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Dominican Republic

Last Verified on Friday 3rd March 2017

    • Dominican Republic

      The last three years have seen relatively steady M&A activity in the Dominican Republic, with several high-profile M&A deals in multiple areas of business, such as consumer packaged goods, banking, insurance, telecommunications and mining, with debt-financed transactions representing an important portion of these.

      Last verified on Friday 3rd March 2017

    • Dominican Republic

      Banks, both domestic and foreign, tend to be frequent sources of acquisition financing in the Dominican Republic. Foreign investment funds, primarily from the US, are very active players in the Dominican Republic in this sense, with local funds showing an increasingly incidence in local M&A deals.

      At least on the local level, it would seem that the spectrum of investors is not broader primarily as a result of regulatory constraints. Such seems to be the case for local pension funds, which have grown impressively as a result of the mandatory contribution structure provided for by Social Security Law No. 87-01, and yet are limited in their ability to invest due to regulators that, while tasked with deciding both the type and degree of investment the funds may carry out, have so far been very conservative. We do note, however, that interest in gradual liberalisation has been shown, with the need to diversify investment portfolios becoming apparent given a currently high concentration in local banks and government bonds.

      The relatively incipient securities market may also represent a limitation to the type of available local funds. Nevertheless, recent comprehensive reform of local securities regulations, which are in turn expected to be paired with amendments to applicable statutes, may foster further development of the Dominican securities market and as result, of local debt structuring options and opportunities.

      Last verified on Friday 3rd March 2017

    • Dominican Republic

      While syndicated bank and investment fund credit facilities have driven noteworthy M&A deals in the Dominican Republic, other forms of secured, senior debt, including bonds, albeit not locally issued, have also played an important role. The currency of denomination for debt instruments issued in or with regards to transactions in the Dominican Republic tends to be the US dollar in most cases, although we are aware of instruments issued in other currencies to finance local deals, such as euro bonds.


      Last verified on Friday 3rd March 2017

    • Dominican Republic

      Maturities and amortisation profiles vary considerably depending on the characteristics of the transaction, the existence or quality of pledged collateral and the level of perceived risk in general.

      We note that in most deals, both large and small and in which financing has been involved, the buyer tends to have procured or have access to funds abroad, making the specific terms and characteristics of the debt instrument in question something that is generally kept outside of the context of the negotiation.

      Last verified on Friday 3rd March 2017

    • Dominican Republic

      From the standpoint of incentives, while Dominican law provides many incentives to foreign investment in multiple fields of business (eg, manufacturing and exports, renewable energy, tourism, affordable housing, cinema, etc) and the Dominican State has tended to provide tax incentives that benefit investment in mining, construction, and energy, there are not many incentives geared toward investment from specific sources of funds or foreign investment in general outside of equal treatment with regards to local investors with very few exceptions and no restriction on the repatriation of earnings beyond the payment of applicable income tax via fixed-rate withholding.

      That said, Pensioners and Annuitants Law No. 171-07 does provide certain tax incentives with regard to funds from local or foreign pensioners or annuitants, to the extent that they reside in the Dominican Republic and the corresponding funds have been generated abroad and exceed a monthly income of US$1,500 and US$2,000, respectively. Said pensioners and annuitants would be exempt from any income tax applicable to dividends or interest generated in their favour either locally or abroad and would have a 50 per cent reduction on any applicable capital gains tax.

      Prior to the end of the year 2012, Securities Law No. 19-00 included general tax incentives in favour of foreign debt investors with regards to public offers in general. Nevertheless, the corresponding provisions were repealed in the context of broad tax reform seeking to strengthen the Dominican State’s collection capacity.

      On the other hand, considerable disincentive to non-traditional sources of acquisition finance has also been repealed. In this sense, while currently all payments of interest or dividends abroad are subject to the same withholding tax rate of 10 per cent, payments to a recipient other than a financial institution (eg, certain bondholders, private equity funds, etc) were previously subject to a significantly higher withholding tax rate of 28 per cent, which effectively acted as a disincentive to investors other than the beneficiaries of the lower withholding tax rate.

      Finally, we note that local banks are subject to regulatory solvency ratio restrictions, which effectively limit their ability to lend large amounts to single entities or economic groups. Nevertheless, as we have seen above, they remain active in M&A deals in the Dominican Republic.

      Last verified on Friday 3rd March 2017

    • Dominican Republic

      Pursuant to the provisions of the Dominican Tax Code, all payment of interest for foreign debt is subject to a 10 per cent withholding tax which shall be deemed the sole payment required to comply with the corresponding creditor’s local income tax obligations.

      As discussed in Question 5, the Tax Code no longer makes any distinction among types of debt investors in this sense, and while there was an exception to this rule which favoured foreign debt investors in the context of public offerings made in the Dominican Republic, this exception was repealed at the end of 2012.

      Last verified on Friday 3rd March 2017

    • Dominican Republic

      Depending on the characteristics of the debt and/or the collateral involved, certain limitations apply as a matter of public policy. In this sense, and to the extent that the vehicle chosen to finance the M&A deal in question uses a public offering made in the Dominican Republic to reach potential investors, Securities Law No. 19-00 provides that said transaction must be subject to Dominican law. Public policy provisions also require that security documents such as mortgages and chattel mortgages be subject to Dominican Law. With regards to pledges over concession agreements granted by the Dominican State, not only are they subject to Dominican law, but the state’s prior consent or non-objection is required in most cases, be it as a result of statutory or contractual requirement, in order to be able to perfect them.

      On the other hand, however, there are relatively few limits on selecting an alternative or foreign forum for dispute resolution. In this sense, the Dominican Republic is a signatory of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and contracting parties often submit to international arbitration when one of them is a foreign entity. Both foreign arbitral awards and court judgments are subject to being granted ‘exequatur’, or local validation by Dominican courts to verify certain procedural aspects and the absence of any Dominican Republic public policy matter. Upon obtaining exequatur, the decision in question becomes locally enforceable.

      Last verified on Friday 3rd March 2017

    • Dominican Republic

      Yes. The Dominican insolvency regime, as currently provided by the Dominican Commercial Code, is focused on identifying and pooling unsecured debt for the purposes of eventually liquidating debtor’s assets and prorating the sums obtained among unsecured creditors after all secured-debt-related claims have been satisfied.There are certain exceptions, however, such as statutory ‘privileges’ provided in specific cases, such as in favour of the tax administration (regarding due and unpaid taxes) and employees (regarding unpaid salaries and severance benefits). These privileges grant the aforementioned creditors priority over any other credit, be they secured or unsecured.

      Last verified on Friday 3rd March 2017

    • Dominican Republic

      Dominican law allows the perfection of security interests over a broad spectrum of collateral, including but not limited to real or personal property, receivables, shares or equity holdings, and intangible assets such as intellectual property and contractual rights. While there are assets that the law does not allow security interests to be registered over, these assets would generally not be relevant in the context of an M&A transaction.

      However, perfecting a security interest in the Dominican Republic requires that a series of formalities be met in each case, particularly with regards to effect vis-à-vis third parties. There is currently no centralised registry for security interests in general, and the corresponding formalities vary depending on the type of lean in question, which will in turn depend on the asset that is being provided as collateral; eg, real property versus personal property.

      Hence, while a general collateral agreement may be executed for the purposes of pledging multiple types of assets as collateral for a given operation, the security interests in question would then have to be perfected, pursuant to the corresponding procedure and before the corresponding authority, in each case, as we shall see below. We note that in the case of a security interest over an asset belonging to a corporation, unless the corresponding bylaws state otherwise, specific shareholder or board approval will be necessary in order to obtain perfection, as applicable.

      Real Property

      In the case of real property, a security interest may be perfected via mortgage, which may be carried out in either the form of a document executed between private parties or an authentic act by Notary Public; that is, declared before and drafted by a Dominican Notary Public in the presence of either two witnesses or a second Notary Public.

      Once executed, said mortgage agreement must be registered as a lien over the title deed or document of the real property in question via either: i) the corresponding Registrar of Titles Office, in the case of registered real property, which currently represents the vast majority of cases; or ii) the corresponding Mortgage Conservatorship Office, in the case of unregistered real property, which are significantly less common and only allow the use of authentic acts for their base agreement. In either case, the administrative cost of registration before the corresponding authority alone is 2 per cent of the total value of the transaction in question.

      It is this registration of the mortgage agreement that is deemed by law to effectively incorporate the creditor’s secured rights over the real property that was pledged as collateral by the debtor. Said registration also establishes priority based on the time and date of the registration regarding subsequently registered rights, and makes said secured rights have effect in relation to third parties, such as future creditors, secured or otherwise, and even new proprietors in the event that the collateral is sold by the debtor or is in any way transferred to a third party. The concept of temporal priority based on the moment of registration only extends clearly to mortgages but not necessarily to other forms of security interests which either are moot on the subject or expressly excluded.

      With regards to priority, however, we do note that the statutorily provided security interests known as privileges, mentioned in question 8, would have priority over any registered mortgage, regardless of whether or not registration has occurred.

      Personal Property

      Personal property, in turn, may be the object of secured interest via two forms: i) chattel pledge, in which the debtor places the collateral in the creditor’s possession until the debt in question is paid; and ii) chattel mortgage, in which the creditor only seises the collateral in the event that the debtor goes into default. However, we should underline the fact that the chattel pledge is not regularly utilised in practice

      Chattel mortgages are the instrument that is generally used to establish a security interest over personal property. Regulated by Agricultural Promotion Law No. 6186, this type of security interest covers most personal property and movable assets in general, including motor vehicles, inventory and machinery.

      There are several formal requirements that must be met in order to obtain a chattel mortgage’s perfection. Chattel mortgages may be instrumented via either written contract between debtor and creditor or authentic act before notary public by said parties. In this vein, Chattel mortgages must be: i) executed in two originals, before a Justice of the Peace or a Notary Public; and ii) registered before the corresponding Justice of the Peace, which shall include said document in its records to that effect.

      It is important to note that, as a result of special statutory provisions, secured interest over certain types or personal property require a different set of requirements to be met for the purposes of perfection. In this sense, pursuant to General Corporations Law No. 479-08, Intellectual Property Law No.20-00 and Civil Aviation Law No 491-06, secured interest over shares, intellectual property rights and aircraft must be registered before the corresponding Chamber of Commerce, the National Intellectual Property Office and the National Aircraft Registry, respectively.

      Collateral Trust

      While not a considered a security interest in the traditional sense under Dominican law, a Collateral Trust, recently recognised expressly by Law No. 189-11 for the Development of the Housing Market and Trusts in the Dominican Republic, can serve a very similar purpose, while providing the additional benefit of a swift enforcement procedure in favour of the beneficiary.

      Assuming no other security interests or liens exist with regard to the asset(s) being pledged as collateral via a collateral trust, said asset(s) can be granted to the trust in question and effectively separated from the debtor/grantor in terms of property and risk, serving exclusively as collateral in favour of the creditor/beneficiary as of that moment.

      The agreement by which the trust in question is created must be registered before the Mercantile Registry of the corresponding Chamber of Commerce in order to generate effects in relation to third parties. The debtor/grantor may retain the usufruct of the asset(s) pledged as collateral to the extent that it is provided in the terms of the corresponding trust agreement.

      Possibility of a Floating Blanket Lien over Debtor’s Assets in General

      Dominican law does not expressly recognise the general possibility of establishing such a blanket lien nor does it provide for the creation of a general security over a future asset. However, nothing prohibits parties from agreeing to establish security interests over future assets as they are acquired by the debtor.

      Nevertheless, given that under Dominican law securities must necessarily encompass specific, existing assets, the inclusion of future assets requires amendment of the original mortgage or pledge and the registration of said amendment before the corresponding authority. As a result, such a security interest would need constant review and updating, tending to make its upkeep and enforcement a difficult and potentially costly task.

      There are however, specific cases for which blanket liens over certain assets are expressly provided for under the law. An example of this is Agricultural Promotion Law No. 6167, which establishes a ‘universal chattel mortgage’ exclusively in favour of locally registered financial institutions making loans to agriculture, livestock and/or fisheries-oriented business ventures.

      The universal chattel mortgage encompasses all assets that are part of the ‘productive unit’ of said business venture, which include sowings, plantings and their harvested and future fruit, livestock, equipment, machinery, raw materials and any related lease or intellectual property rights. Agreements for this type of security interest must be executed in two originals before a Justice of the Peace or Notary Public and registered before the corresponding Mortgage Conservatorship Office in order to be perfected. With the exception of due and payable taxes and pending employee salaries and rights, this type of security interest has statutory priority with regards to all other creditor rights.

      Another example of a blanket lien mechanism is the enabled under Mining Law No. 146 as a result of its categorisation of mining concession rights as real property and deeming said rights to encompass all assets destined to their operation, even if located outside the corresponding perimeter.

      As a result, mortgages can be established over mining concessions, effectively encompassing related facilities, equipment, machinery, vehicles and all manner of assets employed with regards to the commercial use of the concession. The perfection of mortgages over mining concessions requires registration of the corresponding agreement before the Public Mining Registry and the corresponding Registrar of Titles Office.

      Last verified on Friday 3rd March 2017

    • Dominican Republic

      Under the freedom of contract principle established under the Civil Code, Dominican law recognises debt subordination as a result of complex capital structures or inter-creditor agreements in general. No effect is generated in regard to third-party creditors as a result of these agreements, which may be implemented with regard to both secured and unsecured credit.

      In this sense, with regard to unsecured credit in the context of local bankruptcy proceedings, debt subordination agreements would only be enforceable to the extent that the unsecured creditors in question receive payment as distributed pari passu along with all other concurring unsecured creditors.

      The same would apply with regard to complex capital structures, although as a result of the statutory subordination of share-originated claims as a whole, applicable priority mechanisms would only operate in the event of payment after all other creditor claims have been satisfied.

      Any inter-creditor agreements operating with regards to secured credit should be normally enforceable in the context of bankruptcy proceedings given that, with the exception of the effects on interest accrual, secured credit is not affected by said proceedings.

      Last verified on Friday 3rd March 2017

    • Dominican Republic

      Yes, those loans would be afforded equal treatment under the law among other secured or unsecured loans, as applicable. However, with regard to Dominican corporations, this would only be the case insofar as the statutory conflict-of-interest-related conditions for the validity of said debt financing has been met and/or it has been executed with the consent of the corresponding shareholders’ assembly or board, as required by the relevant provisions of Corporations Law No. 479-08 and/or the debtor company’s bylaws. Otherwise, the loan may be challenged in court by the debtor in question and potentially deemed invalid, with the possibility of the creditor being found liable for damages.

      Last verified on Friday 3rd March 2017

    • Dominican Republic

      There is a mandatory amicable settlement phase provided for under Law No. 4582 prior to formal initiation of insolvency proceedings. Court-declared bankruptcy effectively removes the debtor from the administration of its assets, all active legal proceedings seeking enforcement of unsecured claims are stayed and all indebtedness is deemed due and payable.

      Pursuant to the Commercial Code, payments made by debtor either in kind or for obligations that were not due and payable at the time or shall be deemed null and void if carried out within 10 days of or at any time after the court-declared bankruptcy date. This also applies to any transfers of assets that have been made without consideration in debtor’s favour.

      As of the date of the debtor’s court-declared bankruptcy, the accrual of interest on unsecured debt is suspended. This suspension would persist until the conclusion of said proceedings, which could take years. Interest accruing on secured debt on the other hand, while not suspended, may only be collected from sums generated as a result of the sale of collateral.

      It is also of note that creditors that become administrators or shareholders of an entity in default, risk liability for certain tax and labour-related claims that could be made against said entity. Moreover, if the defaulted entity somehow defrauded employees or left salaries unpaid, criminal penalties may be imposed on administrators, directors or any other individuals with managerial attributions.

      Last verified on Friday 3rd March 2017

    • Dominican Republic

      In terms of variety in the pool of potential lenders/investors, we expect to see some participation of multilateral institutions in M&A deals in 2015. On the other hand, the discussion on broadening of the scope of investments that local pension funds are allowed to make remains ongoing and may result in them being enabled to participate in this type of deals.

      With regards to statutory and regulatory matters, the debate on the approval of sweeping reform to local insolvency statutes and procedures continues. After weathering long discussions regarding key aspects of the corresponding bill, such as the level of judiciary control and involvement, the reform in question would provide the Dominican Republic with a much needed and long-awaited corporate restructuring statute, providing for the reorganisation of a distressed debtor entity, and allowing for the acquisition of said entity out of bankruptcy, as opposed to the current framework’s practically exclusive focus on liquidation.

      There is also pending reform to local securities statutes which, combined with regulatory reform already in place, should have positive repercussions for the ongoing development and growth of the local securities market.

      Business areas to watch for M&A activity in 2015 include mining, energy, infrastructure, tourism, insurance and securities.

      In terms of variety in the pool of potential lenders/investors, we expect to see some participation of multilateral institutions in M&A deals in 2014. Given the existing, ongoing discussion on the matter, we hope to see a broadening of the scope of investments that local pension funds are allowed to make, enabling them to participate in this type of deals.

      With regards to statutory and regulatory matters, we expect to see progress on the approval of sweeping reform to local insolvency statutes and procedures. After weathering long discussions regarding key aspects of the corresponding bill, such as the level of judiciary control and involvement, the reform in question would provide the Dominican Republic with a much needed and long-awaited corporate restructuring statute, providing for the reorganisation of a distressed debtor entity, and allowing for the acquisition of said entity out of bankruptcy, as opposed to the current framework’s practically exclusive focus on liquidation.

      There is also pending reform to local securities statutes which, combined with regulatory reform already in place, should have positive repercussions for the ongoing development and growth of the local securities market.

      Business areas to watch for M&A activity in 2014 include energy, infrastructure, tourism, insurance and securities.

      Last verified on Friday 3rd March 2017

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