Practical Law Multi-Jurisdictional Guide 2012 Finance

PRACTICAL LAW MULTI-JURISDICTIONAL GUIDE 2012 FINANCE

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Panama

Rodrigo Cardoze and Ricardo M Arango* www.practicallaw.com/5-504-2177 Arias, Fábrega & Fábrega

OVERVIEW OF THE LENDING MARKET Public works concessions, covenants and easements, rights of way and other rights arising out of immovable property. 1. What have been the main trends and important developments in the lending market in your jurisdiction in the last 12 Ships and other similar vessels are classified as movable property months? under shipping law, allowing them to be mortgaged (see below, Formalities).

In the past 12 months there has been a slight trend towards capi- Common forms of security tal markets financing. While more straightforward loan financing The most common form of security over immovable property is a remains popular, borrowers are tapping into the loan capital market real property mortgage. to take advantage both of investors’ high liquidity in Panama, and the tax advantages afforded to financing that is structured through Formalities the local stock exchange. To create a mortgage, the registered owner of the land must enter into a mortgage contract with the lender using a public deed. This FORMS OF SECURITY OVER ASSETS must be executed before a notary public in Panama, and then Real estate recorded and filed at the Public Registry Office. In addition, to enforce the mortgage contract, the obligation(s) contained within 2. What is considered real estate in your jurisdiction? What are it must be “clear and past due”. This means that the terms of the the most common forms of security granted over it? What contract must be clearly stated, including the: formalities are required? Amount payable. Country Q&A Date when that amount becomes due. Real estate Real estate in Panama is called “immovable property” and Special rules apply to ships and other vessels. A mortgage on a includes the following: Panamanian vessel can be granted once it is registered provisionally in Panama and title has passed to the borrower. The vessel must be Land and buildings, including roads and constructions that registered before the mortgage can be granted, and the mortgage are annexed to the land. itself must also then be registered. There is no specified form for

Trees, plants and produce that are annexed to the land. the mortgage of a vessel, and it can be in any form or language, and contain any lawful covenant, term or condition. This mortgage Property that is annexed or fixed to the land in such a way can also secure any type of obligation, whether existing, simple, that it cannot be removed without damaging either the land conditional or future. or the property. Tangible movable property Statues, paintings and other objects of “use or decoration” that are placed by the owner of the object with the intention of permanently affixing them to the land. 3. What is considered tangible movable property in your jurisdiction? What are the most common forms of security Machinery, vessels, instruments or tools used by the owner granted over it? What formalities are required? of the land to exploit or work on the land, or property on the land, which are essential for that exploitation or work. Tangible movable property Animal nurseries (and other similar breeding sites) that the owner places on the land with the intention of permanently Tangible movable property includes all property that can be trans- affixing them to the land. ported from one point to another without damaging the immovable property to which it is attached. This includes aircraft (see below, Fertiliser in the land and fertiliser used to cultivate the land. Common forms of security). Mines, quarries, and slag heaps, together with still or moving water. Plant and machinery can constitute immovable property, depending on their use, and some property generally considered to be movable Dikes and property constructed on water that is intended by nature (such as ships) can be subject to real estate mortgages to remain in a fixed point in a river, lake or on the coastline as a result of special legislation (see Question 2, Real estate). (even though they are floating).

Common forms of security encumbered a second time. Persons found to have granted a chattel Pledge. Pledges are the most common form of security granted mortgage on a previously encumbered chattel can be subject to over tangible movable property. A pledge can be created over any sanctions (including imprisonment) under the Criminal Code. tangible movable property that is located in Panama and is capable of being possessed and delivered. If the borrower defaults on the Financial instruments obligation to the lender, the lender’s recourse is to execute the pledge and sell the tangible movable property in question. 4. What are the most common types of financial instrument over which security is granted in your jurisdiction? What Chattel mortgage. Tangible movable property can only be mort- are the most common forms of security granted over those gaged if it is individually identifiable and capable of independ- instruments? What formalities are required? ent description. The purpose of a chattel mortgage is to allow the encumbered movables to remain in the possession of their owner (in contrast to the pledge) (see below). Tangible movable property Financial instruments that has already been attached to mortgaged land cannot be mort- The most common type of financial instrument over which gaged separately. Chattel property can also not be remortgaged security is granted is shares. until the first mortgage has been released. Chattel mortgages cannot exceed a four-year term, unless the lender is a banking Common forms of security entity and the loan is for industrial, agricultural or agro-industrial Pledges are the most common form of security granted over financial projects. If the borrower defaults on the obligation to the lender, instruments, although shares held in dematerialised form must be the lender’s recourse is to execute the chattel mortgage and sell pledged through their brokerage account (see below, Formalities). the tangible movable property in question. Formalities Mortgages over aircraft. Aircraft can be mortgaged under the Convention on International Interests in Mobile Equipment 2004 A pledge can be created for certificated shares by: and the Protocol to the Convention on International Interests in Executing a pledge agreement. Mobile Equipment on Matters Specific to Aircraft Equipment 2006. Delivering the share certificates (with blank stock powers) Formalities to either:

Pledge. A pledge must be created in writing, either by executing a the lender; or public deed or by executing a private document. A pledge executed in a public deed automatically affects third parties on its execution. a third-party custodian mutually appointed by both the However, a pledge created by a private document will only affect lender and the borrower. third parties when one of the following events occurs: The share certificates must subsequently remain at all times

The pledge is registered in an official registry. in the lender’s or custodian’s physical possession.

The pledge is registered in a notary’s registry. Recording the pledge on the company’s register of shares.

One of the signatories to the pledge dies. There are no other formalities that apply, except when dealing with the shares of a company that has a concession agreement with The pledge is executed in the presence of a notary. the government of Panama. In this instance, the consent of the The pledge is delivered to any other public official in the government is usually required prior to the granting of the pledge.

Country Q&A exercise of an official function. Shares held in dematerialised form cannot be pledged in the same There is an act before a public official which allows a court to determine the certain date of the pledge. way as certificated shares, because it is impossible to meet the requirement that the lender take physical possession of the shares. The pledge must be delivered to a creditor or depositor, although Instead, the brokerage account that manages the dematerialised this delivery can be real or symbolic. The rules governing the sale shares is usually given as security. A pledge over the brokerage of movables, which also apply to delivery of the movable, should account can be granted either by a private contract, or by a public be applied to ensure that the pledge is “delivered” as required deed. In both cases, the signatures must be notarised. If the by law. A sold movable is considered to be delivered when either: pledge document is entered into, or issued, outside of Panama, the signatures will need to be apostilled or authenticated by the It is placed in the power and possession of the purchaser. Panamanian consul. The keys are delivered to the location where the good is stored (on the granting of a public deed). Claims and receivables

There is an agreement between the parties recognising 5. What are the most common types of claims and receivables delivery where the item cannot be physically transferred to over which security is granted in your jurisdiction? What are the purchaser at the time of the sale. the most common forms of security granted over claims and receivables? What formalities are required? Chattel mortgage. The property subject to a chattel mortgage must be capable of being “specifically identified and described” in the chattel mortgage contract. The mortgage contract must be Claims and receivables executed in a public deed and registered at the Public Registry Office. This registration effectively gives notice to the public that The most common type of claims and receivables over which a particular chattel is encumbered and can neither be sold, nor security is granted are rights under contracts.

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formalities required? granted or can only be granted with difficulty? Which assets are difficult or problematic when securitythem? is granted over How Are Signed by both parties. Registered in the Public Registry Office. Total amount of indebtedness. Total Repayment schedule.

To release real property mortgages and chattel mortgages, a public public a mortgages, chattel and mortgages property real release To be: must mortgage the cancelling deed Once the money has actually been paid out, deed (known as a marginal a notation) must then be filed with the supplementary Public Registry incorporating those missing details, so that the mortgage documentation as a whole is complete. Since recorded mortgages are satisfied in the order of this Public type Registry, of mortgage (hipoteca the initialde máximo) is a filing at the useful financial instrument. A pledge can also be created over future movable property. this case, the sale of the property must be perfected so that title In is deemed to transfer to the lender subject only to the condition is property the Once future. the in arise actually property the that deliver must asset, future the of seller as borrower, the generated, the movable property previously sold, since the lender will have pre-paid the price pursuant to the financing. contract sales the obligation, delivery its satisfy to borrower the For must be executed in the form of a public deed. This allows the contracting parties delivery to constitute can take deed advantage public a of of the execution the Civil that provides Code, which formality. this under sold property movable (future) of Fungible assets Pledges can be granted over fungible assets (for example, funds in a bank account). These pledges frequently contain negative covenants (for example, a requirement that the account not be liquidated). Fungible assets that are payable at and time can also a be assigned, by a fixedsimple endorsement, if the place document is payable “to the order of” the beneficiary. Other assets There are no other assets that are difficult to grant security over, or that cannot have security granted over them. RELEASE OF SECURITY OVER ASSETS 9. are common forms of security released? Are any Problem assets 8. there types of assets over which security cannot be disbursements Future assets subsequent for security as created be can mortgage A the of some or where even future closes, obligations. It transaction is the time possible the at to mortgage execute and record the determined, time, the at not, are a of mortgage elements essential the: as such about this publication, please visit about Practical please Law visit Company, a private contract between contract private a

FOR MORE FOR see below, Formalities). Copyright can INFORMATION over which security is granted in your jurisdiction? What are the most common forms of security granted over intellectual property? What formalities are required? deposits? What What Include language to ensure the bank specifically recognises Include language to ensure the bank specifically in favour of that the cash deposits have been pledged control and the pledgee, and that the pledgee now exerts custody of said cash deposits. Be acknowledged by the bank.

If the cash deposits are in favour of a third-party pledgee that is not not is that pledgee third-party a of favour in recommended are is it deposits cash held, the If are deposits cash actual the where bank the pledgee: the and pledgor the between agreement pledge the that the pledgor and pledgee. There are no specific formalities other at signing. than notarisation of the parties’ signatures The most common by form granted usually is Security pledges. of security over cash deposits are This is necessary to meet the “delivery” requirement which is an essential element of all pledges in Panama. A transfer of intellectual property (other than copyright) must be registered with the Directorate General of the Industrial Property Industrial Propiedad la de Registro del General (Dirección Registry de Panama) (DIGERPI), before it can be enforced against third parties. Copyright must be registered with the Copyright Office of the Ministry of Education. of Transfers copyrights must be in writing to be effective against third parties. Formalities Common forms of security marks, trade and designs patents, including property, Intellectual can be freely transferred under the laws applicable for each type of intellectual property ( also be freely transferred. However, any transfer of the rights to future works, or any negative pledge prohibiting a person from creating future works, is void. Intellectual property security which over property intellectual of types common most The copyrights. and marks trade designs, patents, are granted is Intellectual property 7. are the most common types of intellectual property 6. are the most common forms of security over cash Cash Assignments are created by private documents between the assignor assignor the between documents private by created are Assignments circumstances certain In agent). security their (or assignee the and (such as a power purchase to its agreement) the consent also must consent person(s) owing the the claims/receivables the under agreement, or right debt purchase power a of case the In assignment. required. also is agency regulatory utilities public the of Formalities Common forms of security Common forms The most common form of receivables security is an assignment. An assignment granted passes the right(s) over claims and of the assignor (the owner of the claims or receivables) agent). assignee (or their security to the FINANCE MULTI-JURISDICTIONAL GUIDE 2012 MULTI-JURISDICTIONAL GUIDE 2012 FINANCE

Pledges are usually released by returning the property over which Retention of title the pledge was granted. For example, in the case of a pledge over Retention of title is not possible in Panama, as the fundamental shares, the original share certificate should be returned and the aspect of a pledge is that title is transferred from the borrower corresponding annotation should be made in the share registry. to the lender.

It is also common (although not required) for the parties to the Other structures pledge agreement to sign a private agreement acknowledging that There are no other quasi-security structures commonly used in all the terms and conditions of the pledge agreement are satisfied Panama. and that the pledged item has been released.

NEGATIVE PLEDGE SPECIAL PURPOSE VEHICLES (SPVs) IN SECURED LENDING 12. Are negative pledge clauses commonly used in your jurisdiction? 10. Is it common in your jurisdiction to take security over the shares of an SPV set up to hold certain of the borrower’s assets, rather than to take direct security over those assets? Negative pledges are common in Panama, particularly in the context of the covenants of loan agreements. It is possible to take security over the shares of an SPV set up to hold a debtor’s assets, rather than take direct security over those GUARANTEES assets. However, this structure is unpopular because the process of transferring the assets to the SPV can be very cumbersome, 13. Are guarantees commonly used in your jurisdiction? How are particularly since there can be negative tax implications for the they created? borrower. For example, if the assets in question are real estate assets, a 2% transfer tax would be applied when transferring the asset from the owner to the SPV. Similarly, if the assets are shares, Guarantees are very common in Panama, and are created by then a capital gains tax will be applied to the transfer. Once an SPV private contractual arrangement between the parties. Commercial has been established, it is common to take securities over its shares, guarantees must be created in writing to be effective. Guarantors often in conjunction with taking direct security over other assets. can be either jointly, jointly and severally, or severally liable with the borrower, depending on the terms of the agreement. Alternatively, a structure such as a trust can be established to hold a debtor’s assets or receivables, as there can be certain tax It is necessary for the guarantor’s board of directors and/or advantages applicable to this type of structure. For example, shareholders to authorise the guarantee. distributions made to beneficiaries of a trust are not subject to a dividend tax. However, this structure may also trigger the payment of other taxes (see Question 19). RISK AREAS FOR LENDERS

14. Do any laws affect the validity of a loan, security or guarantee QUASI-SECURITY (or the terms on which they are made or agreed)?

Country Q&A 11. What types of quasi-security structures are common in your jurisdiction? Is there a risk of such structures being Financial assistance recharacterised as a security interest? A Panamanian corporation can guarantee, or give security, in respect of the debts of another company, irrespective of the jurisdiction where that company was incorporated, or the fact that the company As security interests in Panama are those that are contained in the is related to the guarantor. Regulated entities (such as banks) are an Civil Code, there is very little risk that quasi-security structures would exception to this general position and cannot grant loans which are be recharacterised as security interests. This is a different Code secured by shares in their own bank. (Código Civil) from the Code of Commerce (Código de Comercio). A company is not allowed to provide financial assistance for the Sale and leaseback purchase of its own shares. This structure is available in Panama, and is structured as a simple sale and lease contract. Proper consideration must be given for the Corporate benefit sale, and the assets must, in fact, be transferred to the purchaser. In general, there are no rules prohibiting a subsidiary from granting security relating to a loan to its parent, subject to the rules regarding Factoring duty of care and self-dealing. The rules regarding duty of care require To date, factoring is unregulated in Panama. However, there are the corporation to take reasonable care to avoid causing harm to several companies in Panama dedicated to this practice and it is the company. Self-dealing rules require that security must not be a growing industry. granted to the detriment of the lender. There are no specific rules concerning directors obtaining a corporate benefit from transactions Hire purchase that are not in the best interests of the company. However, directors Hire purchase arrangements are not commonly used in Panama, do owe a general duty of care to the company, and can be held although there are no legal restrictions prohibiting the practice. personally liable for negligence for failing to exercise that duty of care.

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syndicated loan) recognised in your jurisdiction? syndicated loan) recognised in your jurisdiction? mechanisms mechanisms are used? How do obtain the benefit of the security and buyers guarantees associated ensure that they with the transferred debt? Is Is the trust concept recognised in your jurisdiction? Is

The agent concept is recognised in Panama and is often used, particularly in connection between arrangement with contractual a of consists usually agreement syndicated loans. An agency an administrative agent (on behalf of the lenders) and a security agent, where the security involved in the deal is in the security agent’s favour. The security agent is provides and then popular, very is structure This necessary. able if security, to enforce the a less expensive alternative to setting security (see Question 19). up a trust to hold the Agency arrangements created under the law of another country are recognised in Panama. A facility agent rights on behalf of other syndicate lenders in Panama. is able to enforce Debt is frequently traded in Panama is Panama; primarily a debt the market. Debt securities capital are usually market of bonds or commercial papers. issued either in the form in Bonds tend to have a maturity of one year or more, and include fixed rate bonds, floating rate bonds, variable rate bonds, zero coupon bonds, equity linked bonds, corporate notes. agro-industry bonds and Commercial paper usually has a maturity of one year or less. It is registered with the Superintendency of the Securities Market (previously the National Securities Commission) and are subject to registration, disclosure and reporting requirements under the Securities Act (Decree Law 1, 1999, as amended by Law 67 of 2011). September, In the case of both the both of benefit the obtain buyers that ensure to way common bonds and commercial paper, the security most and guarantees associated with the transferred debt is to create an indenture, or trust, agreement. The trustee or agent then holds the security interest for the beneficial interest of the security the enforce then can agent or trustee The holder. security holder. interest and pass the payment to the security The trust concept is recognised in Panama. A Panamanian trust is trust Panamanian A Panama. in recognised is concept trust The but rather a legal - arrange not considered a separate legal entity, ment where a person (known as the settlor) transfers assets to dispose and/or manage to trustee), the as (known person another A beneficiaries. of favour in deed, trust the in outlined as them of can and deed), (trust document written a by created be must trust include assets of any nature (present or future) that are situated AGENT AND TRUST CONCEPTS 18. the agent concept (such as a facility agent under a 19. DEBT TRADING AND TRANSFER MECHANISMS 17. debt traded in your jurisdiction and what transfer about this publication, please visit about Practical please Law visit Company, FOR MORE FOR INFORMATION actions of a borrower, security provider or guarantor? actions of a borrower, What methods of subordination are there? Can Approved by the board of directors. Approved by the board (at the next shareholders’ Disclosed to the shareholders meeting).

A lender, simply by making a loan or holding a security interest or guarantee, will not become liable under environmental laws for the actions of the borrower, security provider However, or if during the guarantor. course of enforcing a security the lender takes ownership of the borrower’s property, project, or as the the borrower’s “new” owner environmental laws. the lender can be liable under Intercreditor arrangements projects, financing large in common are agreements Intercreditor arrangement or agreement financing one than more is there where in existence. They are preference of usually order some which in debtors, private and creditors between contractual agreements or waterfall arrangement is agreed. Structural subordination corporate the of result a as occur also can subordination Structural established be can companies holding and debtor, the of structure debt. subordinating structurally of purpose the for Contractual subordination in common, and possible, both is debt of subordination Contractual between agreement by It contractual achieved is Panama. usually the relevant creditors, and the that subordinated its creditor claims will be to subordinate other agreeing The claims. terms of freedom ordinary under negotiated be freely can agreements those of contract principles. be can to Contractual also agree comprise more complex creditors subordination that documents some involve senior, which in agreements creditors, junior and agreements mezzanine subordination contractual These others. to subordinated are only valid as the and between debtor and the do creditor not parties. third affect STRUCTURING THE PRIORITY OF DEBTS 16. 15. a lender be liable under environmental laws for the Usury Panamanian law currently sets no limits on the interest that can be charged on an overdue loan. Loans to directors directors, to loans making on restrictions no are there general, In unless the company concerned is part of a (such as regulated banking or insurance), industry in which case some restrictions can apply. For example, banks cannot grant loans to under directors more favourable terms than are generally available in the marketplace for whenever similar there transactions. is However, a transaction between a director (or officer) and the company in all interest, indirect, or direct, a has officer) (or director the which reached must be both: agreements and arrangements FINANCE MULTI-JURISDICTIONAL GUIDE 2012 MULTI-JURISDICTIONAL GUIDE 2012 FINANCE

in Panama or another jurisdiction. Trust companies dedicated to Methods of enforcement the professional management of trusts also exist in Panama and are overseen by the Superintendency of Banks. 23. How are the main types of security interest usually enforced? What requirements must a lender comply with? It is common practice for a security trustee to hold the security on the creditors’ behalf. These trust arrangements are frequently used to provide an extra safeguard for lenders, since the trust The main types of security interest are enforced as follows: structure provides greater protection against the borrower’s Mortgage. A mortgage is enforced using the executive bankruptcy, and shields the assets in question from other mortgage process (proceso ejecutivo hipotecario). The creditors. However, trust structures can be more expensive than lender applies to court. To obtain the order, the: a basic agency structure (see Question 18) since the assets must be transferred to the trust, which can attract transfer tax. A trust obligations secured must be clear and past due (clara y created under the law of another country is recognised in Panama. exigible);

fact that a default has occurred should be readily SECURITY AND LOAN DOCUMENTATION ascertainable from the agreement itself; amount owed must be determined or determinable. 20. Do the different types of security in your jurisdiction need to In the absence of proof of payment, the court will order the be documented separately or does your jurisdiction allow a judicial sale of the mortgaged property. single security document? Pledge. On default, the pledge will be sold to pay the lender. The standard remedy in the Code of Civil Procedure Panama does not allow a single security document, and different (Codigo Judicial) to enforce a pledge is the executive pledge types of security must be documented separately. process (proceso ejecutivo prendario), which involves the lender applying to court for the judicial sale of the pledged property in an attempt to realise its market value. 21. What (if any) are the rules on how loans (including syndicated loans) should be documented for the loan to be enforceable? The Code of Commerce also provides that the parties can contractually incorporate a special sales mechanism which triggers in the event of a default. Finally, where the pledge Loans must be documented in writing to clarify the terms of agreement does not provide this mechanism, the creditor the agreement. In the absence of a clear determination of (or depositor) holding the pledge can dispose of the asset the agreement’s terms, the Code of Commerce stipulates that through a private sale, following a specific appraisal process interest will be calculated according to the current commercial to ensure that the full value of the asset is realised. The rate. There are no particular requirements to ensure that a loan advantage of a judicial sale over a private sale is that, in the is enforceable outside of the general rules for contracts, and case of a judicial sale, the purchaser can be certain that registration or authorisation is not required. they are purchasing the property free and clear of any liens.

Unsecured creditors must seek payment in court, which is signifi- ENFORCEMENT OF SECURITY INTERESTS AND cantly more complicated and time consuming than the executive BORROWER INSOLVENCY processes available to secured creditors. Country Q&A 22. What are the circumstances in which a lender can enforce its Rescue, reorganisation and insolvency loan, guarantee or security interest? What requirements must the lender comply with? 24. Are company rescue or reorganisation procedures (outside of insolvency proceedings) available in your jurisdiction? How do they affect a lender’s rights to enforce its loan, guarantee The terms for enforcing a loan, guarantee or security are defined or security? in the relevant agreement. Defaulting events commonly include the borrower: Panamanian law does not recognise corporate reorganisations, Failing to make any payment due on the principal, interest, although parties are free to negotiate extra-judicial restructuring fees or charges. agreements prior to a declaration of insolvency. Only regulated entities (such as banks and broker-dealers) are subject to Breaching one of its material obligations under the contract. reorganisation procedures in Panama. There are no particular requirements that a creditor must comply Reorganisations of banks are overseen by the Superintendent of with. Secured creditors can enforce their guarantees or security Banks, who: by way of an expedited process in certain circumstances (see Question 23). Will appoint an individual or a board to administer the bank throughout the process.

Can order the removal of any director, officer, executive, administrator or employee, as necessary.

Will establish a time frame within which the reorganisation should be completed.

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debts related to the expenses of the bankruptcy; funeral expenses; up to one year of medical expenses; debts secured by a guarantee of personal effects or debts secured by a guarantee of personal effects to their securities rank among themselves according date of creation; rank above debts for advances of agricultural expenses debts for rental payments; themselves. all other debts are shared pro rata among taxes due debts in favour of the state (for example, for in respect of the property); the of respect in made payments for insurers from debts property over the last two years; debts in respect of a mortgage are the next in rank (where there are two or more mortgages in respect of they rank in date order according to the same property, when they were filed at the Public Registry); debts preventatively recorded with the Public finally, Registry Office in accordance with a court order for seizure, attachment or execution of a judgment against the property for subsequent claims. Where they are two or more debts, they rank in the order that they were recorded at the Public Registry Office. for construction, repair and maintenance; debtor’s the in movables of price purchase the for possession; or securities; secured by a guarantee of personal effects for rental payments of up to one year. debts secured by a pledge exclude all others; If two or more debts apply to the same movable, they are If two or more debts apply to the same movable, paid in the following priority: Debts owed to municipal authorities. The following debts are ranked second: Real property rights. Debts are paid in the following order of priority: Certain debts are given preference, such Certain debts are given Movable property. as debts: Once all secured credits are paid, any sums left over are added to the remaining assets of the bankrupt This debtor. bankruptcy estate becomes available to pay off all unsecured creditors, as well as any amounts left unsatisfied in respect creditors. These debts are ranked in the following order: of the secured are entitled to enforce their claims separately by the executive processes discussed above (see Question 25). Secured creditors can receive payment from the proceeds of sale of the collateral following this process, and then with become respect unsecured to any creditors unrecovered amounts. With over respect “win” would state the to of favour in debts only real rights, property a mortgage over the property. a secured creditor holding Outside of these executive processes, (including creditors employee other all salaries, over preference loans take indemnities and (Labour Code). preferred and state creditors) to property the to according ranked are claims creditors’ Secured (Civil Code): which they are attached ). see Question 23 Question see about this publication, please visit about Practical please Law visit Company, FOR MORE FOR INFORMATION gratuitous or onerous transfers where the other party knew that the debtor executed the act (or entered into the contract) for the purpose of extracting or hiding the assets from the creditors of the debtor. the payment of debts that were not yet due and payable, and the payment in kind of debts. acts or contracts in which there had been simulation or fraud; any gratuitous act or contract of the bankrupt, or those not supported by adequate pecuniary consideration; pledges, mortgages or other security interests or stipulations created to secure pre-existing debts or to create a preference over other debts; and interests can be made void if security provider becomes insolvent? the borrower, guarantor or rights to enforce its loan, guarantee or security? rights to enforce its loan, In What How Regardless of the time that they took place: For acts that took place within the review period preceding For acts that took place within the review the date of the insolvency:

Acts subject to review include the following: Acts subject to review include the following: bankruptcy”: this is usually the date that the petition for bankruptcy bankruptcy for Once petition a the that date court days the declares 30 usually a and is years this it bankruptcy, four to bankruptcy”: determines up a time in “date back set of be can it but filed, was ofthedate bankruptcy between Theperiod date. filing this before is of as known and bankruptcy a the period”. declaration “review can period review this within completed of debtor the acts Certain aside. set appropriate, where and, considered be All civil actions brought against a bankrupt individual and insolvent insolvent and individual bankrupt a against brought actions civil All company in any court within four years before the of declaration date must bankruptcy be of to transferred the bankruptcy the claims court, creditors’ for These including actions enforcement. part become and actually court by are heard then the bankruptcy of the bankruptcy proceedings. The effect of this is to stay any individual actions brought by creditors using However, claims, against secured secured their the creditors enforce can (creditors bankrupt. lien) secured similar other by or pledge a mortgage, hold) they security the of value the to up (for process executive an secured claims, additional any For court. bankruptcy the of outside ( court bankruptcy the through go must creditors All claims to be liquidated against the bankruptcy the during estate creditors of board a must by, classified and to, presented be creditors secured However, estate. the of administration of period 27. insolvency? borrower’s the on paid creditors are order what 26. transactions involving loans, guarantees, or security 25. lender’s a affect procedures insolvency of start the does The individual or board overseeing the reorganisation is granted broad powers and is tasked with establishing a plan to that ensure shareholders the creditors, bank depositors, operates efficientlyall andof securely,interests the and takes consideration into and partners. The plan, once approved by the Superintendent of Banks, is binding on all parties. A similar process is followed in of broker-dealers. the case of the reorganisation FINANCE MULTI-JURISDICTIONAL GUIDE 2012 MULTI-JURISDICTIONAL GUIDE 2012 FINANCE

salaries for domestic help; to enforce their security interests outside of the bankruptcy advances made to the debtor or his family, with respect proceedings (see Question 25). A creditor in this circumstance to food, clothing and shoes; and would rank with all other unsecured creditors (see Question 27).

support payments during the bankruptcy trial. CROSS-BORDER ISSUES ON LOANS Debts which are evidenced in: public instruments; 30. Are there restrictions on the making of loans by foreign executed judgments arising from litigation; or lenders or granting security (over all forms of property) or guarantees to foreign lenders? private documents certified by the Public Notary.

Finally, subordinated creditors are paid according to the terms There are no restrictions on the making of loans by foreign lenders of the subordination agreement to which they are a party (see or granting security or guarantees to foreign lenders. However, Question 16). some taxation issues can arise if the proceeds of the loan granted are to be used in Panama, including a withholding obligation on At any time during the administration period the debtor and the part of the borrower on interest payments to pay a certain creditors can come to an agreement between themselves to settle amount directly to the tax authorities. all claims, provided this agreement is approved by the creditors holding at least 75% of the outstanding claims. In practice, extra-judicial restructuring agreements are often used, since they 31. Are there exchange controls that restrict payments to a give the creditors more control over the situation than they would foreign lender under a security document, guarantee or loan have if it was administered by a bankruptcy court. agreement?

28. If more than one lender holds the same security interest over There are no such exchange controls in Panama. Funds of any the same asset, how is priority between them determined? Do denomination, and of any amount, can move freely in and out any specific ranking rules apply? of the country at any time. It is lawful to hold funds in any denomination; however, the US$ is legal tender in Panama and is the accepted medium of exchange. The Panamanian balboa If more than one creditor holds the same security interest over the (PAB) (which only circulates in coins) is pegged at par with the same asset, priority is determined between them according to the US$ under a 1904 monetary agreement with the United States date that the security interests in question were granted (certain (as at 1 December 2011, EUR1 was about US$1.3). date). For this reason, the date of the document creating the security document must be clearly established, or there is the risk 32. Is a foreign choice of law clause in a security, guarantee that an unsecured credit can be outranked by an authenticated or loan agreement recognised and applied by the courts document containing a credit which was actually created later in in your jurisdiction? Does local law always apply in certain time. For documents created by a public deed, this date is easy to circumstances? determine and verify. The certain date of private documents must be established according to one of the following events: Parties to any commercial agreement can choose the governing It is registered in an official registry. law of the agreement, except for:

Country Q&A It is registered in a notary’s registry. Government contracts. The death of one of the signatories. Where conflict of law rules provide that Panamanian law must It is executed in the presence of a notary. apply (for example, contracts related to land in Panama).

It is delivered to any other public official in the exercise of Therefore, foreign investors, as well as nationals, are free to govern an official function. their commercial relations by Panamanian law or any foreign law. There is any other act completed before a public official which allows a court to determine the certain date of the document. Additionally, parties to a private commercial agreement can submit any dispute arising under that agreement to the Panamanian A notary public holds a particularly important position in courts or to the courts of a foreign jurisdiction, as well as to Panamanian civil law tradition, which is not comparable to notary arbitration or other methods of alternative dispute resolution. publics in many other jurisdictions. As a result, it is risky for a creditor to assume that a foreign notary’s acknowledgement of the security interest will necessarily be given the same recognition in TAXES AND FEES ON LOANS, GUARANTEES AND insolvency proceedings as that of a Panamanian notary. SECURITY INTERESTS

33. Are taxes or fees paid on the granting and enforcement of a 29. If a security interest has not been validly perfected, where loan, guarantee or security? does the security holder rank on the borrower’s insolvency?

Documentary taxes A security interest that has not been validly perfected cannot A pledge, once granted, should be registered. Pledges registered benefit from the executive processes that are otherwise available in a private agreement are subject to a stamp duty of US$0.10 to secured creditors, and which allow such secured creditors for each US$100 (or fraction of US$100) of the total value of

W RICARDO M ARANGO Arias, Fábrega & Fábrega T F E Banking and finance; corporations; M&A; www.practicallaw.com/about/practicallaw

Panama, 1983; US (state of New York), 1985 Panama, 1983; US (state of New York), www.practicallaw.com/finance-mjg

on the granting and enforcement of security? a loan, guarantee or Are Are there any proposals for reform?

joint ventures; securities regulation; taxation. Areas of practice. Qualified. Qualified. security are not usually considered particularly onerous and therefore therefore and onerous The taxes and with a fees granting particularly associated or loan, guarantee considered usually not are security necessary. not are fees these minimise to efforts additional guarantee loan, a enforcing of lenders foreign to cost loan the the in minimise included To often is provision gross-up a interest, security taxes or the pays borrower the that provides that agreement security or to applicable the of enforcement the loan, or guarantee security interest. loans from Additionally, foreign banks to local banks are exempt by law from paying tax on interest. Finally, certain laws provide concessions administrative of case the in example, (for payments for tax exemptions on and certain tourism projects). interest There are currently no proposals for reform that are relevant to the lending market. *The authors would like to give special thanks to Carin Stelp for her invaluable contribution to this article. 34. there strategies to minimise the costs of taxes and fees REFORM 35. CONTRIBUTOR DETAILS about this publication, please visit about Practical please Law visit Company, [email protected] www.arifa.com +507 205 7001 +507 205 7000

W F E RODRIGO CARDOZE Arias, Fábrega & Fábrega T FOR MORE FOR Banking and finance; corporations; US (state of Florida), 2004 INFORMATION The enforcement of a bond payment is usually subject to The enforcement of a bond payment is usually earned. income tax, which is charged against the interest The enforcement of a chattel mortgage is subject to a value The enforcement of a and of Movable Property on the Transfer added tax, the Tax (the Impuesto a las Transferencias the Provision of Services de Servicios de Bienes Corporales Muebles y la Prestación (ITBMS)) over the value of the asset in question. The enforcement of a pledge of shares is subject to a 5% The enforcement of a withheld is (which shares the of sale the on tax gains capital with income tax (which is 25%), by the seller), together and is charged against the lender, which must be paid by sale price that is attributed to the the portion of the share lender. interest earned by the The enforcement of a real property mortgage by way of a mortgage by way of a real property The enforcement is subject to a 2% real property forced sale of the property transfer tax. M&A; joint ventures; securities regulation. Qualified. Areas of practice. Notaries’ fees Notaries’ fees are payable on the registration of mortgages with the Public Registry Office. The fees charged are US$8 per page of the public deed, plus a notary fee (which is also based on the calculated number of pages contained in the deed). There are no fees in connection with enforcement. Registration fees with mortgages of registration the on payable are fees Registration for US$0.25 at charged is Registration Office. Registry Public the each US$100 (or fraction of US$100) of the total value of the alsoaOffice The charges plot Registry Public nominal mortgage. enforcement. with connection in fees no are There fee. certification the pledge. The taxes applicable for the enforcement of a security security a of enforcement the for applicable taxes The pledge. the interest are determined by the type of security, and the type of asset involved: FINANCE MULTI-JURISDICTIONAL GUIDE 2012