Insolvency Law at Panama
Panama's insolvency framework is governed by Law No. 12 of 2016, which introduced a modernized regime for handling both corporate and individual insolvencies. This law replaced the outdated bankruptcy provisions and established two primary proceedings: Reorganization and Judicial Liquidation. (Law 12 of 2016 Panama - Kraemer & Kraemer, The Insolvency Law in Panama | Article | Chambers and Partners)
⚖️ Key Features of Panama's Insolvency Law (Law No. 12 of 2016)
1. Reorganization Process
Objective: To allow financially distressed but viable companies to restructure their debts and continue operations.
Initiation: Can be initiated by the debtor or creditors through a Board of Creditors. (The Insolvency Law in Panama | Article | Chambers and Partners)
Requirements: The debtor must submit a Reorganization Plan detailing financial, operational, and organizational restructuring. (The Insolvency Law in Panama | Article | Chambers and Partners)
Approval: The plan must be approved by a majority of creditors representing at least 66% of the total debt and confirmed by the court. (Effective on 2017, Panama takes a shot at insolvency reorganization processes | Article | Chambers and Partners)
Effects: Upon approval, enforcement actions are suspended, and the debtor is granted "insolvency financial protection" until the plan is executed or the process concludes. (Banking & Finance Regulations | Insolvency Proceedings | Alemán, Cordero, Galindo & Lee)
Termination: If the plan is not approved, breached, or not executed within six months, creditors may resume enforcement actions. (Banking & Finance Regulations | Insolvency Proceedings | Alemán, Cordero, Galindo & Lee)
2. Judicial Liquidation Process
Objective: To liquidate companies that are deemed inefficient or unable to recover.
Initiation: Can be voluntary (by the debtor) or compulsory (by creditors).
Procedure: Assets are sold through direct sale or auction, and proceeds are distributed among creditors. (Law 12 of 2016 Panama - Kraemer & Kraemer)
Effects: Upon declaration, the debtor's assets are frozen, and an administrator is appointed to manage the liquidation.
Considerations: Unsecured creditors often recover a minimal percentage of their claims due to the nature of liquidation proceedings. (Dispute Resolution: Top 10 tips for litigating in Panama | IFLR1000)
3. Cross-Border Insolvency Provisions
Recognition: Panama recognizes foreign insolvency proceedings and allows foreign representatives to request assistance from Panamanian courts. (The new Panamanian insolvency law and its cross-border insolvency provisions — Financier Worldwide)
Equal Treatment: Foreign creditors are granted the same rights as local creditors in Panamanian insolvency proceedings. (The new Panamanian insolvency law and its cross-border insolvency provisions — Financier Worldwide)
Jurisdiction: Foreign representatives can file for insolvency proceedings in Panama if the debtor has assets within the country. (The new Panamanian insolvency law and its cross-border insolvency provisions — Financier Worldwide)
🏛️ Judicial Oversight
Insolvency proceedings are overseen by the Fourth Superior Court of the First Judicial District, which has exclusive jurisdiction over such matters. However, due to the absence of specialized insolvency courts, civil circuit courts currently handle these cases, often relying on the expertise of appointed bankruptcy administrators. (The Insolvency Law In Panama - Insolvency/Bankruptcy - Panama, The Insolvency Law in Panama | Article | Chambers and Partners)
📌 Additional Considerations
Applicability: The law applies to natural persons, merchants, and companies, whether registered in Panama's Public Registry or not. (Régimen de los procesos concursales de insolvencia. - SBCOLEGAL)
State-Owned Entities: Certain entities, such as those where the state owns more than 51% of shares or assets, are subject to special liquidation or intervention regimes. (Régimen de los procesos concursales de insolvencia. - SBCOLEGAL)
Legal Assistance: Given the complexity of insolvency proceedings, it is advisable for parties involved to seek legal counsel experienced in Panamanian insolvency law.
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