Panamanian law on companies in difficulty, framed mainly by Law 12 of 2016 (Insolvency and Prevention Regime), aims to balance the protection of creditors, the safeguarding of viable companies and the preservation of employment. Inspired by international standards, this legal framework modernizes insolvency procedures in Panama, with a focus on prevention and restructuring.
Prevention and Restructuring:
Legal Proceedings:
Insolvency proceedings are an intermediate step in the evolution of the law that solves the problems of companies in difficulty. Insolvency proceedings leave behind the rules that have developed the bankruptcy of companies, when we are faced with a qualified cessation of payment.
A far-reaching reform in this area was therefore necessary, given the fact that companies are no longer production units isolated from society. On the contrary, they are an important pillar of the economic system, not least because their disappearance endangers, by way of a cascade, other important elements of economic life, such as social security, employment, ecology, taxes, creditors and suppliers, which justifies the abandonment of the restrictive vision of the method of payment and collection. This leads to pave the way for a vision that transcends the creditor-debtor relationship.
This is how we arrived at Law 12 of 19 March 2016 which established a new regime of insolvency proceedings in Panama, the purpose of which is the protection of credit and creditors, through the implementation of reorganization processes that allow the recovery of companies, if possible, or the process of judicial liquidation of the company.
Law 12 on Insolvency Proceedings does not provide for preventive measures, early warnings or out-of-court treatment of business difficulties, through conciliation or an ad hoc mandate (conciliator or mediator) of a preliminary nature, nor for administrative measures for the intervention of the public authorities in the event of indications of difficulties in companies.
Article 3 of the Insolvency Act, on the scope of application, provides that "this regime shall apply to natural persons, traders and commercial companies, whether or not registered in the Public Registry of Panama, not excluded by this Law, who have their domicile, branch, agency or establishment in the Republic of Panama".
The mechanisms envisaged by the Insolvency Act are exclusively judicial, called "insolvency proceedings", which consist of collective proceedings subject to judicial supervision that are substantiated with a view to the reorganization or liquidation of an insolvent company.
Essentially, there are two (2) types of processes which are the reorganization process and the liquidation process.
The Insolvency Act 12 of 2016 defines this type of process as "Reorganization. The process by which the financial prosperity and viability of the company is restored by maintaining its operations through various means, such as debt cancellation, restructuring or capitalization; the amalgamation or division of the debtor company and the sale of the company or parts of it, as a going concern.
The purpose of this procedure is to allow the repayment of loans or, in other words, the payment of liabilities, allowing the continuation of the company's activity. If the company cannot be reorganized, it will be liquidated by the judicial courts.
However, the enforceability of interest, whether legal or conventional, will be suspended, with the exception of that corresponding to loans with a real guarantee. The suspension will last until the Assembly approves the Reorganization Agreement, in which it may set conditions on the applicable interest rate or on the recovery, in whole or in part, in each case.
The attachment judge shall declare the proceedings instituted in violation of paragraphs 1 and 2 of this article null and void by order which does not admit any appeal.
For these purposes, the debtor's relatives or legal representatives are understood to mean ascendants, descendants and collateral relatives up to and including the fourth degree of consanguinity and the second degree of affinity.
Law 12 of 2016 on Insolvency defines this type of process as the "process followed for the sale or realization of the debtor's assets, with a view to distributing the proceeds obtained among its creditors, in accordance with this Law".
This process of judicial liquidation is the last measure that can be taken, when the company is not recoverable by reorganization and the state of cessation of payments is impossible to resolve, with the aim of terminating the company's activity and realizing the assets with a view to making the payment, through a global transfer of assets or an individual sale.
If the debtor does not have a place of business, the declaration of liquidation may be issued by the judge in which the debtor has his or her personal residence or establishment. If he has two or more establishments in different places, the courts of the respective places of residence have jurisdiction.
Article 81. Post-mortem regulations. The liquidation may be declared even after the death of the debtor, if it is established that he has ceased to pay his obligations.
Similarly, the liquidation of the estate may be declared when it exempts the payment of one or more commercial obligations.
The declaration of liquidation must be required before the judgment of the succession; Once the decision is legally made, the demand will be significant.
The declaration of liquidation of an estate will suspend the processing of the inheritance process in respect of the estate assets until the liquidation is legally completed.
The debtor's request must be accompanied by the following documents:
The competent court will consider the debtor's application and, if it meets the requirements to open voluntary bankruptcy proceedings, issue an order declaring the state of liquidation within five days.
The application for liquidation filed by a creditor must indicate the cause invoked, the facts justifying it and must be accompanied by:
If the judge considers that the claim satisfies the requirements and documents, he or she shall admit it within five days and inform the debtor accordingly, within twenty days, so that he or she may appear at the proceedings and, together with his or her response, submit the documents provided for in Article 82.
Our law firm specializes in the provision of services related to the commercial and business field, so it is possible for us to represent you in all stages of the process, with special attention to the preparation of the plan of reorganization, demerger and merger, the sale of a company or a branch of it, or takeover. In the same way, we can help them in the dissolution and liquidation of companies.
In fact, our Firm can support them in the event that they are involved, either as defendant or as plaintiff, in insolvency bankruptcy proceedings, dissolution and liquidation of companies and treatment of companies in difficulty, in the process of reorganization conciliated, the process of reorganization of insolvency, the insolvency liquidation process, cross-border insolvency, bankruptcy and companies in difficulty, reorganization, restructuring or liquidation plan, composition and agreements between creditors, assignment and transfer of companies and, in general, representation in the insolvency and bankruptcy process.