Project Finance 2019 Second Edition Comparisons

Last Updated November 04, 2019

Law and Practice


SIGMA International and Global Market Attorneys is the first Panamanian law firm specialising solely in complex contracting, including financings, M&A, joint ventures and construction contracts. Founded in 2016 and currently consisting of three attorneys, SIGMA participates in cross-border project financing and M&A transactions, with highlights including participating in the financing of the largest wind power plant in Central America, the largest solar plant in Panama, several hydroelectric power plants, and multiple infrastructure projects. The team has also participated in multiple M&A transactions involving telecommunications, logistics, dairy products, power generation companies, and one of the largest hospitals in Panama.

Projects being built in Panama have mostly related to the construction of infrastructure projects and power generation projects. There have been no observable developments in the project finance markets in the last 12 months, except that a new public-private partnership law was approved in September 2019 (see 1.3 Public-Private Partnership Transactions), and a substantial amendment to the public contracting law is currently in the early stages of debate at the Panamanian legislature, with the aim of building greater efficiency and transparency in the public contracting process, and modernising it, so as to increase the number of participants in public bids. A lengthier discussion of this amendment will be undertaken once it is approved by the legislature.

During the last decade, the Panamanian Government has been one of the most active sponsors of projects in Panama, mostly devoted to infrastructure. The Panamanian Government currently prefers the turnkey-contract approach to financing (see 1.4 Structuring the Deal), although the expansion of the Panama Canal (which is the single largest project in the last decade in Panama) was financed by a bank syndicate through relatively typical loan documentation (the security was not typical due to the fact that the Panama Canal’s assets are constitutionally forbidden from being transferred, and therefore cannot be granted as collateral).

As for private projects, the sponsors vary, and come from different jurisdictions, mostly from the United States, but also from Latin America and Europe. More recently, important Chinese investment is beginning as a result of a series of international agreements signed by Panama with the People’s Republic of China in 2017. One of the largest power generation plants in Panama, which is expected to be built shortly, is owned by Chinese investors, and the construction of the fourth bridge over the Panama Canal, one of the single largest projects in the last few years in Panama, has been awarded to a consortium formed by two Chinese companies.

A new public-private partnership law was approved in September 2019, and the regulations thereunder are yet to be issued. Therefore, at the time of writing there are no public-private partnerships (“PPPs”) in existence in Panama under this new law.

The new law’s express purpose is to promote the development of infrastructure and public services with the participation of the private sector. Most governmental institutions may enter into PPPs, including companies in which the Republic owns at least 51% of the share capital. One important exception is the water authority. Another exception, in this case in terms of subject matter, is that the public service of health or education, as applicable, will not be delegated to the private sector, even if a PPP contract is entered into in connection with public health or education.

The counterparty to the governmental entity must be a special-purpose Panamanian company, although joint ventures and Panamanian or foreign entities may participate in the procurement process. If awarded the PPP contract, the members of a joint venture or any other Panamanian or foreign bidders will need to create a special-purpose Panamanian company that has the same capital stock distribution as the membership distribution of the joint venture, or that is owned 100% by the Panamanian or foreign bidder, as applicable, and that special-purpose Panamanian company will then execute the PPP contract.

PPP contracts must have a minimum project value of USD15 million, except for those contracts entered into by municipalities, which may have a lower project value.

The Panamanian PPP law does not contemplate unsolicited projects: all projects are required to be originated by the public sector, specifically by the contracting entities that would enter into the relevant PPP contracts or the Consultative Committee described below.

Three institutions will specifically govern PPP projects in Panama: the Governing Entity (in Spanish, ente rector), the National Secretary of PPPs, and the Consultative Committee. Among other things, the Governing Entity will determine the areas in which PPP projects are most needed, and will approve PPP projects and regulations. The National Secretary of PPPs will, among other things, provide operative and technical support to the Governing Entity, prepare the criteria for PPP project selection, prepare the criteria for determining the value for money of PPP projects, evaluate the performance of PPP projects, assist public sector entities in the preparation of procurement documentation, and keep the register of PPP projects. The main function of the Consultative Committee is to make recommendations in respect of the best approaches for the PPP law implementation and to propose PPP projects, all through the National Secretary of PPPs.

The PPP law specifies the governing provisions for government participation, the financing of projects, procurement, the form of the PPP contracts, and termination, in reasonable detail. However, such detail is probably beyond the scope of this guide.

Any disputes are to be resolved first by negotiation, secondly by a non-binding recommendation of a technical panel, and thirdly by arbitration. In the event of arbitration, the applicable law will be Panamanian law, the seat of the arbitration will be Panama, and the language of the arbitration will be Spanish. However, the rules of the arbitration are to be agreed between the parties to the PPP contract.

Different structures exist for the financing of projects in Panama, including bank project financing, the Government-sponsored turnkey contract and bond issuances. The implementation of the new PPP law may suggest new structures.

The typical bank project financing is still not used too broadly in Panama, in part because of its cost. When it is used, it is generally in the context of large, privately sponsored projects, such as wind farms and natural gas-powered generation plants, which require the participation of foreign lenders. In such a case, the credit documentation is governed by the law of a foreign jurisdiction (generally, New York) and prepared by counsel from that jurisdiction, while the security documentation is governed by Panamanian law and prepared by Panamanian counsel.

Purely Panamanian bank project financings can be found in connection with smaller-scale projects financed solely by Panamanian banks, or by syndicates of Panamanian and other Central American or Latin American banks. These projects have consisted mostly of tank farms and hydroelectric generation projects, for which all documentation is governed by Panamanian law and prepared by Panamanian counsel.

However, as a result of the Government being the most important sponsor in Panama at present, the most frequent financing structure in Panama is currently the standard financing used in connection with turnkey contracts. This type of financing consists mainly of a factoring of Government-issued debt instruments (IOUs), which are issued by the governmental contracting entity as payment for the works. Each IOU is issued in connection with a work-progress report prepared by the project contractor, generally one IOU per month. The IOUs are not negotiable documents, and their transfer to a third party is subject to strict formalities.

If there is no financing in place, IOUs are issued to the contractor. If the turnkey contract financing is in place, IOUs are issued to the financial institutions that provided the financing by purchasing the IOUs from the contractor. The regulations governing the issuance of the IOUs provide that, upon such issuance and subject to the existence of financing, the IOU is an irrevocable obligation of the issuing governmental entity, regardless of any claims that the issuing governmental entity may have against the contractor. This provision ensures that any financial institution that purchases the IOUs will not bear contractor or performance risk, but if no financing is in place it still permits the Government to deduct fines and other penalties from the final payment to the contractor.

If there is financing in place, upon the issuance of an IOU the financial institutions pay the contractor the face amount of such IOU, minus the discount agreed in such financing. When the IOU’s payment date arrives, the Panamanian Government pays the full face amount of the IOU directly to the financial institutions. Since the principal credit party of this type of financing structure is the Panamanian Government (although the participants in the financing documents are the contractor and the financial institutions), this type of financing is unsecured, which makes its documentation much less complex than the documentation for a typical secured financing, although it is necessary to involve governmental institutions in the negotiations of the documents. In addition, financial institutions participating in this type of structure may feel the necessity to purchase political risk insurance separately.

The Government also finances some projects by way of bonds, which tends to be the case when the project is built through a Government-owned corporation that is financially not part of the Government. For example, the new terminal at Panama City’s Tocumen International Airport is nearing completion by a Government-owned corporation, which financed the terminal’s construction through bonds placed in the international markets. Also, although at the time it was no longer the construction of a project but its refinancing, a few years ago the Government acquired two toll roads through another Government-owned corporation that issued bonds in the international markets.

The exception to that “rule” is the construction of the Panama City metropolitan railway, which will be completed in stages by a Government-owned corporation that finances the construction using the turnkey contract approach. For example, the financing for Line 2 of the Panama City metropolitan railway was structured as a turnkey contract. However, the purchaser of the Government IOUs obtained the funds to finance the project from a back-to-back 144A/Reg S bond issuance, instead of using its own funds. This added a level of complexity, because the timing of the issuance of the bonds was affected by the timing of the works on the project. Probably the most important complexity of that particular financing arose from the fact that each member of the joint venture that builds the project obtained its own, separate financing, so it became necessary to distinguish the IOUs that were issued by the Panamanian Government for each of the members (although technically such IOUs were issued to the joint venture), and also to restructure the documentation in a manner different from the multiplicity of precedents for turnkey contract financings in which the contractor had been a joint venture.

As indicated above, if the financing is effected through a Government-sponsored turnkey contract financing, there is no collateral involved, because the main credit party is the Panamanian Government. If the financing is effected using a different approach, typically the collateral for the financing consists of all assets of the project company and the shares of the project company owned by its shareholders.

The four main methods of providing collateral in Panama (although not all of them would create a security interest in the narrow sense of the term) are the pledge, the mortgage (which may be a real estate or a chattel mortgage), the trust and the collateral assignment. All four forms are generally used in connection with financings in which collateral is provided. The new PPP law creates a special type of pledge without delivery, but it will be necessary to await the applicable regulations to better understand how that type of pledge will work.

The regular pledge is a possessory security interest on movable property, which requires for its creation the physical (not the title) transfer of the pledged assets to the secured party or an agent for the secured party. Unlike under the Uniform Commercial Code of the United States, the location where the pledged assets are held is not relevant for creation or perfection purposes under Panamanian law. However, if the pledged assets are to be held by a third party on behalf of the secured party (that is, by a third-party depositary), such third party needs to be appointed in the pledge agreement by both the pledgor and the secured party. The pledge is perfected by establishing its date (in Spanish, fecha cierta) – for example, by signing the pledge agreement before a notary public.

The mortgage is a non-possessory security interest, which may cover real estate or movable property. In each case, perfection of the mortgage is achieved by recording the mortgage with the Panamanian Public Registry. Such recordation requires the mortgage to be in the form of a public deed (because only public deeds can be recorded with the Panamanian Public Registry), signed before a Panamanian notary public. As a result, Panamanian mortgages are very formal documents that must be in Spanish and that often need to transcribe authorising resolutions, powers of attorney and (in the case of foreign parties) good standing certificates. Also, although sometimes foreign lenders review a version of the mortgage in a language other than Spanish (generally, in English) and would prefer that the foreign-language version prevail, in case of inconsistencies between the two versions the prevailing version will be the Spanish version. Therefore, and especially because the drafting style in Spanish is different from the drafting style in English, any translations of public deed documents from English into Spanish need to be reviewed by Panamanian counsel to ensure that the meaning, if not necessarily the exact words, is appropriately conveyed.

The trust (in Spanish, fideicomiso) does not really create a security interest, but rather effects a transfer of title to a trustee, subject to the terms of a trust agreement. The trustee becomes the legal owner of the transferred property, but can use or apply such property solely in accordance with the terms of the trust agreement. Generally, in project financings in Panama the trust structure is used mostly to obtain control over the bank accounts and cash flows of the project company. In that respect, the Panamanian trust works very much as an accounts agreement, including a waterfall if necessary. The trust structure is also used as an onshore collateral agency agreement – for example, by transferring the security interests created under the other security documents (eg, pledges and mortgages) to the trust. As a result, the trustee becomes the pledgee and the mortgagee (ie, the secured party on behalf of the banks), and also a facilitator of enforcement in Panama, should the need arise.

The conditional assignment also does not create a security interest, but rather establishes the framework for a transfer of the relevant property to a third party if certain conditions are satisfied. The conditional assignment is generally used in connection with contract rights. In a typical structure, the conditional assignee would be the trustee of the trust. However, if enforcement becomes necessary, the definitive assignee would be the acquiror of the rights, and would need to be in a position to perform the obligations of the project company under the assigned agreements.

Panamanian law permits two types of floating charges, but each has practical difficulties that mean they are seldom used due to practical difficulties. The first type consists of the chattel mortgage, as discussed above. Although the new chattel mortgage law permits the creation of a chattel mortgage over all movable property of a debtor, the Panamanian Public Registry is yet to implement the necessary regulations in that respect, and therefore in practice such a floating charge does not yet exist. Whenever a chattel mortgage is used (which occurs frequently in project financings), it is not used as a floating charge, but rather as a security interest over specific assets, and the documentation describes in detail the assets covered.

The other type of floating charge relates to all of a debtor’s movable property located outside of Panama, and is called a “general pledge of assets”. The creation of such a general pledge of assets is effected by way of a security agreement, which may be in the form of a private instrument or a public deed. However, because such a general pledge can only be perfected by recordation with the Panamanian Public Registry, even if the pledge is created by way of a private instrument it will be necessary to convert that private instrument into a public deed. Although a security interest on such property located abroad would have been created and perfected under Panamanian law upon such recordation, enforcing such a security interest in foreign countries is likely to face practical difficulties. In that light, it may be preferable to create and perfect security interests governed by the law of the foreign jurisdiction where the assets are located.

Generally speaking, possessory security interests are not required to be recorded. However, possessory security interests in the quotas of Panamanian limited liability companies (in Spanish, sociedades de responsabilidad limitada) are sometimes recorded as permitted by the law governing such companies.

Conditional assignments are also not required to be registered in Panama.

Mortgages (whether on real estate or movable property) are required to be registered with the Panamanian Public Registry for perfection. The main registration fee is calculated on the basis of the secured amount, at a rate of USD3 per each USD1,000 of secured debt for real estate mortgages, and at a rate of USD42 for the first USD20,000 of secured debt and USD30 for each additional USD10,000 of secured debt for chattel mortgages. Other nominal fees (generally not amounting to more than USD100 or USD200) are added to the main registration fee.

The extent to which each item of collateral needs to be individually identified in the security document in order to grant a valid security interest in that item depends mostly on whether or not the relevant security interest is perfected by registration with the Panamanian Public Registry. If it is, then each item of collateral needs to be individually identified, including, in the case of equipment, by location, brand, model, serial number and value. The exception to this rule is the general pledge of assets, as discussed above, although the practicality of its enforcement abroad is somewhat in question.

Pledges are the only actual security interests perfected other than by registration with the Panamanian Public Registry. As indicated above, pledges are perfected by establishing their true date – for example, by signing the pledge agreement before a notary public. However, under Panamanian law a pledge is not even created until the pledged asset is physically delivered to the secured party. Although it is possible to establish an obligation to grant a pledge over future acquired assets, which cannot be individually itemised in the security document because such assets are unknown at the time of execution of the security document, the requirement of delivery limits the number and types of assets that it is practicable to pledge.

If a trust or conditional assignment is used, as indicated above there is not really an issue of creating or perfecting a security interest. However, the assets that are subject to the applicable agreement need to be described in a manner that is sufficient for their identification upon enforcement. If the asset subject to the agreement is of a unique nature (eg, a specific bank account or a specific contract), then the asset will be specifically described, but if the asset is of a generic type (eg, accounts receivable), then no specific description is necessary if the generic description is sufficiently clear. Trusts and conditional assignments may also contain obligations to subject after-acquired property described generically to their terms.

Most of the restrictions that exist in Panama in respect of granting security are of a formal nature. For example, as discussed above, mortgages are required to be in the form of a public deed, and as will be discussed below private enforcement mechanisms contained in pledge agreements are required to comply with certain formalities.

Having said that, the main legal restrictions are not different from those found in many jurisdictions. The person granting the security is required to have rights in the collateral (generally, that person needs to own the collateral), and must also be entitled to transfer the collateral, or at least not be legally or contractually prohibited from doing so. Last but not least, the collateral must secure a principal obligation. Upon the payment in full of the principal obligation, the security expires as a matter of law, although some formalities may need to be followed to document such expiration, as discussed below.

In any event, it is not necessary under Panamanian law for the person or entity granting the security to be the debtor under the principal obligation. There are also no thin capitalisation or financial assistance rules affecting the granting of security interests in favour of third parties.

In Panama, only liens that are registered with the Panamanian Public Registry (ie, mortgages and general pledges of assets) are searchable. The Public Registry’s search system is reliable with respect to real estate mortgages, but does not always uncover every chattel mortgage that may have been registered, in part due to the ongoing upgrades arising from the new chattel mortgage law.

Regular pledges are possessory liens. A prospective lender can satisfy itself that any movable assets that are in the possession of its prospective debtor are not pledged. However, such assets may be subject to a chattel mortgage, and a search of the Public Registry may still be in order.

Trusts are generally not recorded with the Panamanian Public Registry, although they are required to be recorded if there is a real estate aspect involved. Therefore, in general a prospective lender needs to see all the existing financing agreements of the prospective debtor to ensure whether or not a trust affects any of such debtor’s assets. The same applies to conditional assignments.

In Panama, once the secured obligations have been paid in full, all security documents automatically cease to be enforceable because it is a legal requirement that security documents secure a principal obligation. However, some legal and practical requirements must be satisfied in order to demonstrate such loss of enforceability. Mortgages are officially released by a filing made by the secured party in the Panamanian Public Registry. Possessory liens (ie, pledges) are officially released by the secured party delivering the pledged movable assets back to their owners, sometimes together with a letter to the effect that the lien has been released. Trusts are also released by way of a letter and, to the extent that the trust property can physically be transferred back to the original owner, by effecting such transfer. Conditional assignments are officially released by way of a letter (which may also need to be addressed to the debtor’s counterparties in the conditionally assigned agreements), to the effect that the conditional assignment agreement has been terminated.

The circumstances under which a secured party may enforce its collateral depend on the terms of the relevant security document. Typically, Panamanian pledges may be enforced in court or out of court (by way of public or private auction). If the pledge is to be enforced out of court, the mechanism for such enforcement needs to be specifically agreed in the pledge agreement.

Mortgages in Panama, on the other hand, can only be enforced in court, generally through expedited enforcement proceedings, which take less time than regular enforcement proceedings. The new chattel mortgage law provides for out-of-court enforcement, but the relevant regulations are yet to be issued.

Trusts and conditional assignments are generally enforced out of court, pursuant to provisions contained in the relevant agreements although, with one exception, there is no legal requirement as to the form that those provisions need to take. The exception relates to trusts in which the trustee or any of its affiliates is also a beneficiary of the trust, in which case the trust agreement is required to contain specific provisions relating to enforcement.

The choice of a foreign law as the governing law of the contract and the submission to a foreign jurisdiction will be upheld in the courts of Panama, subject to infrequently occurring exceptions, such as the foreign courts not accepting the case. If enforcement proceedings in respect of an agreement governed by foreign law take place in a Panamanian court, the relevant provisions of the applicable foreign law will need to be proven in court.

A judgment given by a foreign court or an arbitral award against a debtor would be enforceable in Panama without a retrial of the merits of the case, as follows:

  • if, with respect to a foreign court judgment, the Fourth Chamber of General Affairs (in Spanish, Sala Cuarta de Negocios Generales) of the Supreme Court of Panama, for purposes of issuing a writ of exequatur ordering such enforcement, must confirm that:
    1. the applicable foreign courts enforce the judgments of the courts of Panama;
    2. the debtor or its agent was personally served with process by the applicable foreign court in connection with the action giving rise to such judgment;
    3. the judgment arose out of a personal action against the debtor;
    4. the obligation in respect of which the judgment was rendered is lawful in Panama and is not contrary to the public policy of Panama;
    5. the judgment was properly authenticated by diplomatic or consular officers of Panama, or pursuant to the Hague Convention for the Apostille; and
    6. a copy of the judgment was translated into Spanish by a translator licensed in Panama; or
  • with respect to the arbitral award, such award will be enforced in accordance with the terms of the New York Convention on Foreign Arbitral Awards or the Inter-American Convention on International Commercial Arbitration, whichever is most favourable to the secured party.

A foreign lender’s ability to enforce such lender’s rights under a loan in a Panamanian court is not affected by the fact that such lender is of foreign origin. However, regardless of the origin of the lender, judicial proceedings in Panama take place at a slower pace than some foreign lenders might desire. In addition, if the loan is governed by a foreign law, the requirement for the applicable provisions of such foreign law to be proven in court is likely to lengthen the enforcement proceedings further.

With respect to security documents, enforcement by a foreign lender is also not affected if such lender is of foreign origin. However, if the security documents are made in favour of more than one secured party, each of those secured parties would need to appear before the court. If there have been any assignments of the loans between the signing date and the enforcement date, any failure to simultaneously assign the security documents would impair the ability of the secured parties to enforce the security documents, because the assignee of the loan would not be listed on the security document as a secured party. In order to avoid these types of situations, most syndicated cross-border financings in Panama appoint a Panamanian collateral agent or trustee, who would be the only listed secured party, andultimately enforces the Panamanian security documents on behalf of the real secured parties.

In Panama there are no restrictions on foreign lenders granting loans, as long as such loans are not offered to the general public or the markets in Panama, as opposed to previously identified specific entities.

Granting collateral to foreign lenders is not restricted or impeded in any way under Panamanian law. However, for practical reasons, as discussed above, it may be preferable to appoint a Panamanian collateral agent or trustee to act as the secured party on behalf of the foreign lenders.

The foreign investment regime in Panama is substantially open. There are no foreign exchange transfer restrictions. A law protects investments by foreigners against changes in tax laws for up to ten years.

There are no restrictions on payments abroad or the repatriation of capital by foreign investors.

In Panama, it is permissible for a project company to maintain offshore foreign currency accounts. It is important to note that, although the official currency of Panama is the balboa, the de facto currency in Panama is the US dollar, which has legal tender status and against which the balboa exchanges at a one-to-one rate.

In Panama, none of the financing or project agreements need to be registered or filed with any governmental authority, and do not otherwise need to comply with local formalities in order to be valid or enforceable, although the security documents may need to be registered with the Panamanian Public Registry as described above. In addition, to enforce any documents in a Panamanian court, the following is necessary:

  • if such document was signed outside of Panama, the signatures of the parties must be notarised and apostilled;
  • stamp taxes in the amount of USD0.10 per each USD100 of the face amount of the obligation contained in such document must be paid; and
  • if such document is in a language other than Spanish, it must be translated into Spanish by a translator licensed in Panama.

Ownership of land, in and of itself, does not require any licence, although there are some constitutional restrictions on foreigners owning land near the country’s borders. However, the ownership of land does not grant the ownership of subsurface natural resources, which belong to the State. The exploitation of subsurface natural resources requires concessions issued by the Government.

Agency and trust concepts are recognised in Panama.

Competing security interests relating to pledges over tangible movable assets are impossible in Panama, because the creation of the pledge depends on the delivery of the asset to the secured party or a third party on behalf of the secured party. Since only one party can have possession of any specific tangible movable asset at any given time, only that person can have a security interest in that specific asset at that time.

In theory, competing security interests relating to pledges over intangible movable assets would be possible, because formal delivery (in Spanish, entrega ficta) of the intangible movable assets is effected by way of a public deed, and the owner of the intangible movable assets could conceivably grant several public deeds in that respect. However, in practice the most important intangible movable assets are accounts receivable and bank accounts, and those types of assets generally become collateral by way of a trust, which transfers both ownership and control of the asset to the trustee.

With respect to security interests that are perfected by recordation (mortgages and general pledges of assets), it is possible to have competing security interests, but then their priority is established by recordation date, with the earliest recorded security interest having first priority, and any subsequently recorded security interest having lower and lower priority.

A project company may be organised outside of Panama, but in that case contracts with the Panamanian Government generally require such company to also register a branch (or create a subsidiary) in Panama. Such a requirement does not exist for private projects, but may be imposed if the project is subject to a concession or a licence from the Government. The two most used corporate forms for project companies in Panama are the corporation (in Spanish, sociedad anónima) and the limited liability company (in Spanish, sociedad de responsabilidad limitada).

Prior to the 2017 bankruptcy law, Panamanian bankruptcy laws contemplated liquidation only, but creditors and debtors now have recourse to two types of insolvency proceedings: liquidation and reorganisation. However, because of the limited number of reorganisations that have been filed since the 2017 bankruptcy law became effective, the courts’ interpretation of such law is still evolving.

The commencement of any insolvency proceeding operates as an automatic stay of the following:

  • the commencement or continuation of any enforcement proceedings (except for workers’ claims) against the debtor;
  • the unilateral termination of any agreement, the acceleration of any obligation or the enforcement of any liens as a result of the commencement of the insolvency proceedings; and
  • any act to obtain possession of any real estate or movable assets of the debtor that are necessary for the operation of the business.

In a reorganisation proceeding, secured parties may not enforce their liens without authorisation from the court, but secured parties may begin enforcement of their liens in a liquidation proceeding after the court authorises the liquidation.

In a company’s insolvency, secured parties (ie, those that have mortgages and pledges covering the assets of the bankrupt company) have priority over workers, and workers have priority over unsecured creditors. However, unpaid taxes and unpaid insurance premiums relating to any real estate have priority over any mortgages on such real estate, and mechanics’ liens on any movable assets in the possession of the “mechanic” have priority over any chattel mortgage on such movable assets.

If any debt secured by liens is not fully satisfied after the enforcement of such liens, the applicable secured parties may collect the remaining balance from the bankruptcy estate, but such deficiency claim would be treated as an unsecured claim with no priority. The priorities among unsecured claims are specifically set forth in the Panamanian Civil Code but, other than taxes and expenses relating to the bankruptcy proceedings, unsecured claims that have priority over other unsecured claims do not generally aggregate to large amounts.

If a borrower, security provider or guarantor were to become insolvent in Panama, the filing of the bankruptcy petition would preclude the commencement or continuation of any enforcement proceedings, as indicated above, but another risk area is the potential avoidance of certain transfers made by the debtor. In a liquidation proceeding, the court may avoid the following:

  • any agreement or transfer made to the detriment of creditors’ rights within one year prior to the court’s order authorising the liquidation;
  • any agreement or transfer that may be considered gratuitous in favour of related parties (such as shareholders, directors and officers) within four years prior to the court’s order authorising the liquidation; and
  • any agreement or transfer made with the intent of defrauding any creditor at any time prior to the court’s order authorising the liquidation.

Also, in a liquidation or reorganisation proceeding, the court may terminate any executory contract and unexpired lease.

The Republic of Panama, its municipalities, State-owned companies and companies in which the Republic of Panama owns at least 51% of the equity are excluded from bankruptcy proceedings. In addition, companies operating in regulated industries are subject to special bankruptcy proceedings established in the laws regulating their respective industries. For example, the insolvency of banks is governed by the banking law; that of insurance companies, by the insurance law; that of broker-dealers, investment companies and other securities intermediaries, by the securities law; and that of licensed trustees, by the trustee supervision law.

There are no specific restrictions, controls, fees and/or taxes on insurance policies over project assets provided or guaranteed by insurance companies.

Insurance policies over project assets may be payable to foreign creditors. However, a Panamanian trustee is generally appointed in Panamanian project financings, who then becomes a loss payee of such insurance policies for the benefit of the foreign secured creditors.

Payments of principal made to lenders are not subject to withholding tax. Payments of interest and fee payments made to foreign lenders are subject to withholding taxes at an effective rate of 12.5% of the payment amount (although applicable double-taxation treaties may provide for different withholding tax rates).

Stamp taxes are, with some exceptions, payable on documents that contain an obligation in excess of USD10 at a rate equal to USD0.10 per each USD100 of the face amount of the obligation. Most exceptions are generally not applicable to project financings.

Although there is no usury law as such in Panama, the Panamanian Civil Code limits interest rates to 24% per annum. In calculating such rate, all interest, fees, penalties and other amounts charged to the debtor, other than the principal of the loan, are to be taken into account. However, banks holding a licence issued by the Panamanian Superintendence of Banks do not have any limitation on the interest rates that they may apply to their loans.

Project agreements for projects to be built in Panama may be governed by Panamanian law or by foreign laws, depending generally on whether the project is sponsored by the Panamanian Government or by private Panamanian or foreign sponsors. The size of the project also has an influence on the decision: the larger the project, the more likely it is that some documentation will be governed by foreign laws.

Financing agreements for projects to be built in Panama may be governed by Panamanian law or by foreign laws, depending generally on whether the lenders are Panamanian or foreign.

In project financings for projects to be built in Panama, typically only the security documents and the licences and permits are governed exclusively by Panamanian law. All other documents may be governed by Panamanian law or by foreign law, as indicated above.

SIGMA International and Global Market Attorneys

Edificio Torres de las Américas
Torre B, Piso 6, Oficina B-601
Panama City
Republic of Panama

+507 201 5150
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Law and Practice in Panama


SIGMA International and Global Market Attorneys is the first Panamanian law firm specialising solely in complex contracting, including financings, M&A, joint ventures and construction contracts. Founded in 2016 and currently consisting of three attorneys, SIGMA participates in cross-border project financing and M&A transactions, with highlights including participating in the financing of the largest wind power plant in Central America, the largest solar plant in Panama, several hydroelectric power plants, and multiple infrastructure projects. The team has also participated in multiple M&A transactions involving telecommunications, logistics, dairy products, power generation companies, and one of the largest hospitals in Panama.