The subscription by the corporation of the covenant not to dissolve

Abstract

The goal of this paper is to examine the validity and legal consequences of a corporation’s commitment not to dissolve, a covenant commonly found in corporate financing and restructuring agreements. Using dogmatic methodology, the analysis focuses on whether a corporation, through its board of directors, can validly assume such an obligation, given that corporate dissolution is a prerogative reserved to the shareholders’ meeting under Chilean corporate law. We argue that the covenant is valid and binding, as it does not eliminate the shareholders’ power to dissolve the company but rather establishes a contractual obligation not to exercise it, subject to legal remedies. In case of breach, the creditor may seek compensation, contract termination, or even corrective measures, such as corporate reactivation, provided that it is feasible and reasonable.