 20 Las Condes Santiago Chile
Tel: +56 2 2364 3738 Fax: +56 2 2364 3796 Email:
[email protected] URL: www.ppulegal.com
Tel: +56 2 2364 3707 Fax: +56 2 2364 3796 Email:
[email protected] URL: www.ppulegal.com
Marcelo Armas is a partner in the Banking and Finance Group at Philippi, Prietocarrizosa & Uría, with extensive experience in different types of financing transactions. He has represented lenders in the financing of mining projects, hydroelectric, wind and solar energy projects, desalination plants, and acquisition of aircraft and sea vessels. He also has substantial experience in advising the lenders in syndicated financing and 144A/Reg S bond issuances made by Chilean companies abroad. Mr. Armas has a law degree from the University of Chile and an LL.M. from the Law School of the University of Chicago.
Chile
Philippi, Prietocarrizosa & Uría
Daniel Parodi is an associate in the Banking and Finance Group at Philippi, Prietocarrizosa & Uría, with extensive experience in different types of financing transactions. He has represented lenders in the financing of mining projects, hydroelectric, wind and solar energy projects and desalination plants, as well as in aircraft financing and leasing transactions. He also has substantial experience in advising the lenders in syndicated financing and 144A/Reg S bond issuances made by Chilean companies abroad. Mr. Parodi has a law degree from the Pontificia Universidad Católica of Chile.
Philippi, Prietocarrizosa & Uría is the first major Ibero-American law firm. The firm, which is born from a merger between the Chilean law firm Philippi, Yrarrázaval, Pulido & Brunner and the Colombian law firm Prietocarrizosa, is also the first integration in Latin America between major leading law firms in their respective jurisdictions. The prestigious Iberian law firm Uría Menéndez also took part in the merger, holding a 30% stake in the new firm. The firm’s Santiago office is one of the strongest players in banking and financing, and has represented leading financial institutions in the most relevant transactions that have been made in the Chilean market in recent years in the areas of project and asset financing, mining and energy, aviation financing, bond issuances and syndicated financing transactions.
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