There are no rules specifically establishing an out-of-court process for rescue or reorganization in the Republic of Panama, nor any voting requirements associated therewith.
Debt-restructuring efforts between a debtor and its creditors will mostly be governed by general rules of contract and obligations, and the agreement of other creditors may not be imposed on an individual creditor without consent.
In situations where a debtor has several creditors willing to negotiate with the debtor as a group, however, the creditors will usually enter into a standstill agreement, whereby they agree not to enforce any rights of execution against the debtor during negotiations.
The negotiations will be aimed at reaching an agreement between the creditors themselves, and between the group of creditors and the debtor, in an attempt to balance the operational needs of the debtor with the obligations owed to creditors.
If negotiations are successful, these will most likely involve amendments to the individual contracts between the debtor and the creditors involved.
It is important to note that any creditors who are not part of negotiations, or who decide not to enter into an agreement with the other creditors or the debtor, will not be affected in any of their rights or privileges as creditors. Furthermore, any liens or encumbrances over the assets of the debtor will remain unaffected.
It is also important to keep in mind during negotiations that certain claw-back provisions established in Law No 12 of 19 May 2016 (the Law of Insolvency Proceedings) may retroactively affect the validity of acts or contracts if insolvency proceedings are later commenced:
Up to one year before:
- acts or contracts for which no consideration has been received, or which may be considered gratuitous even where consideration has been received;
- pledges, mortgages, or other acts that may establish a preference over other credits;
- payment of debts that are not due; and
- amendments to the Articles of Incorporation which affect the capital of the company.
Up to four years before:
- acts or contracts for which no consideration has been received, in favour of partners, shareholders, administrators, directors, officers, liquidators, and general attorneys-in-fact.
No time limit:
- acts where there has been simulation of facts, or fraud; or
- transfers made with the purpose of avoiding creditors.
Learn more in our Banking & Finance Guide prepared by Partners Arturo Gerbaud, Eloy Alfaro B., and Patricia Cordero – Originally published by Chambers & Partners. https://practiceguides.chambers.com/practice-guides/banking-finance-2021/panama
