In Panama, it is not possible to use a “security interest” as a generic and general guarantee. Panamanian law recognizes personal guarantees and real guarantees. The most common real guarantees (in rem) are the pledge, mortgages and antichresis. Regarding pledge and mortgage there are some aspects which are very similar and do not pose a particular advantage or disadvantage when comparing one form of security with the other.
- Under Panamanian insolvency, reorganization and liquidation law, a duly executed pledge or mortgage will constitute a valid and legal obligation of the pledgee or mortgagee, enforceable against it, and the corresponding pledgor or mortgagor will enjoy a first-priority security interest over the pledged or mortgaged assets and those assets will not enter the bankruptcy proceedings unless the pledgor or mortgagor waives their preferential rights. However, it should be noted that, under Law No 12 of 18 May 2016, which came into full force and effect on 1 January 2017, if the pledgor or mortgagor is subject to a Panamanian reorganization order, all its assets, including the pledged or mortgaged assets, will be subject to a six-month financial protection period, during which the corresponding pledge or mortgage cannot be executed unless the lender files a reasoned argument to the corresponding judge demonstrating that the execution of the corresponding pledge or mortgage would not affect either the operations of the pledgor or mortgagor or the pledgor’s or mortgagor’s possibility of completing its reorganization. Once the judge approves the execution of the corresponding pledge or mortgage during the six-month financial protection period or after the six-month financial protection period has elapsed, the lender can execute the corresponding pledge or mortgage as agreed therein. Throughout the reorganization or the liquidation proceedings, as applicable, the lender will continue to enjoy a first-priority security interest in the pledged or mortgaged asset.
- The pledge agreement or mortgage agreement, as a standalone structure, does not have any material tax considerations which need to be considered. The pledge agreement would be subject in Panama to stamp tax at a rate of USD0.10 for each USD100 of the value of the document if presented before a court or administrative authority in Panama as evidence. As the public deed containing the mortgage agreement would probably have incurred a registration fee higher that the resulting sum of the above-mentioned stamp tax, the stamp tax is waived for the purposes of the mortgage agreement.
- Since the shares of a Panamanian company are a private matter not subject to public record, to verify whether these are already pledged or mortgaged, the lender would have to request that the pledgor or mortgagor provide them with a copy of the corresponding share registry.
- The pledge agreement must be notarized; the mortgage is granted in a public deed and thus the notarization process is implicit.
Certain rights in contracts have to be assigned but are subject to what the respective agreement may dictate on the matter. However, the general rule is that the acceptance of the other party is required, as in the case of most insurance policies in which it is necessary to have the consent of the insurer for the assignment of rights over such policies.
The enforcement of a pledge requires legal action before a competent court. However, it is possible to include in the agreement the possibility of the lender appropriating the pledged assets. In such cases, it is a matter of public policy to include in the respective pledge agreement a method to determine the fair value of the pledged assets. Otherwise, it is mandatory to follow the procedure established in the Code of Commerce, which calls for a valuation of the pledged asset by two experts, one appointed by each party. If the two experts cannot agree, they have to appoint a third expert for a final determination.
Bank accounts can be pledged, but when the account is used for cash flow of the business revenues, this may present certain inconveniences, especially when dealing with banks that are very conservative. The pledging of accounts located outside Panama is subject to the laws of the country in which each account is held.
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
