A new law that sets special norms for small and medium-size businesses entered into force last Febrary 3rd 2010 in Chile. Law N° 20.416 protects SMBs with provisions of the Consumer Protection Law, including the possibi­lity of filing class actions.

Executive Summary

On February 3, 2010, Law 20,416 (“SMB Statute”) was publis­hed in the Official Gazette, which establishes special rules forSmall Size Businesses (“SSBs”).

The new law defines, for the first time ever, what are micro,small and medium-sized businesses, on the basis of the salesrevenues:

a) Micro business: Annual sales and service revenues (netof VAT and excise tax) of up to 2,400 UF.

b) Small business: Annual sales of 2,401-25,000 UF.

c) Medium-sized business: Annual sales of 25,001 – 100,000 UF.

This new law makes most of the provisions under the Consu­mer Protection Law extensive to SSBs with regard to supplierrelations. In other words, SSBs are “consumers” in their rela­tions vis-à-vis their suppliers.

Consequently, in their relations with customers that qualify asMSBs, companies must implement the principles recognizedin this Law and which fall back on the Consumer Protection Law, which will require businesses to review practices andprocesses such as mass contracting, remote contracting,warranties, advertising and information to SSBs.

Moreover, SSBs may file class action suits against theirsuppliers, either directly or through the trade associations towhich they belong.

I.-Modifications in relation to Consumer Protection:

The most relevant innovation introduced by the new law in thissphere was to provide that micro and small-sized companies(“MSBs”) generally have the same rights as any consumer does when they purchase from their suppliers, and theserights cannot be subject to ex-ante waivers.

Consequently, some provisions under the Consumer Protec­tion Law are applicable to consumer relations between smalland micro businesses. Following are the matters consideredmost relevant.

a) Consumer rights and duties: the right to retract isapplicable to relations between SSBs and their suppliers,and the most general principles that regulate consumerrelations: i) right to receive true, timely information, ii) non­discrimination; iii) free choice of goods and services; and iv)total safety and repair.

Suppliers must therefore adhere to the aforementioned princi­ples in their relations with SSBs.

b) Supplier obligations: suppliers are required to comply withthe terms, conditions and modalities on which it offers oragrees to provide a service.

Likewise, electronic contracting of goods and services between SSBs and suppliers must adhere to the provisionsunder the Consumer Protection Law in all matters relating tothe creation of consent, confirmation of contracting, completeand clear access to contractual terms, among other things.

c) Conscionable stipulations and performance of adhe­sion contracts: adhesion contracts used by suppliers cannotinclude unconscionable clauses. Otherwise, those clauses orthe contract in its entirety may be voided.

Likewise, all formal requirements for adhesion contracts mustbe complied with (legibility, font size and language).

d) Liability for breach: the provisions related to productwarranties will apply to relations between SSBs and theirsuppliers, with a statutory warranty in favor of SSBs.

Likewise, electronic contracting of goods and services between SSBs and suppliers must adhere to the provisionsunder the Consumer Protection Law in all matters relatingto the creation of consent, confirmation of contracting,complete and clear access to contractual terms, amongother things.

c) Conscionable stipulations and performance of adhe­sion contracts: adhesion contracts used by supplierscannot include unconscionable clauses. Otherwise, thoseclauses or the contract in its entirety may be voided.

Likewise, all formal requirements for adhesion contractsmust be complied with (legibility, font size and language).

d) Liability for breach: the provisions related to productwarranties will apply to relations between SSBs and theirsuppliers, with a statutory warranty in favor of SSBs.

e) Information and advertising: provisions related to advertising, spamming, promotions and offers shall applyto SSBs in their relations with suppliers.

f) Promotions and offers: see e) above.

g) Credit: if suppliers extend credit to SSBs in the purcha­se of goods or services, all the regulations under the Con­sumer Protection Law must be complied with in relation toreporting and collection duties.

II.- Role of SERNAC

SERNAC has no competent jurisdiction in relation to MSBs, i.e. it cannot mediate to look for an out-of-court solution (as it does with other consumers).

Now, the SMB Statute says that MSBs do have the right to press charges for violations of the Consumer Law at a Local Police Court (the court seated at the location where the violation took place or where the act or contract was performed or executed or performed is competent, at the plaintiff’s discretion), thus pursuing all the sanctions and indemnifications deemed applicable (all governed by the Consumer law). Also, MSBs can file class action suits. Trade associations that group said MSBs may also bring class actions.

To impose fines, the judge must be particularly mindful of the amount of the claim, the objective parameters that define the supplier’s duty to act professionally, the extent to which information is asymmetrical between the offender and the victim, the benefit obtained from the violation, the seriousness of the damages caused, the risk to which the victim or community is exposed and the financial situation of the offender.

Please contact us if you have any doubts or questions.

Kind regards.