Divestment in Chile – 2020

“Divestment as a tool for the preservation of value in times of crisis,” was the topic addressed by the lawyers of the Chirgwin Peñafiel Law Firm, in the workshop held on January 17 at the Santiago Chamber of Commerce.

In their presentation, lawyers Maria Paz Aguirre, Macarena Bedregal and Juan Ignacio Santa María answered, from the commercial, financial and tax aspects, one of the most difficult questions for national entrepreneurs today, that is: HOW TO RESPONSIBLY TAKE STRATEGIC DECISIONS IN MY COMPANY, IN THE CRITICAL TIMES THAT RUN TODAY IN THE COUNTRY?

Thus, together with them, we inform ourselves that, at a comparative level, Divestment has been established as a highly effective long-term strategy for the containment and strategic reduction of corporate expenses in the face of a significant and sudden change in market conditions.

The Divestment allows reducing or eliminating the less aspected activities of a certain line of business, through the sale of all or part of the company, the cessation of some branch or activities of the company, the reduction of investments, or rightly the withdrawal of a specific market in the face of new risks to dedicate efforts in those business lines with the greatest potential, thereby generating greater value for shareholders, and preventing a loss of business assets and, in extreme cases, an eventual forced liquidation.

For the success of a Divestment strategy, multidisciplinary aspects (legal, financial, tax, etc.) must be considered, and the appropriate time to carry it out, prioritizing a fluid process, avoiding errors, delays in transactions, labor contingencies, extraordinary costs, lost opportunities, regulatory risks and devaluation of the company due to external contingencies.

In turn, Divestment tools are varied and can be found both in internal processes of the same companies and in external strategies.

However, comprehensive advice prior to the decision of Divestment is essential for the success of the same (s), so as to allow foresee fundamental aspects for its execution, such as:
1. Promote the optimization of resources and departments of the company, eliminating or minimizing, to the maximum, possible legal or tax contingencies of the process;
2. Prepare in advance the sale of the required unit (s), through an appropriate Sell-Side Due Diligence, that collects the legal, accounting and financial information necessary for the analysis of future buyers;
3. The review and examination of the possible ways of solving the company’s liabilities;
4. The precise determination of the final tax burden of the shareholder or company generated on the occasion of the Divestment.

Finally, their recommendation was to take advantage of the summer period, to evaluate the possible adoption of a Divestment strategy, with a view to a more restricted market in 2020 and beyond.

Link to the Cámara de Comercio de Santiago magazine.

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