BANK FINANCE AND REGULATION Multi-Jurisdictional Survey SECURITY OVER COLLATERAL. CHILE Claro & Cia.

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1 BANK FINANCE AND REGULATION Multi-Jurisdictional Survey SECURITY OVER COLLATERAL CHILE Claro & Cia. CONTACT INFORMATION José María Eyzaguirre B. Claro & Cia. Apoquindo 3721, piso 13 Las Condes, Santiago, Chile Can assets be charged, liened and/or encumbered in your jurisdiction? Please insert any exemptions, if any. Article 445 of the Civil Procedure Code includes a list of the assets that may no be attached. Among others, salaries and child support up to certain amount, the household assets (bed, clothes, etc.), working tools and assets employed in services that may not be stopped with serious harm to the public transportation or health. Except for the aforementioned list, there are no restriction on the assets of a given debtor that may by given as collateral. 2. In your jurisdiction, under what circumstances may security arrangements be subjected to choice of law and/or choice of forum clauses (does it matter, whether the security itself is located abroad and/or governed by foreign law [e.g. a pledged claim])? What is the market practice in your jurisdiction? Is there a treaty on this in your jurisdiction, whether bilateral or multi-lateral? Are there any requirements for enforcement in your jurisdiction? A lender taking security over and/or from a Chilean company should be aware of the rules governing choice of law and enforcement of foreign judgments in Chile.

2 In this regard, please be aware that any security interest granted over assets located in Chile shall be governed by Chilean law and subject to the jurisdiction of Chilean courts, but the principal loan agreement may be governed by a foreign law and subject to the jurisdiction of courts sitting abroad: Chilean laws afford the parties certain latitude to choose the applicable law to agreements creating obligations and covenants (also known as rights in personam), provided there are reasonable contacts with the foreign jurisdiction chosen. Conversely, as a matter of public policy, agreements affecting rights over property located in Chile (also known as rights in rem) shall necessarily be governed by Chilean law, and the parties to them may not opt for a different law. Under Chilean law, a fully perfected security interest creates a right in rem over the collateral, which grants the creditor the right (i) to claim and judicially repossess the collateral from any third party, (ii) to force the sale of such collateral in a judicial proceeding, and (iii) to claim a preference for payment over the proceeds of such sale (subject, of course, to general statutory priorities under Chilean law). The salient characteristic of the rights in rem is that the holder may enforce them against any third party erga omnes. Consequently, they are specifically listed in the Civil Code, and it is not possible for the parties to create a new one by means of an agreement (as opposed to obligations and covenants, which are only enforceable against the other parties to the respective agreement, and the parties are, generally, free to create them). As a result, if the parties intend to obtain a security interest which grants the creditor the aforementioned right in rem, they shall necessarily comply with the applicable Chilean laws establishing such security interest. In other words, the execution and perfection of, and then the performance and enforcement of, a security interest over property located in Chile shall be subject to Chilean law. Should the lenders obtain a foreign judgment for the payment of money under the loan agreement, the issue to elucidate then is whether the Supreme Court of Chile will recognize and authorize the enforcement of such foreign judgment in Chile. As mentioned before, the choice of foreign law and jurisdiction will be recognized in Chile to the extent there are reasonable contacts with such foreign law and jurisdiction. The contacts that the court will consider are, among others, the place of business of each of the parties, the place where the parties executed the respective agreement and the place of performance of each transaction under the agreement. And, a final and conclusive money judgment rendered by a foreign court shall be recognized by and be enforceable in the courts of Chile without any retrial or reexamination of the merits of the original action under the following circumstances:

3 if there is a treaty between Chile and the country where the judgment was rendered with respect to the enforcement of foreign judgments, the provisions of such treaty shall be applied; if there shall be no treaty, the judgment will be enforced if there is reciprocity as to the enforcement of judgments (i.e. the relevant foreign court would enforce a judgment of a Chilean court under comparable circumstances); if it can be proved that there is no reciprocity the judgment cannot be enforced; if reciprocity cannot be proved, the judgment will be enforced if it has not been rendered by default within the meaning of Chilean law. A judgment should not be considered to have been rendered by default if personal service of process was made upon the Chilean party or its process agent, assuming such manner of service to be valid under the corresponding law, unless the defendant was able to prove that due to other reasons it was prevented from making use of its legal means of defense. But under Chilean law the service of process by means of mailing copies to the defendant will not be deemed effective to cause proper service of process and, consequently, any judgment rendered in a legal proceeding in which process was served by means of mailing copies to the defendant may be then effectively contested by the defendant in Chile; and in all events the judgment shall not be contrary to the public policy of Chile and shall not affect in any way properties located in Chile, which as a matter of Chilean law are governed exclusively to Chilean law and subject to the jurisdiction of courts sitting in Chile. With respect to public policy and the enforcement of foreign judgments, generally, any provisions purporting to authorize conclusive determinations by any person whether for interest, indemnities, costs or otherwise may not be enforceable if such determinations are so arbitrary and unreasonable as to be contrary to basic and fundamental principles of Chilean law. Also, disclaimers of liability will only be enforceable if there is no gross negligence or willful misconduct on the part of the person benefiting from such disclaimers. Finally, to the extent an agreement authorizes a party to exercise self-help remedies or entitle a person to benefit from enforcement proceeds resulting from foreclosure of collateral in respect of which a third party holds a security interest, any such section may be deemed to be contrary to basic and fundamental principles of Chilean law. 3. In your jurisdiction, are floating charges or security over the overall assets of an entity, and if so in what terms? No. Generally floating charges or security interests over after-acquired property are not available. Should a creditor intend to obtain a security interest over a generic kind of assets that the debtor is constantly acquiring, transforming and/or selling, or over afteracquired property, it shall obtain a new security interest over such assets once acquired.

4 And, in this regard, note that the grant of a security interest to secure a previously existing obligation may be successfully challenged in a bankruptcy proceeding, if granted within the statutory claw-back period of two years set fort by the Bankruptcy Act, counted from the bankruptcy declaration. Having said that, note that the Without under Law no. 18,112 contemplates a floating lien over inventory, raw materials, elaborated and semielaborated products and spare parts. Such collateral may be used, transformed and sold by the pledgor, to the extent authorized by the pledgee, and the new assets acquired by the pledgor shall be subrogated to those already sold by the pledgee, up to the value amount of the original collateral. The Without under Law No (not yet in effect) contemplates a similar regulation. 4. In relation to the following types of assets, please explain in your jurisdiction the types of security that can be created or granted, if the security requires any type of registration or perfection requirements, an estimate of cost (including applicable taxes and any other duties/ costs) and timing for granting such security, and any special considerations regarding the asset type: (a) Aircraft; (b) Bank Accounts; (c) Animals, Crops (in ground and severed) and Timber; (d) Equipment; (e) Intellectual Property; (f) Inventory; (g) Leases; (h) Mineral Interests, including Hydrocarbons; (i) Promissory Notes and Chattel Paper; (j) Real Estate; (k) Receivables (credit rights under contracts or invoices); (l) Rights under Contracts (excluding Receivables); (m)shares (in book-entry and certificate form and other securities); (n) Vessels; (o) Vehicles; (p) Business as an ongoing concern. Annex A hereto includes an outline of the different security interests available under Chilean law, the formalities for granting and perfection, the obligations that may be secured and the assets that may be pledged: Annex A Security Interest Formalities Perfection Secured Obligations Asset Mortgage deed Registration in Any obligations Real estates, Mortgages aircrafts and pública) Registry General guaranty clause major vessels

5 Security Interest Formalities Perfection Secured Obligations Asset Civil deed Commercial deed recorded (protocolizado) Delivery collateral Delivery collateral of of Junior liens Any obligations Only specific obligations Junior liens not Only obligations derived from acts of commerce (actos de comercio), as defined by the Commercial Code Movable assets Movable assets Only specific obligations 1 Industrial deed Registration in Industrial Registry Junior liens not Only obligations derived from industrial activities General guaranty clause Movable assets that are part of an industry 2 over Assets acquired with Deferred Purchase Price deed Registration in Special Registry Junior liens Only deferred purchase price obligations Certain movable assets 1 To be terminated once Law. No. 20,190 enters into effect (see footnote 4). 2 To be terminated once Law. No. 20,190 enters into effect (see footnote 4).

6 Security Interest 3 Without (Law No ) over Securities in favor of Banks 4 Without (New) (not available yet, pending regulation) Formalities Perfection Secured Obligations Asset deed ation of Any obligations Movable assets abstract in pública) Official Gazette General Floating lien guaranty clause over raw materials and inventory deed deed Delivery collateral of Registration in Without Registry Junior liens Any obligations General guaranty clause presumed Junior liens not Any obligations General guaranty clause Junior liens Securities Movable assets Floating over materials inventory lien raw and Annex B hereto distinguishes per each relevant asset, the different security interest that may granted over them as of today, and the formalities for perfection: Annex B Asset Security Perfection Interest Real estate Mortgage Registration in the Mortgages Registry of the Real Estate Registrar where the real estate is located Facilities, machinery Industrial and Registration in the Industrial Registry of the Real Estate Registrar where the asset is located other movable Without ation of an abstract in the Official Gazette assets (Law No ) Motorized vehicles Industrial Registration in the Industrial Registry of the Real Estate Registrar where the asset is located and in the Motorized Vehicles National Registry 3 To be terminated once Law. No. 20,190 enters into effect (see footnote 4). 4 Established by Law. No. 20,190. It will enter into effect 90 days after the publication in the Official Gazette of a Regulation to be issued by the Ministry of Finance and the Ministry of Justice (currently in the process of being drafted).

7 Receivables and other credits Without (Law No ) Civil Commercial ation of an abstract in the Official Gazette and registration in the Motorized Vehicles National Registry Delivery of the document evidencing the credit and the pledgor shall instruct the debtor, by means of a process server, that payment if such credit shall be done to the pledgee Delivery of the document evidencing the credit and the pledgor shall instruct the debtor, by means of a process server, that payment if such credit shall be done to the pledgee Inventory Industrial Registration in the Industrial Registry of the Real Estate Registrar where the asset is located Without ation of an abstract in the Official Gazette (Law No ) Goodwill / Without ation of an abstract in the Official Gazette intellectual property rights (Law and registration in the applicable registry (i.e. No. trademarks, licenses, copyrights) ) Shares Civil Delivery of share certificates and registration in Shareholders Registry Commercial Delivery of share certificates and registration in Shareholders Registry Industrial Delivery of share certificates, registration in the Industrial Registry of the Real Estate Registrar where the asset is located and registration in Shareholders Registry 5. Please explain briefly for each type of assets the procedure for enforcement (judicial and extra-judicial). Is it possible to enforce security governed by another jurisdiction? If yes, what is the procedure? Under Chilean law, foreclosure of collateral is obtained by means of certain legal proceedings before a Chilean court, pursuant to which secured obligations are paid with the proceeds obtained from the sale of the collateral concerned at a public auction. Should there be no bidders at the relevant public auction, collateral may be awarded to the secured party in payment of the secured obligations. Chilean law does not provide for the repossession of collateral as an alternative to foreclosure. The length of the foreclosure proceedings will depend on how active the debtor is in defending itself. Normally, it may take anywhere between six months and one year. Should the asset being foreclosed be leased to third parties, in the same foreclosure proceedings the pledgee or mortgagee may request that the court attach the rents payable to the pledgor or mortgagor. If granted, the court will order that the lessee be notified that payment of rents be made in the court's account in the name of the pledgor or mortgagor.

8 The debtor may resort to a limited number of defenses to avoid foreclosure on the encumbered property. In the case of mortgages and pledges the debtor may allege, among other, payment of the obligation secured, lapse of the statute of limitations to request payment, nullity of the obligation secured, etc. As regards the statute of limitations of the action to request payment of the obligation secured, this is of five years, and of three years to request it through a summary proceeding. Both terms are computed from the date in which the obligation became due and payable. If the obligation secured is declared extinguished by the lapse of time, the same will happen to the pledge or mortgage securing it. Finally, under Chilean law, it is not possible to enforce security governed by another jurisdiction (please refer to our answer to question 2). 6. Can a trustee or security agent be used in your jurisdiction, or must security be granted in favour of all lenders? A trustee or security agent can be used. 7. In bankruptcy or insolvency scenarios, what are the suspect periods, is clawback possible, and what other types of rights (tax debts, employees, etc.) have preference over security granted? The Bankruptcy Act considers several acts and contracts of the debtor as preferential transfers, which may be avoided. This is the case of any mortgages or pledges created over assets of the debtor for the purpose of securing previously existing obligations, and entered into within the term beginning ten days prior to the date on which a debtor in bankruptcy ceased to make payment of its obligations through the date of the bankruptcy declaration. The date on which a debtor is deemed to have ceased to make payment of its obligations shall be the date on which the first past due debt became payable; provided, however, that such date cannot be more than two years prior to the date of the bankruptcy declaration. Certain credits are afforded by law a preferred status, even over secured credits. This is the case of judicial costs incurred for the general benefit of creditors, other bankruptcy expenses, remunerations of workers and family allowances, social security contributions, tax withholdings and surcharges, and up to ten months of severance pay per each worker. Regarding the enforcement of collateral, please note that from the date of the bankruptcy declaration, the unsecured creditors lose their right to individually foreclose on the bankruptcy estate. Conversely, secured creditors are generally free to foreclose and apply the execution proceeds raised upon the foreclosure of its mortgage, pledge or other security interest to the amounts owed and secured thereby. In fact, a secured creditor usually does not need to wait until the completion of the bankruptcy proceeding to receive the proceeds of the foreclosure or return such proceeds to the estate. In certain cases, however, whenever it appears that claims for preferred credits would not be satisfied in full from the proceeds of the sale of other assets of the debtor, the secured creditors who have foreclosed on their collateral may be required to deposit a

9 reasonable portion of the proceeds obtained therefrom to cover the existing deficiency or to otherwise secure payment thereof in full. If such credits cannot be satisfied with the proceeds obtained in the liquidation of other assets of the estate, such deposits would be applied to cover any existing deficiency and the secured creditors could be even required to return additional amounts if the deposits thus made are not sufficient to pay the existing deficiency. Otherwise, the proceeds on deposit would be returned to the secured creditors up to the actual sum of money owed to them. Under the Bankruptcy Act, a secured creditor is barred from foreclosing in three special circumstances during a bankruptcy proceeding: if creditors with right to vote holding at least two-thirds of outstanding claims decide that the debtor should continue carrying on business, a secured creditor would be barred from foreclosing if such creditor has agreed to the same; if creditors holding more than one half of the outstanding claims decide that all or a portion of the assets of the debtor shall be sold as an economic unit and such unit encompasses assets covered by a mortgage, pledge or another security interest, a secured creditor may not foreclose thereon. Instead, such creditor would have a first priority claim against the proceeds of the sale of the assets concerned; or if creditors holding an amount at least equal to 51% of the outstanding claims support a proposal for the reorganization of the business of the debtor concerned, secured creditors would be barred from foreclosing for a period of 90 days from the date on which the order of the bankruptcy court summoning the creditors to a creditors meeting to discuss the proposal is notified. 8. In your jurisdiction, can borrowers or guarantors subordinate their claims and if so in what terms? Yes. 9. What are the consequences of a transfer, assignment or novation of an underlying credit in your jurisdiction (is new security necessary, is the security automatically transferred, etc.) Security interests are regulated by the Civil Code as ancillary agreements, for the purpose of securing performance of a principal agreement. Hence, as ancillary in nature, the rights and obligations arising under the same follow the principal agreements. Therefore, unless otherwise provided in the respective agreements, should a creditor assign its rights under a certain loan secured by a given guaranty or security interest, the assignee shall benefit from such guaranty or security interest in the same terms and conditions of the assignor. Please note, however, that sometimes certain formalities apply. For example, the Without Act provides that the assignment of the existing security interest shall be executed before a notary public by means of a public deed.

10 Finally, note that novation, under Chilean law, involves the replacement of one obligation by another, being the former terminated. As such, unless expressly agreed by the pledgor, a security interest granted to secure the original obligation will not survive the novation and will not secure the new obligation. 10. Can you have on top of a security in your jurisdiction, another layer consisting of an assignment of the collateral concerned conditional upon default by the debtor? Generally, no. It may be seen as a form of repossession not permitted by Chilean law. 11. Are step-in rights lawful in your jurisdiction or does any action to take control require the creditors to go through a court process? Generally, no. A similar result is obtained by means of irrevocable powers of attorney granted by the debtor, which are triggered upon a default.