There are two types of insolvency proceedings contemplated under the Law of Insolvency Proceedings: liquidation and reorganization.
Liquidation
Under the insolvency proceeding of liquidation, the right of creditors to engage individually in enforcement actions is suspended. Creditors with a pledge, mortgage, or other real security right, however, may continue enforcement actions individually or opt to do so within the liquidation proceeding.
Reorganization
Under the insolvency proceeding of reorganization, an “insolvency financial protection” shall apply from the time the reorganization proceeding is declared open until the time when an agreement of reorganization, agreed to by the General Assembly of Creditors, is confirmed by the corresponding bankruptcy judge. This also has the effect of suspending (staying) enforcement actions.
However, if the agreement of reorganization is not approved by the General Assembly of Creditors, if it is not confirmed by the judge, if it is breached, or if six months pass from the time the insolvency financial protection started, the right of creditors to enforce pledges or mortgages will be considered automatically re-established.
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
