The new Panamanian insolvency law and its cross-border insolvency provisions
February 2017 | EXPERT BRIEFING | BANKRUPTCY & RESTRUCTURING
The recent questions laid against the world’s offshore industry, amid the so called ‘Panama Papers’ affair, have overshadowed Panama’s enactment of Law No. 12 of 19 March 2016, “[w]hich establishes the Regime of the bankruptcy proceedings for insolvency and issues other dispositions” (the Insolvency Law or the Law). The Insolvency Law came into effect on 2 January 2017 and, as we shall see, incorporates provisions dealing with cross-border insolvencies involving companies incorporated in or doing business in Panama. To that effect, Title III of the Insolvency Law seeks to encourage cooperation between Panama and foreign jurisdictions, advance the rule of law in business and investments, manage cross-border insolvencies equitably and efficiently for the benefit of the parties, protect the debtor’s assets and to optimise their value, and reorganise companies facing financial difficulty.
The cross-border provisions of the Insolvency Law represent an important step in the advancement of international comity and reciprocity on judicial matters in Panama. As we shall see, such provisions facilitate the conduct of international business by allowing foreign creditors and insolvency practitioners access to asset recovery and asset preservation tools available under the domestic provisions of the Insolvency Law.
Under the Insolvency Law, a foreign court or representative may request assistance from the Republic of Panama in relation to foreign proceedings. Furthermore, a Panamanian court may request assistance from a foreign state regarding a pending action under the Insolvency Law. It recognises that insolvency proceedings may be taking place in Panama and a foreign jurisdiction simultaneously. The Insolvency Law also allows foreign creditors or interested parties to file insolvency proceedings in Panama. However, there is a public policy exception to application of these norms.
The Law defines a ‘foreign representative’ as a person or entity empowered in a foreign proceeding to manage the reorganisation or liquidation of the assets or businesses of a debtor, or to act as a representative of the foreign proceeding. It grants such person or entity standing to appear directly in front of a Panamanian court. However, the appearance by the foreign representative in a competent court of Panama does not imply that the debtor itself has submitted to the jurisdiction of the Republic of Panama, except for purposes of the request. Further, a foreign representative may even request the opening of local proceedings and may appear locally in cases opened, according to the Insolvency Law.
The Law generally grants foreign creditors equal rights as local creditors regarding the filing of proceedings in Panama. It allows foreign creditors to appear in such proceedings without prejudice to any applicable seniority rights. Requests for the recognition of a foreign representative can be made directly in front of the Fourth Superior Court (appellate level). As with most legal proceedings in Panama, filings must meet certain formal and documentary requirements, including the judicial order from the foreign court opening the insolvency and appointing the representative, among others, as well as Spanish language translations and authentications. This is in contrast with other international judicial assistance matters, which are handled by the Fourth Chamber of the Supreme Court of Panama using the exequatur provisions of the Judicial Code.
A recognised foreign representative must keep the local courts informed of any material changes in the foreign proceedings and about any new foreign proceedings of which it becomes aware. Panamanian courts may order provisional measures such as a stay of execution, naming a receiver, freezing the debtor’s assets, taking evidence and any other provisional remedies available under Panamanian law to an insolvency representative.
Upon recognition of a foreign insolvency proceeding, no new collections actions can be filed against the debtor in Panama and the debtor may no longer transfer any of his assets, with any such assets being null and voidable by a competent court. Local insolvency courts and representatives are empowered to directly communicate with foreign insolvency courts. Following the recognition of a principal foreign insolvency proceeding, proceedings under the Insolvency Law may only be filed if the debtor has assets in Panama and its effects shall be limited to those assets and as required to cooperate and coordinate with the foreign court.
The cross-border insolvency provisions outlined in the Law appear to break away from the erstwhile apparent insularity of the Panamanian legal system. The Insolvency Law relaxes formalities and grants standing to appear in court to actors whose appearance used to require formality-laden international judicial assistance provisions. The Insolvency Law should facilitate the administration of insolvent estates with assets and business interests across Panama’s national borders. It could also have a significant impact on the traditional corporate veil doctrine prevalent in Panamanian law. Yet it is still too early to know how the courts will interpret the Law as its provisions begin to be tested.
David M. Mizrachi is a senior partner at Mizrachi Davarro & Urriola. He can be contacted on +1 (507) 263 0604 or by email: email@example.com.
© Financier Worldwide
David M. Mizrachi
Mizrachi Davarro & Urriola