Assignment of Receivables
Other Types of Security Interest

There are a number of ways to create a security interest over the assets of a person, including a mortgage, a pledge or the assignment of receivables.

Under Chilean law, both mortgages and pledges do not transfer ownership to secured parties. Rather, the mortgage and the pledge create the following general rights in favour of the security holder:

  • the right to foreclose on collateral, with the proceeds used to pay the obligations secured thereunder;

  • the right to be paid in preference to other creditors with the proceeds arising from the foreclosure of collateral, provided that in the event of bankruptcy certain preferred credits (eg, bankruptcy estate costs, workers' compensation and overdue taxes) may be paid or secured with the proceeds; and

  • the right to make a claim against the collateral regardless of who is in actual possession (a mortgage or pledge confers upon the mortgagee or pledgee a right in rem).

Foreclosure of collateral is achieved by way of court proceedings, pursuant to which secured obligations are paid for with the proceeds obtained from the sale of the collateral at a public auction. If there are no bidders at the auction, the collateral may be awarded to the secured party as payment. Repossession of collateral is not available as an alternative to foreclosure.


There are several kinds of pledge that could be created in order to secure either specific or general obligations. Possession of the collateral may remain with the pledgor or may be delivered to the secured party. Two special pledges where possession of a company's assets remains with the pledgor are (i) the industrial pledge, and (ii) the pledge without delivery. Both enforce the liability of the debtor for any damages sustained by the pledgee.

Pledge without delivery
The Pledge Without Delivery Act 1982 provides that all types of existing or future obligations may be secured by a pledge created on any type of personal asset, including raw materials and inventory. In addition, pledges without delivery may not only secure specific obligations, but may also be used as a general guarantee to secure any future obligations between the parties. Pledged assets must be kept at specific locations agreed by the parties, from where they cannot be moved without the pledgee's prior authorization. Where the pledgee authorizes the pledgor to transfer the pledged assets to third parties, these assets should be replaced by any future assets of a similar nature thereafter acquired by the pledgor. The pledge without delivery is intended to cover assets that are part of the normal trade of the pledgor, and therefore does not stop the party from continuing its business (despite the existence of a security interest on the assets).

Industrial pledge
Industrial pledges create a security over specific personal assets to guarantee obligations relating to industrial businesses. Under the Industrial Pledge Act 1935, security can be created on:

  • industrial machinery;

  • equipment and inventories, including raw materials; and

  • shares, bonds and other securities.

Industrial pledges require the creditor's consent to allow the pledgor to transfer the pledged asset or to move it from the agreed location.

Under both the pledge without delivery and the industrial pledge, secured parties may be paid with priority over other creditors.

Pledges terminate when:

  • the secured obligation is fully discharged;

  • the secured party acquires ownership of the pledged asset; or

  • the asset is destroyed (except when dealing with a pledge without delivery, when destroyed assets will be replaced with future assets similar in nature and any insurance proceeds will take the place of the assets).

Pledge of shares
Shares in a Chilean corporation can be pledged in favour of foreign banks to secure obligations undertaken by domestic borrowers. The foreclosure procedure that applies to this kind of pledge is much faster than the regular procedure. This type of pledge (prenda de valores mobiliarios en favor de los bancos) must be registered in the shareholders' ledger of the corporation.

However, in the case of shares representing equity in a mining company, this special pledge would not be available. Therefore, a pledge pursuant to the terms of the Civil Code may be created. This seems the only available route as contractual mining companies are not covered by the special pledge, nor are they within the scope of a commercial pledge. Delivery to the secured creditor (or third party) of the certificates representing the pledged shares is necessary, and the foreclosure procedure applicable to this pledge does not differ from those applicable generally to other collaterals.


Certain types of asset may be subject to a mortgage. Possession of the mortgaged asset remains with the mortgagor, and the mortgagee has no right of repossession. Foreclosure must be conducted through the courts, the purpose of which is to sell the collateral (at public auction) and pay the secured obligations with the proceeds.

Mortgages on real estate can secure both specific and general obligations. Mortgages on real estate extend to any and all personal assets deemed to be realty, based on their relation to the mortgaged real estate. Therefore, constructions and personal assets used or intended to be used in connection with the real estate are also subject to the mortgage. Water rights may be subject to mortgages.

Exploitation and exploration mining concessions can also be subject to mortgages. A mortgage can be created to secure specific and general obligations. Pursuant to the provisions of the Mining Code, mortgages on mining concessions extend to personal assets which are used on a permanent basis, either to exploit or to explore the relevant ore. Mortgages on mining concessions do not grant the secured party the right to request the improvement or replacement of the mortgaged asset, as is available in the case of real estate mortgages. An exception is made in the case of gross negligence or wilful misconduct of the mortgagor, or unless otherwise agreed. In these cases the secured party may request that the mortgagor improve the quality of the collateral where the latter has been damaged or lost, or replace it with a similar one. If the mortgagor does not agree, the secured party may accelerate the outstanding debt.

Assignment of Receivables

One of the main problems related to the assignment of receivables in international trade is that of determining the extent of the rights that are being assigned (also those rights that relate to the validation of the assignment of future receivables and anti-assignment clauses). Thus, every legal system aims to enact rules that provide certainty to the parties involved.

In accordance with conflict of law rules, in the absence of a governing law provision, the formal and substantive requirements of a purchase and assignment agreement are governed by the laws of the place where the agreement is executed. However, all of the effects of the agreement (ie, the rights and obligations arising from it) that take place in Chile shall be controlled by Chilean law.

Under general contractual principles, the name that parties give to a specific transaction, as well as the technical and literal terms in which it may be framed or structured, are irrelevant when it comes to determining its precise nature and substance. Consequently, they are also irrelevant for the purpose of deciding the legal and regulatory provisions that will govern the transaction. General contractual principles require the lawyer to look into the substance of a transaction, and into the intention of the parties involved.

The Civil Code and the Commercial Code provide that an assignment of credit or receivable is perfected between the assignor and the assignee by means of the delivery of the title for the credits or receivables.

Under the same law provisions, the purchaser and assignee is considered the true holder of the credit, as far as the obligor and all other third parties are concerned (including the obligor's creditors). This is the case after due notice has been given to the obligor that the sale and assignment of the relevant credit has taken place.

Notice must be given by a ministro de fe (usually a notary public), by showing the obligor the title to the assigned credits or receivables. A statement signed by the assignor evidencing the assignment must also be shown.

The assignee may also be considered the true holder of the credit as far as the obligor and all other third parties are concerned, by way of express or implied acceptance of the assignment by the obligor. An implied acceptance would consist of payment of any sum owed under the receivables or any action taken by the obligors from which their acceptance may be inferred.

Miscellaneous provisions
If the assignment is completed with the obligors and third parties by service of notice, the obligors may reserve any personal rights (eg, rights of set-off and compensation) they would have been able to exercise against the assignor. This is provided that the reserve of rights is made when the notice of the assignment is served on the assignor or within three days from the date the notice is served. If, however, the obligors have accepted the assignment unconditionally, then they are not entitled to claim against the assignee any personal rights they may have against the assignor.

Prior to the assignment notice being served on the obligors, or the acceptance of assignment by them, title to the credit or receivable is deemed to be held for all purposes by the assignor. Consequently, (i) any payment that the obligors may make on account of the credit or receivable shall fully discharge the obligors, and (ii) any credit or receivable may be validly attached or seized by the creditors of the assignor.

The sale and assignment of a credit or receivable includes everything which is an accessory or ancillary to the same (eg, personal guarantees, collateral, pledges and privileges).

Pursuant to Chilean law, the seller and assignor of a credit or receivable is understood by law to warrant its existence at the time of the assignment (although no warranty at all is contemplated in the assignment agreement). However, the seller and assignor is not understood to warrant the solvency of the obligors unless it has agreed to do so. In such an event, the warranty extends only to the present solvency of the obligors and not to their future solvency (unless expressly given by the assignor).

Other Types of Security Interest

Insurance policies
Security interests can be created on insurance policies so as to secure obligations in favour of third parties. This is done by issuing the relevant policies in favour of the secured party as an 'additional loss payee', with delivery of the policy to the secured party.

Commercial paper and promissory notes
Commercial paper and promissory notes can also be delivered as security in favour of a creditor, transferring ownership to the secured party. The creditor's signature and a statment that the document is endorsed as security is all that is required to create the security interest.

Contracts and agreements
Contracts or agreements entered into by the debtor may also be assigned to a creditor as security. Where the secured obligations are due and payable, the secured creditor may notify the counterparty so that payment may only be discharged by paying the secured creditor. The secured creditor would then be able to collect all amounts due and request fulfilment.

For further information on this topic please contact Cristian Eyzaguirre at Claro y Cia by telephone (+56 2 367 3000) or by fax (+56 2 206 0658) or by e-mail ([email protected]).

The materials contained on this web site are for general information purposes only and are subject to the disclaimer.