Law 212 of April 29th, 2021 and Executive Decree 90 of July 9, 2021 (hereinafter the “Regulations”) are intended to protect credit and creditors against insolvency situations originated during the state of national emergency or on the occasion of this, through a conciliatory process for the reorganization of companies, called the Reconciled Reorganization Process, in order to promote the recovery and conservation of companies as sources of employment and obtaining resources to face their obligations.
May benefit from the regime all individuals, business and commercial companies registered or not registered in the Public Registry of Panama, who have their business address, branch, agency or establishment in the Republic of Panama and who comply with the following requirements:
- Are in a situation of default, imminent insolvency or foreseeable lack of liquidity due to the state of national emergency imposed by the COVID-19 pandemic.
- Have a minimum of 24 months of continuous operation.
- Submitted the notice of intention within a maximum period of 2 years, counted from the date of enactment of Law 212, without prejudice the conciliation agreements can be executed after the two years term.
Are excluded from benefiting from this regime: (i) any public law entity; (ii) those in which the State has a participation of or more than 51%; (iii) regulated companies that are subject to a special recovery, liquidation or intervention regime and; (iv) companies who provide public services.
Reconciled Reorganization Process includes an extrajudicial mechanism called conciliation, through which the debtor and his debtors may negotiate and reach an agreement on the Continuity Plan of the company for its reorganization, within a period of bankruptcy financial protection, with the assistance from an independent financial expert for the preparation and/or review of the company’s Continuity Plan to achieve the purposes of the process.
For the purposes of the Law, the conciliation may be institutional when it is carried out; (i) in any of the private arbitration, conciliation and mediation centers that are authorized to operate in the Republic of Panama, or; (ii) in an ad hoc or independent procedure when the parties appoints as conciliator an independent professional, duly qualified, who is not part of the lists maintained by the arbitration, conciliation and mediation centers.
Private conciliation centers may apply the provisions of their regulations to the conciliation procedure, administration expenses, personnel fees and the choice of the conciliator.
A highlight of the Regulations is that one of the requirements to be a conciliator is to have completed a training as a reorganization conciliator with a minimum of 40 hours and this represents an obstacle for the Regulations to full function for those who intend to initiate a process of reconciled reorganization.
Only the debtor, its legal appointee, or the Board of Creditors, through his representative, will be entitled to initiate a reconciled reorganization process.
It is optional for the debtor to request to initiate a reconciled reorganization process, but it is mandatory for the creditors to appear before him once it has been initiated. Similarly, the debtor is obliged to appear in the Reconciled Reorganization Process when requested by the Creditors’ Board.
The Reconciled Reorganization Process formally begins with the submission of the notice of intention at the insolvency judge or, failing that, the corresponding civil circuit judge, without the need to submit the required documents.
Prior to filing the notice of intention, the debtor must meet with his main creditors to appoint a conciliator, by mutual agreement, and formalize its desire to initiate a reconciled reorganization process. For such purposes, the debtor shall submit to the designated conciliator a request accompanied by the documents detailed in the Regulations.
The Regulations will be valid for two years and will remain in force until the reconciled reorganization procedures, who have been initiated during the validity of the Law, are concluded.
To know more details on how to apply to this process, the procedure itself, the rights and obligations of debtors and creditors, please do not hesitate to contact us to provide you with a comprehensive advice tailored to your needs.