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Panama

Last Verified on Monday 5th August 2019

    General

    • Panama

      Project finance is extremely common in Panama both for public and private infrastructure projects.

      Public projects, sponsored by state-owned companies, include toll highways and airport expansions.

      In the private sector important energy generation projects, both renewable and non-renewable have been financed via project finance structures.

      New public projects have been advertised, the most relevant being a 500km 230KV transmission line with a complex project finance structure.

      Last verified on Monday 5th August 2019

    • Panama

      Historically sponsors have been local developers or state-owned enterprises (for specific sectors). Lenders are usually bank syndicates, depending on the sector and the investment amount international banks are involved.

      It is uncommon for insurance companies or other institutions to be involved in project financing.

      Throughout our history Panama has received more foreign direct investments from the US than from other regional players and Europe.

      The recent establishment of diplomatic relations with China has resulted in the execution of several inter-government agreements including one to build a rail road along the country from East to West, if the trend continues we expect Chinese investment to increase in the country.

      Last verified on Monday 5th August 2019

    • Panama

      Private projects are usually developed under an EPC contract with a separate O&M agreement and a robust security structure usually comprising real estate mortgages, chattel mortgages, share pledges and an underlying trust structure.

      Public projects vary in nature; historically they have been similar to the private projects described above. Nevertheless, public bids for new projects have been tendered under BOT structures. 

      The newly elected government has submitted to the Congress a law introducing the regulation of PPPs, so we foresee the use of this structure in the coming year.

      Last verified on Monday 5th August 2019

    • Panama

      There is no legal requirement for project companies to be incorporated under the laws of the Republic of Panama but if a foreign company wishes to operate in Panama it needs to register a branch in Panama. 

      Local companies or branches of foreign companies will need to apply for different permits and will need to register before different public entities to carry out business in Panama. It is advisable and more cost effective to operate under a Panamanian company than under the local branch of a foreign entity.

      Local law does not require the equity of the local company to be held by local investors, nor for said investors to be residents in Panama. There is no restriction on the nationality or residence of the shareholders, directors or officers of a Panamanian company.

      Limitation of liability of shareholders is very well established under Panamanian law.  There have been some cases where the corporate veil has been lifted, but most of them have to do with criminal proceedings and corruption cases and not commercial or civil disputes.

      Last verified on Monday 5th August 2019

  • Foreign Investment

    • Panama

      Panama has had a dollarised and very open economy since its independence from Colombia in 1903. There are no restrictions to foreign investment with only exceptions of retail business. There are also no foreign exchange restrictions.

      Foreign investment in Panama is protected and promoted by Law 54 of 1998, which states that local and foreigners will at least be treated equally and grants additional protections to foreigners investing in Panama once the relevant registration before the authorities is completed. Some of the benefits that are granted to foreigners are:

      • the corporate structure of companies incorporated by foreigners will not be changed even if there is a change in law;
      • changes in the national tax regime implemented after the date of registration of the investment as a foreign investment will not affect the project company;
      • changes in the municipal tax regime will only affect the project company every five years; and
      • any benefit enjoyed by the project company with regards to import duties cannot be revoked.

      Recently, a special Cabinet member reporting directly to the President of the Republic was appointed whose sole purpose is to facilitate private investment in Panama and serve as a liaison between private investors and the government.

      Last verified on Monday 5th August 2019

    • Panama

      The Panamanian monetary system is fully “dollarised”. The US dollar is legal tender in Panama, which is in fact the almost exclusive circulating medium of exchange. Under article 1171 of the Fiscal Code, the Panamanian Balboa and the US dollar are equivalent in value.

      The national currency is the Balboa but has never been issued as paper money (save for some months in 1941). Sporadically, silver, gold or other metals Balboas are coined. Fractional Balboas are coined normally. Fractional Balboa coins are equivalent to the US fractional coins; both circulate indistinctly.

      Under Panamanian legislation (Civil and Commercial Codes), it is a well-established principle that the contracting parties are free to agree on the currency to be used in paying monetary debts.

      Last verified on Monday 5th August 2019

    • Panama

      Law 54 of 1998 grants stability to investments made by foreigners in Panama guaranteeing, among other things, the repatriation of capital, dividends, interests and profits.

      Additionally, the recently elected government has appointed a minister to facilitate private investments in Panama. In addition, new legislation regarding public procurement and PPPs has been submitted to Congress and will hopefully be approved in the coming weeks.

      Last verified on Monday 5th August 2019

  • Project and financing documents

    • Panama

      The registration or filing of financing or projects documents is normally not required; nevertheless in certain highly regulated industries the regulator might impose on a borrower subject to supervision by the regulator the obligation to provide evidence of the available financing to comply with the terms and conditions of its licence or concession.

      Last verified on Monday 5th August 2019

    • Panama

      Promissory notes may be governed by local or foreign laws. However, it is advisable that promissory notes be drafted in compliance with local laws, since they are deemed to be executive titles subject to expedite enforcement rules, attachment and execution proceedings.

      Last verified on Monday 5th August 2019

    • Panama

      It is not mandatory for agreements be governed by local laws. Panamanian law allows agreements to be governed by foreign laws, and local judges must enforce such foreign laws. 

      However, it is common for most of the security structure to be governed by local law, especially when the assets provided as security are located in Panama. Local law promissory notes are also common and advisable. 

      Last verified on Monday 5th August 2019

  • Collateral security

    • Panama

      Yes, the appointment of a collateral agent is very common for the benefit of a group of lenders. There is no need for the collateral agent to be registered in Panama unless there are Panamanian assets to be mortgaged. If assets are to be mortgaged the collateral agent must be registered in Panama as a foreign company or preferably a local collateral agent should be appointed.

      Last verified on Monday 5th August 2019

    • Panama

      Contrary to other jurisdictions, companies in Panama cannot grant a blanket security over all of their present and future assets located in Panama. Under Panamanian law and, generally, there are five types of security interests that can be created over assets based in Panama: mortgages, chattel mortgages, transfer in trust and charges over shares; conditional assignment of certain rights are also common. Licences, permits and concessions can usually be granted as security with some notable exceptions such as water usage rights. In some cases, the change of control requires the approval of regulatory entities.

      The enforcement of such securities needs to be carefully evaluated; complex projects rely on a network of permits, licences and concessions to operate. The execution of securities over permits can sometimes take time during which the project might not be able to operate legally.

      If the securities are enforced and the enforcement is not timed correctly, the project company might default under the terms and conditions of the licences, permits and concessions that are being enforced.

      The preferred security structure in Panama includes a charge over the shares of the project company(ies) as the main security together with mortgages, chattel mortgages or conditional assignments over the material project documents mainly to prevent a third party from obtaining a better right to it. 

      After-acquired property will need to be expressly mortgaged or charged in favour of lenders since it will not be automatically included in the security package.

      Last verified on Monday 5th August 2019

    • Panama

      The fees associated with registering collateral security interests over property registered at the Public Registry is as follows:

      • for immovable assets a fee of US$3 for each US$1,000 secured;
      • for movable assets, a fee of US$42 for the first US$20,000 secured and US$30 for each US$10,000 secured thereafter; and
      • for assets to be registered in favour of a trust, a fee of US$2.50 is payable for each US$1,000 secured or for each US$1,000 of property value, whichever is highest.

      Last verified on Monday 5th August 2019

    • Panama

      Security documents do not need to stipulate the value of collateral security but the value of the guaranteed obligation. Foreclosure in Panama is usually done on the basis of the registered value (in case of real estate) or the value determined by an appraiser. The foreclosure process for mortgaged property involves judicial public auctions where the property is sold to the highest bidder starting from the base value established as stated before. If the sale is for an amount higher than the amount secured, the excess is returned to the owner of the foreclosed property.

      Last verified on Monday 5th August 2019

    • Panama

      In most cases, assets granted as collateral need to be individually identified in the best way possible. If the items have serial numbers, they must be stated in the security document.

      Recent legislation (Law 129 of 2013) allows the creation of secured interest concerning some assets that may not be individually identified such as inventories or fungible goods.

      Last verified on Monday 5th August 2019

    • Panama

      Liens are not centrally recorded nor searchable.

      Mortgages are registered in the same registry where the title over the mortgaged assets is registered.

      Pledges are not easily searchable since they are usually recorded on private documents. However, since pledges require for the guaranteed creditor to keep possession of the pledged asset, it is not allowed to constitute several pledges regarding the same asset. 

      The transfer of certain assets into a trust is searchable as long as the title over the assets is recorded in a public registry.

      Last verified on Monday 5th August 2019

    • Panama

      Collateral consisting of mortgages must be foreclosed via a judicial process before a competent court. Lenders can participate as buyers in any such sale and they can bid the debt owed by the company in lieu of cash.

      If authorised on the pledge agreement, pledged assets can be sold via a public or a private sale, the lender may also decide to keep the pledged property as long as certain conditions are met. Creditors guaranteed with a pledge may appropriate pledged assets in payment of debt provided that a fair valuation method has been previously agreed. In any case, if the value of pledged assets exceeds the amount owed and guaranteed by the pledge, the creditor must pay the difference to the pledgor.

      As previously stated, it is more efficient to foreclose on the pledged shares of the project company versus trying to foreclose on all the related permits and assets individually in order to transfer them to a new special purpose vehicle.   

      Last verified on Monday 5th August 2019

    • Panama

      Certain creditors have higher statutory priority over others and the priority will depend on the type of asset being used as guarantee.

      For movable assets the Civil Code of Panama establishes a list of seven potential creditors and their priority. Movable assets first guarantee their construction, repair, conservation or the price of their sale. Once these guarantees are satisfied, then they may be used to guarantee credits with a pledge over the movable asset.

      For immovable assets, the Civil Code of Panama establishes that the credits in favour of the state in connection with unpaid taxes, to insurance companies for the insurance premiums for the last two years, for credits secured by mortgages as long as said mortages have been registered at the Public Registry and credits registered at the Public Registry by order of a judge in connection with embargoes, attachments and court rulings.  

      Last verified on Monday 5th August 2019

    • Panama

      In general terms, there are no restrictions with respect to the operation of a project post-foreclosure as long as the project maintains all the relevant licences and permits in place. In some cases, change of control of the operating company will require to notify or get approval from regulatory entities.

      Last verified on Monday 5th August 2019

  • Dispute resolution

    • Panama

      The courts of Panama would give effect to and enforce a final judgment rendered by a foreign court without re-examination or re-litigation of the matters adjudicated upon, provided the foreign judgment satisfies the following requirements:

        • judgment has been rendered in an action in personam;
        • summons and complaint have been personally served on the defendant in the jurisdiction where the action is filed; 
        • the obligations sought to be enforced in the judgment are not contrary to Panamanian public policy;
        • judgments of the courts of Panama are equally enforced by such foreign courts; and 
        • a copy of the said foreign judgment has been duly legalised by a Panamanian Consulate and submitted for exequatur.

      In any proceeding in Panama to enforce a document subject to the law of a foreign country, the court would interpret the provisions of such document by reference to the law of such foreign country provided that the provisions of the law of such foreign country do not violate the public order laws of Panama.

      Panama is party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and any other relevant conventions.

      Last verified on Monday 5th August 2019

  • Miscellaneous

    • Panama

      Subordination of debt is not expressly recognised under Panamanian law. However, Panamanian courts in a few cases have decided to recognise its validity under the freedom of contract principle and have enforced the same under certain restrictions (eg, enforceable between parties and limited to the credit amounts involved).

      Last verified on Monday 5th August 2019

    • Panama

      There are constitutional restrictions on foreigners owning land within 10km of Panama’s land borders. Natural resources are owned by the state and concessions are granted for their use and exploitation.

      Special legislation exists for some industries, particularly public services, that facilitates obtaining rights of way for infrastructure projects.

      Last verified on Monday 5th August 2019

    • Panama

      Private investment is well regarded and welcomed in Panama. It is an investor-friendly jurisdiction.

      From the lender's perspective, certain industries are more regulated than others and care must be taken to ensure all relevant permits are obtained to avoid unnecessary delays or the cancellation of the project.

      There are certain tax payments that must also be taken into consideration. The payment of interests to lenders abroad by a Panamanian company is subject to a withholding tax equal to 50 per cent of the current tax rate. The withholding tax as of today is 12.5 per cent. 

      Last verified on Monday 5th August 2019

  • Public–private partnership (PPP)

    • Panama

      At the moment we do not have a law regulating public-private partnerships. Nevertheless there are several sector specific companies whose shares are jointly owned by the state and private companies. The newly elected government has recently submitted to the Congress a new legislation regarding this matter, which is yet to be approved.

      Last verified on Monday 5th August 2019

    • Panama

      As stated before, we do not have a law that regulates public–private partnerships nevertheless most privatized companies maintain the state as a shareholder.

      The state currently holds minority shareholdings in the national electricity distribution companies, some electricity generation companies and one telecommunication company.

      Last verified on Monday 5th August 2019

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