Project Finance 2023 Comparisons

In the Dominican Republic (DR), project finance endeavours may seek credit from private financial entities such as banks or credit corporations, either syndicated and not, of both local and foreign origin, if said funding is destined for high-scale projects. For low-scale projects, sponsors usually provide equity and request small loans from local banks to finance the development of the project, as local banks usually prefer to participate in financing as part of a lending syndicate.

Lenders are typically commercial banks, equity funds, foreign banks, multilateral entities and/or export credit agencies located within the project site’s jurisdiction.

The sponsors are usually companies related to the debtor and/or linked to the development of the project (either directly or through a subsidiary or holding company); on public/state-owned projects, the Dominican State and its institutions may appear as sponsors.

Sponsors may adopt one of the following typical corporate structures for project finance endeavours in the DR, to mitigate potential risks arising from the execution of such project and/or to limit any potential claims arising from an event of default:

• a limited liability company (sociedad de responsabilidad limitada or S.R.L., for its acronym in Spanish); or
• a simplified anonymous corporation (sociedad anónima simplificada or S.A.S., for its acronym in Spanish), depending on the capital structure of the sponsors.

Usually, lenders perform a comprehensive due diligence process regarding the debtor’s and the sponsors’ risk profile, as well as the project documentation and the validity of the permits and licences required under DR law to develop the project.

Also, high-scale projects (capital-intensive) to be executed by the Dominican State and public institutions (eg, in the energy sector) usually arrange financing with multilateral entities such as The World Bank, the International Finance Corporation or the Inter-American Development Bank. These institutions offer support for funding as well as technical assistance/expertise to make these projects financially viable.

For the private sector, some projects have obtained financing from multilateral entities and others have secured financing from local banking entities.

Article 2 of Law 1-12 on the DR National Development Strategy fosters synergy between public and private actions to achieve the country's vision for 2030.

Law 47-20 regulates public-private partnerships (PPPs) in the Dominican Republic. Although said legislation is not closely restricted to certain types of projects, it is quite adjusted to project finance for high-scale projects. Its purpose is to establish a regulatory framework to govern the initiation, selection, award, contracting, execution, follow-up and termination of PPPs.

The private sector usually:

• is responsible for the design, construction and/or improvement of infrastructure;
• assumes project-related financial, commercial, technical and operational risks;
• receives a financial return for the provision of the service, either through user charges or through financial agreements with the government entity in question; and
• may or may not have a transfer of ownership of the asset.

The public sector retains responsibility for the quality of the service provided and its delivery.

Law 47-20 defines PPPs as the mechanism by which public and private agents voluntarily execute a long-term agreement, as a consequence of a competitive process, for the provision, management or operation of goods or services of social interest in which there is total/partial investment by private agents, tangible or intangible contributions by the public sector and risk sharing between both parties, and where the remuneration is connected to the performance as established in the PPP contract.

PPPs are manifested through initiatives (defined as a formal and documented proposal that aims to present a project to satisfy a public need through a PPP) of a public nature (originating from public agents, with or without a transfer of resources from the State) and a private nature (originating from private agents that propose the creation of the PPP to the State). They may only refer to goods and services of social interest in the sectors identified by the State through a resolution of the National Council of Public-Private Partnerships. They may be based on:

• current official, national or international statistics;
• statistics collected or gathered during studies carried out by professionals of recognised technical capacity; or
• economic market studies.

PPPs require compliance with the provisions of Law 47-20 and its amendments, which refer to the execution of a public bidding process. In addition, the construction of public projects is subject to compliance with the provisions of the Public Procurement Law 340-06 and its amendments, which requires a public bidding process, among other things.

Typically, a combination of debt (either a bank loan or syndicated financing) and equity is the most common option for stakeholders, depending on the scope of the project to be developed. Stakeholders usually function as joint guarantors and sponsors of the project before the lender, as well as co-debtors. If any material agreements have been executed at the time of structuring the project financing, its assignment could be required in order to secure payment of the loan. In addition, the execution of a direct agreement with the counterparty to some of those contracts is advisable, to secure lenders’ rights.

The subordination of debt is permitted under DR law. In the event of bankruptcy, secured creditors are allowed to maintain their rank (second to privileged creditors) throughout the process, and may even foreclose on their security. Subordinated lenders would be paid pari passu if the senior lenders waive their priority.

In accordance with the DR's climate goals, the government has committed to reduce its greenhouse gas emissions by 2030. By means of Law 57-07, the country's goal is that 25% of the electricity produced in the DR come from renewable energy sources by 2025. To this end, renewable energy projects are heavily promoted. Tourism, infrastructure, real estate and free trade zones also constitute areas of interest nowadays.

Lenders can obtain security to cover the principal, interest and other amounts owed under the loan agreement, in the event of default or early termination.

DR law does not have any restrictions on what can be granted as a security to finance private or public projects, which can include the following:

• a mortgage on the real estate property on which the project will be developed;
• a pledge on the social quotas and/or shares that both the investors and the sponsors own in the capital of the project special-purpose vehicle (SPV);
• an assignment for creditors regarding all relevant agreements related to the development of the project, as well as licences and permits granted to the debtor for the execution of the project;
• a pledge on all assets and personal property to be acquired by the project SPV for the project;
• a pledge of intangible assets (such as patents, trade marks, copyrights and proprietary designs);
• notarial promissory notes, warrantied by all present and future properties owned by the debtor and the project SPV; and
• an assignment for creditors regarding all bank account funds dedicated by the project SPV to the project, and/or generated by the operation of the project.

The procedure to be followed for the registration of a security interest before the Electronic System of Movable Guarantees (SEGM), as well as the fees to be paid, are detailed in Law 45-20 and its Implementing Regulations (Decree 18-23).

According to the provisions of Article 69 et seq of Law 45-20, the priority of a security interest is determined by the time of its publicity. The publicity and priority of non-possessory pledges, pledges that must be specifically registered as indicated by Law 45-20 and pledges arising by virtue of administrative or judicial resolutions are determined by the date of registration in the SEGM. The priority enjoyed by a secured creditor under a security interest gives it the priority right to pursue the assets pledged as security and their attributable or derivative assets, when the security interest affects them, over any other creditor and over liens created after its publicity.

Under Article 119 of Law 189-11 and depending on the agreement with the different creditors, the collateral agent has the capacity to act as their agent and represent such creditors in all proceedings related to the creation, perfection, maintenance and execution of the collateral granted for the security of the credit in question.

In this sense, Article 123 of Law 189-11 stipulates that the “collateral agent” has the right to receive collateral in its name and to register, maintain and execute the collateral granted as security for any credit operation, without it being necessary for such collateral to be registered or recorded in the name of the creditors or other beneficiaries; such collateral may be in the name of the “collateral agent”. It will be sufficient that, in the act of guarantee in question, the debtor or guarantor, as applicable, expressly acknowledges the capacity of the beneficiary of the guarantee (the subscriber of said instrument) as the collateral agent and the indication of the financing documents from which the guaranteed credits derive. The collateral agent may act in court without the need to appoint such creditors or other beneficiaries, without this implying a violation of the rules prohibiting litigation by proxy, subject always to the terms and conditions of the documents evidencing the credit and of the act or agreement of its appointment.

In the case of foreclosure, Article 124 of Law 189-11 provides that the foreclosed property may be transferred to the collateral agent and, if subject to registration, registered in its name, without prejudice to requesting that the foreclosure and subsequent registration, if necessary, be made upon request to that effect, in the name of the creditors or other beneficiaries of the secured credit existing at the time of the foreclosure.

Articles 2092 to 2094 of the Dominican Civil Code provide that any person who has personally committed to the performance of an obligation to another is subject to comply with the backing of all their movable and immovable property, present and future. In view of the fact that the totality of the debtor's assets are considered as the “common pledge” of creditors, the price of any sale is distributed pro rata among them, unless there are legitimate causes of preference/distinction among the creditors, such as privileges and mortgages.

In addition, Article 9 paragraph III of Law 45-20 provides that, unless otherwise agreed, the principal debtor is liable with its equity for the unpaid balance of the collateral.

Consequently, those obligations to pay sums of money that have been defaulted by the debtor and have not been backed by a specific real estate/movable guarantee are understood to be backed by all the present and future assets of the debtor.

Costs vary, depending on the type of security. The security interests are perfected by registration with the competent authorities and by recording said constituting document before the SEGM/Mercantile Registry or before the Title Deed Registry at the Real Estate Jurisdiction, or before certain courts, as applicable.

Lenders shall ensure that their collateral is properly recorded under DR law in order for it to be enforceable in the event of default by the debtor or early termination of the loan agreement. Assignments for creditors are perfected by executing the proper notifications between the parties involved in the operation.

Notarial promissory notes are recorded before a public notary competent to act in the respective jurisdiction.

Other formalities imply that the security in question is enforceable against a third party. For instance, a pledge of an agreement would require notification to the competent governmental authority (and, in some cases, the obtaining of prior consent, authorisation or non-objection). It is common practice for the lenders to execute a direct agreement with the public institution to secure the enforceability of step-in rights (allowing the lender to cure any default by the debtor, to foreclose on the collateral and to assume its ownership after foreclosure without the need for further approvals, among other matters) and the issuance of notices to the lenders regarding the development of the project, among other things.

Sometimes, security interests (eg, shares of the project SPV) are subject to other formalities, such as the approval of the general assembly of the members of the project SPV and the competent instance of the members themselves. Certain securities (eg, mortgages or pledges) are also subject to the payment of certain fees before the competent authorities.

DR law requires each item to be specified in as much detail as possible.

Article 7 of Law 45-20 stipulates that the following assets are susceptible to be constituted as movable collateral:

• one or several specific movable assets;
• generic categories of goods;
• real rights over movable property;
• contractual rights; and
• present or future determined or determinable assets, tangible or intangible, or the totality of the movable assets of the guarantor debtor.

In general, a security interest may be constituted over the following.

• Any property or right to which a pecuniary value is attributed, and which is capable of guaranteeing the performance of one or more obligations, including:
1. movable property that by incorporation passes into real property;
2. movable property that by destination is located in real property;
3. inventories and equipment;
4. autonomous assets;
5. circulating assets, including rights of execution of contracts and rights to indemnification for breach of contractual or extra-contractual obligations;
6. accounts receivable;
7. crops; and
8. future rights on the value of standing timber and any others arising from agricultural or livestock activity.
• Property rights derived from intellectual property and rights to the payment of money by virtue of deposits, lines of credit, membership, shares, quotas and parts of interest or participations representing the capital of civil or mercantile companies.

The secured obligations may be present or future, determined or determinable, regardless of the form of the transaction.

Article 3 of the Regulation for the Application of Law 45-20 (Decree 18-23) defines “Specific Good” as “a movable good that has a serial number or a unique identification number”, with Article 24 listing Motor Vehicles, Agricultural Machinery, Heavy Machinery, Industrial Machinery, Firearms and Electronic Equipment. In the same tenor, Article 25 of Decree 18-23 refers to “Generic Goods”: “In the case of generic goods, the information in the 'Notice' must include a general description of the goods in guarantee or state the type or types of goods in question, describing, if applicable, the attributable goods and the derived goods according to their nature.”

If the registration refers to movable assets that will be incorporated into or destined for a real property, the unique identification or registration number of such real property, as well as its location, must be included. In the case of unregistered or unregistered real estate, the geographical location of the real estate and the cadastral data available on the date of registration of the security interest may be included. When the registration refers to crops, the type of crop must be stated and the real estate on which they are located must be identified.

Articles 15 and 17 of Law 45-20 provide that the security interest does not require formalities for its creation, and takes effect from the moment of its signature between the parties. It may be documented in a public deed, in a private document with or without legalised signatures, in an electronic document with or without digital signature (as long as it preserves its content in a reproducible form) or in any written form that provides evidence of the will of the parties to create it. It is not necessary for the contract or the agreement by which a guarantee is constituted, and which is part of another contract, to be signed in the same place and at the same time.

In addition, the contractual agreement or the contract by which a security interest is constituted may be in Spanish or in another language; in the latter case, for the purposes of its execution, it must be translated into Spanish by a translator in accordance with the Constitution and the laws of the Dominican Republic.

According to the provisions of Article 22 of Law 45-20, the rights conferred by the security interest will be enforceable against third parties from the moment the publicity requirement has been complied with.

In principle, the registration of movable collateral is made for five years and is renewable but, as a general practice, the parties may agree to subject the duration of the security registration until the debt has been paid in full.

With respect to movable collateral, the SEGM database may be consulted, free of charge, to check whether or not there is a registration on a person or thing. The consultation will be made through the electronic portal of the system. In addition, Article 56 of Law 45-20 provides that the computer system through which the SEGM operates will issue certifications of the information contained in its database. Such certifications will be issued in electronic form, and the paper copy will be equivalent to the electronic image generated by the system. Likewise, Article 64 of Law 45-20 establishes that any person may request certification of the information contained in the SEGM database, upon payment of a fee (see Article 12 of Decree 18-23).

Regarding real estate collateral, the Real Estate Jurisdiction has the “Certification of the Legal Status of Real Estate” at its disposal, issued by the competent Title Registry Office according to the location of the real estate, which states the validity of the title certificate and the accessory real rights, charges, encumbrances and provisional measures that may have been registered on the real estate in question. In this sense, Articles 90 and 104 of Law 108-05 on Real Estate Registry provide that the registration of a real right is constitutive and validates the registered right, charge or encumbrance. The content of the registrations is presumed to be accurate, and this presumption does not admit proof to the contrary, except as provided for in the review appeal on the grounds of material error and on the grounds of fraud.

When all of the obligations under the loan contract have been paid in full, the person identified in the registration as the secured creditor proceeds to arrange for the release or discharge of the collateral with the SEGM, at the expense of the debtor and after verifying that there is no balance or obligation outstanding (Article 31 of Decree 18-23).

If the lender does not cancel the registration of the collateral with the SEGM, the debtor may request the competent Justice of the Peace Court to cancel the registration of the collateral (Article 32 of Decree 18-23).

In the case of real estate collateral, the debtor manages the release of the mortgage before the Real Estate Jurisdiction, receiving from the lender the documentation evidencing the fulfilment of all the obligations under the loan agreement and the authorisation to release the respective mortgage.

The enforcement of collateral under DR law is not self-executory, as foreclosure procedures shall follow a court procedure. Depending on the type, security can be enforced in accordance with DR law in force. No specific execution order is determined by DR law, so the creditor is able to determine which of the recorded securities it intends to enforce. The enforcement of a pledge or the foreclosure of real estate also force the transfer of pledged social quotas or shares, as well as licences and permits granted to the debtor.

However, because of Law 141-15, any enforcement of a security in favour of a creditor is halted until the insolvency/bankruptcy proceeding is concluded. Creditors will charge for their credit in accordance with the rank and nature of the security in place.

Except for the privileges set forth by DR law in favour of the employees of the project SPV (regarding their accrued salaries and severance benefits), the tax administration (regarding due and unpaid taxes), spouses (over their spouse's assets) and attorneys (regarding legal fees), a first rank security interest duly recorded under DR law secures the creditor its rank until the security is foreclosed or released.

In the event of default by the debtor, the lender may do the following in the enforcement of movable collateral:

• adjudicate in payment the rights assigned in collateral;
• execute the pledge or collateral without possession following the procedure of execution by auction, direct sale or adjudication in payment without judicial intervention, in accordance with the terms of Article 92 et seq of Law 45-20 on Secured Transactions; or
• waive, if it deems it convenient, the procedure of execution by auction, direct sale or adjudication in payment without judicial intervention in accordance with Law 45-20 on Secured Transactions, being able to choose the most convenient procedure.

The guarantees granted by the debtor in favour of the lender as security for the payment of the obligations under the loan agreement may be enforced by the lender in whole or in part, jointly or separately, in the order that the lender deems most convenient to its interests, without obligation to enforce one type or kind of guarantee or privilege with priority over the others. The publication of the security confers priority on the secured creditor and, in the event of default, the secured creditor has preference for possession, dispossession, enforcement and payment with the collateral.

On syndicated loans, there is no prohibition under DR law on the possibility that the enforcement is taken directly by a security agent acting on behalf of the other lenders.

Article 119 of Law 189-11 defines the “security agent” as “the legal person duly authorised to act as such, designated by means of a written act, called security act, subscribed by the creditors or other beneficiaries of a credit secured by pledge, mortgage or any other type of security, including the assignment of the benefits on insurance policies and any other accessory right, to act as its agent and representative before all those formalities inherent to the process of creation, perfection, maintenance and execution of the guarantees granted for the security of the credit in question”.

Multiple banks, savings and loan associations, any other financial intermediation entity or foreign banking institution authorised by the Monetary Board, as well as any other trading company incorporated under the laws of the DR or foreign laws, whose exclusive purpose is to act as a security agent, may be designated as a “security agent”, expressly excluding natural persons.

In the same vein, Article 120 of Law 189-11 provides that in any credit operation that includes the granting of guarantees of any nature, including pledge and mortgage guarantees, as well as the assignment of benefits on insurance policies, the creditors or other beneficiaries of the credit thus guaranteed may, by means of an act under private signature, designate a collateral agent to act as their agent and representative before all those procedures inherent to the process of creation, perfection, maintenance and execution of the guarantees granted for the security of the credit, with their rights and obligations being governed by the provisions of Law 189-11 and the provisions of Articles 1984 et seq of the Civil Code of the Dominican Republic and the terms and conditions that may be freely agreed between the collateral agent and the creditors or other beneficiaries of the guaranteed credit in the corresponding instrument of designation.

As a result of free consensual business by the parties and by constitutional disposition, the choice of foreign law is valid even if the Dominican State is a counterparty to a specific agreement. DR law offers flexibility to lenders and project sponsors to choose laws of any jurisdiction to govern their relationships.

However, public policy topics may be excluded from arbitration and foreign jurisdictions (eg, real estate mortgages and non-possessory pledges of local movable property). In addition, jurisdictional immunity does not operate automatically, as it needs express consent for the Dominican State and its agencies to submit to foreign jurisdictions and to renounce recourse to local courts, which in some cases may require approval from the National Congress.

A judgment given by a foreign court or an arbitral award against a company would be enforceable in the DR, not only under Law 544-14, but also by constitutional disposition. The former regulates what it is needed for a decision to be enforced in the DR.

In addition, DR legislation provides full faith and credit to foreign judgments and arbitral awards issued abroad, thereby making them subject to recognition and execution in the DR, in accordance with the provisions of the New York Convention of 1958. With respect to a foreign judgment, at this time the Dominican Republic is not a party to any convention on that matter.

To that end, the interested party shall obtain a “decree order” or exequatur (validation judgment) from the local competent court, provided that:

• such judgment/award is final and not subject to further remedies within the jurisdiction in which it was rendered;
• all parties were summoned in due time and form;
• the due process was fully complied with; and
• said decision does not contravene DR public policy.

If a creditor moves to secure its credit by a mortgage, the foreclose proceedings are highly formalistic. The lender cannot take ownership of the collateral in satisfaction of the pending debt without first undergoing the foreclosure procedure, as it is prohibited by DR law, and settled as law by the Supreme Court. In addition, a debtor cannot free themselves from debt by granting a creditor of the real estate payment without previously formally waiving the mortgage, which is an accord that is prohibited: foreclosure is a public policy disposition. Granting personal property to a creditor as payment of a defaulted credit is allowed.

The registration of multiple liens is not permitted on certain assets, such as social quotas/shares and movable assets. Real estate property allows the registration of a second or third rank mortgage, as long as the property value allows it vis-à-vis a potential public sale process.

The steps to foreclose a collateral vary depending on the type of asset but, in general, the procedure requires the creditor to provide notice to the debtor of the existence of an event of default, and to go through a public sale process.

Foreign companies must comply with the requirements set forth under the law of their country of incorporation/registration, and with their respective by-laws/corporate documents. In principle, foreign companies that function as lenders and do not have operations in the DR do not have a legal obligation to report/register documentation with the competent Chamber of Commerce and Production (Mercantile Registry), the Directorate General of Internal Taxes or any other public institution.

Notwithstanding the existence of an investment treaty, Foreign Investment Law 16-95 established the principle that both foreign and national investors shall be given the same rights and duties as local investors, and shall receive equal treatment.

Licences or concessions cannot be granted or assigned directly to a lender unless prior authorisation is issued by the competent regulatory entities, depending on the sector. If a debtor is enjoying tax exemptions under a certain provision of DR law (eg, tourism and renewable energies), such tax exemptions shall be considered as a part of the securities granted in the creditor's favour and, in the case of forced execution, the lender should be allowed to dispose of them for the benefit of the project. Any concession agreement with the DR government that provides tax breaks or exemptions, by constitutional disposition, must be approved by Congress.

Law 16-95 regulates the different forms and types of foreign investment and its destinations, the rights and obligations of investors and the exceptions to equal treatment in different areas of investment, among other matters.

By registering a foreign investment in the country, the following benefits are received:

• free convertibility of funds and free access to international currency through local banks and the Central Bank of the Dominican Republic;
• the right to repatriate abroad the total amount of the invested capital and the dividends declared during each fiscal year;
• the right to repatriate the obligations resulting from technological services contracts where fees, royalties and similar obligations are established; and
• the right to use a special and expeditious process of residency in the country.

An important aspect to highlight is the fact that, as the DR is a signatory to DR-CAFTA, investors from any country that is party to said agreement enjoy additional protections to those granted by Dominican law, including:

• non-discriminatory treatment in relation to national investors and investors from countries that are not parties to the agreement;
• the free transfer of funds related to an investment free of charge;
• protection against expropriation in breach of the rules of customary international law;
• a “minimum standard of treatment” in accordance with customary international law;
• the ability to hire key management personnel regardless of their nationality; and
• a procedure for dispute resolution between the investor and the State.

In the DR, there is a tax on the issuance of cheques and payments by electronic transfer, which applies to the value of cheques of any kind paid by financial intermediaries, on payments made through electronic transfers and on transfers for payments to the account of third parties in the same bank.

In addition, Article 305 of the Tax Code regulates payments abroad in general, in the sense that those who pay or credit on account taxable income of a Dominican source to individuals, legal entities or entities that are not resident or domiciled in the country must withhold and pay to the Tax Administration the rate of 27% established in Article 297 of the Tax Code, as a single and definitive payment of the tax.

In turn, when referring to interest paid or credited abroad, Article 306 of the Tax Code provides that those who pay or credit interest of a Dominican source to individuals, legal entities or entities that are not resident in the country must withhold and pay 10% of such interest to the Tax Administration, as a single and definitive payment of the tax.

However, an investor holder of a registration under Law 16-95 shall be entitled to remit abroad, in freely convertible currency, without the need for prior authorisation, the total amount of the capital invested and the dividends declared during each fiscal year, up to the total amount of the current net profits of the period, upon the payment of income tax, including the capital gains realised and recorded in the books of the company in accordance with generally accepted accounting principles. It may also repatriate, under the same conditions, the obligations resulting from technical services contracts where fees are established for technology transfer purposes and/or contracts for the local manufacture of foreign trade marks where royalty payment clauses are included, provided that such contracts and the amounts or payment procedures involved have been previously approved by the Central Bank of the Dominican Republic.

There is no limitation or impediment under Dominican law for an individual or legal entity to maintain open accounts (operating or otherwise) in foreign brokerage entities, related to the development of a project.

Current legislation does not require financing and project development agreements to be registered with any authority to be valid. In some cases (eg, a loan agreement), agreements must be filed with the Central Bank of the Dominican Republic, for statistical purposes only.

However, in some cases, an assignment of an agreement (eg, in telecommunications) could require notification to the competent governmental authority (and prior consent, authorisation or non-objection in some cases). It is common practice for lenders to execute a direct agreement with the public institution, to secure the enforceability of step-in rights (allowing the lender to cure any default by the debtor, to foreclose on the collateral and to assume its ownership after foreclosure without the need for further Approvals, among others) and the issuance of notices to the lenders regarding the development of the project, among other things.

However, documents and contracts on the creation of movable and real estate collateral do require registration, for purposes of enforcement and third-party effectiveness, as described in other sections herein.

Under DR law, there are no restrictions applicable to land ownership based on nationality.

Natural resources belong to the Dominican state. Unless otherwise specified by existing legislation (eg, protected areas), state-owned lands may be subject to usufruct, exploitation, concession and licensing in favour of a third party, subject to the provisions of the proper documentation and the completion of any permitting requirements.

Law 189-11 and its amendments have introduced trusts and collateral agent structures as apt alternatives for the protection of project assets. A trust is created for the benefit of the parties (eg, the lender) by the debtor (settlor), who transfers ownership of its project assets to a trustee, which in turn is responsible for maintaining, securing and administering such assets, as well as project funds. These assets are excluded from the debtor’s estate and are out of reach of the debtor’s other creditors.

The collateral agent mechanism does not transfer ownership of the assets, but the appointed agent administers the collateral for the benefit of the project participants.

The subordination of debt is permitted under DR law.

In the event of bankruptcy, secured creditors are allowed to maintain their rank (second to privileged creditors) throughout the process, and may even foreclose on their security. Subordinated lenders would be paid pari passu if the senior lenders waive their priority.

The priority of movable collateral is determined according to the time of their publicity. The publicity and priority of non-possessory pledges, of pledges that must be specifically registered as indicated by Law 45-20 and of pledges arising by virtue of administrative or judicial resolutions are determined by the date of registration in the SEGM. The priority enjoyed by a secured creditor under a security interest gives it the priority right to pursue the assets pledged as security and their attributable or derivative assets, when the security interest affects them, over any other creditor and over attachments created after its publicity.

Pursuant to Article 126 of Law 45-20, any lower ranking secured creditor may be subrogated to the rights of the higher ranking secured creditor by paying the amount of the secured obligation of such higher ranking secured creditor. If the subrogation takes place after the commencement of an enforcement proceeding, the subrogating party may appear in the proceeding and, by means of a bailiff's notice to the parties, continue the enforcement previously initiated by the subrogated creditor.

The same applies in the case of real estate collateral: the lower ranking creditor may be subrogated to the rights of the higher ranking creditor by paying the amount of the secured obligation of the higher ranking creditor, followed by the service of process on the debtor.

DR law does not require a project company to be organised under the laws of this jurisdiction. In certain regulated sectors, such as telecommunications, the project SPV needs to be organised under DR law.

A project SPV is usually incorporated under one of two typical corporate structures for project finance endeavours in the DR, to mitigate potential risks arising from the execution of such project and/or to limit any potential claims arising from an event of default:

• a limited liability company (sociedad de responsabilidad limitada or S.R.L., for its acronym in Spanish) incorporated as a project SPV to act as a second layer from the parent company (and later on, to add a third layer to the corporate structure, depending on the scope of the project to be developed); or
• a simplified anonymous corporation (sociedad anónima simplificada or S.A.S., for its acronym in Spanish) is also incorporated as a project SPV, depending on the scope of the project and the capital structure of the sponsors. Project finance companies seek the latter as a layer between the parent company and the project SPV to secure financing and large-scale complex financing not only from financial entities, but also from the investors.

Limited liability companies issue social quotas on behalf of members, while simplified anonymous corporations issue freely negotiable shares.

According to the provisions of Article 1 of Law 141-15 on Commercial Restructuring, the purpose of Law 141-15 is to protect creditors in the face of debtors' financial difficulty to comply with their economic obligations, and to achieve the operational continuity of individuals and legal entities through restructuring or judicial liquidation processes.

According to Law 141-15, the corporate liquidation procedure is subsidiary to the restructuring procedure: when the restructuring is impossible or unfeasible, the liquidation of the company's assets will proceed.

For such purposes, “restructuring” is defined as a “Procedure through which it is sought, as indicated in Article 1 of this law, that the debtor in any of the situations provided in this law, recovers by continuing with its operations, preserving the jobs it generates and protecting and facilitating the recovery of credits in favor of its creditors”. Articles 27 et seq of Law 141-15 regulate the procedure to be followed.

Once a foreign main proceeding is recognised, a judicial restructuring and liquidation proceeding may only be initiated pursuant to Law 141-15, when the debtor has assets in the Dominican Republic and its effects will be related thereto.

According to Article 53 of Law 141-15, the conciliation and negotiation process is formally opened when the restructuring request is accepted by the court and becomes irrevocable. In this phase, the Conciliator has an active role.

It is important to highlight that, just as assets are excluded from the estate, the conciliator may also identify assets owned by the debtor that are in possession of third parties, which must be reincorporated into the estate.

According to Article 135 of Law 141-15, the restructuring plan must provide for a similar treatment for claims of the same class, without prejudice to the order of legal priority existing among them, unless one or more creditors have expressly and voluntarily consented to a less favourable or different treatment with respect to one or more particular claims. In other words, in principle, the restructuring plan will establish an order of payment of claims respecting the degrees and guarantees of each creditor and its claim.

The liquidation plan must respect the order of priority of the different claims recognised by Law 141-15 and the applicable common law.

In the realisation of real estate, the abbreviated seizure procedure provided in Law 189-11 on the Development of the Mortgage Market and Trusts in the Dominican Republic will be used. This process of realisation will result in the sums that must disinterest the debtor's creditors in their totality or to the maximum extent possible.

The payment of claims in the judicial liquidation must be made in accordance with the legislation in force. After the sale of the real estate, privileged and secured creditors will be paid in proportion to their claims.

Faced with the risk of the insolvency of a debtor, creditors that fall within one of the cases provided for in Article 29 of Law 141-15 may initiate a commercial restructuring procedure for the debtor.

In the conciliation phase of a commercial restructuring procedure, the creditors will submit their corresponding statement of claims to the conciliator within the established deadlines. Each creditor will specify the amount of its claim prior to the date of the publication, the amounts due, their maturity date, the guarantees, the conditions and terms of the credits, and the degree of collection, among other details.

The adjudicator and the debtor should consider the advisability of keeping the business in operation. However, in order to avoid the growth of the liabilities or the deterioration of the estate, the conciliator may recommend the judicial liquidation of the business to the court at any time during the process.

At the request of any creditor, duly grounded, the conciliator may bring a nullity action before the court, against acts performed by the debtor within two years prior to the date of the restructuring request.

Within 30 working days from the publication of the court's decision to accept the restructuring, the conciliator must submit to the court a list of provisional recognition of claims for its weighting and decision, which must be published for at least three consecutive days in a newspaper of national circulation and notified to the creditors and the debtor so that they may present their position within ten working days. The provisional list will classify the credits as privileged or secured, unsecured and subordinated.

Once this term has expired, the court must decide on the Definitive List of Debts within the following ten working days, which concludes the debt recognition procedure. This must comply with due publication, with notification made to all parties and circulation on the Judicial Branch website.

Law 141-15 applies to natural persons, merchants (national or foreign), national companies and those domiciled or with a permanent presence in the national territory (except for those cases expressly provided for in Article 2), financial intermediation entities, securities intermediaries, and legal entities with control or majority participation from the State.

There are no specific restrictions under DR law on this matter. For private sector financing, lenders may require an insurance policy or a bond policy to secure the fulfilment of certain obligations deemed to be important in the case of a default by a debtor. There is, in fact, insurance and bond policy legislation (Law 142-02) but it does not play a role other than common insurance resources for the protection or security of lenders in the case of an expected event as provided in the agreement.

There are no specific restrictions under DR law on this matter.

Article 270 of the DR Tax Code provides that:

• individuals, legal entities or non-resident entities that obtain income on DR soil through a Permanent Establishment (PE) will be taxed for the entire income attributable to said PE in accordance with the provisions of the DR tax regulations for Dominican companies, provided that such situation does not mean that a PE has become a “Dominican resident”; and
• individuals, legal entities or non-resident entities that obtain any Dominican source income without a PE will be taxed separately for each type of income subject to tax under DR law.

For these purposes, the “PE” is defined as a fixed place of business where a foreign entity or individual performs all or part of its activities, such as:

• headquarters, offices, branches, commercial agencies, factories or workshops;
• consulting services that exceed six months (continuous or not) within an annual period; and
• representatives or dependent or independent agents, when the latter carry out all or almost all of their activities on behalf of such foreign entity.

In any case, Article 279 of the DR Tax Code provides that branches and other PE of foreign persons or entities must have accounting records separate from their headquarters, affiliates (subsidiaries) and other branches abroad, to determine the tax result from a Dominican source. Said provision applies even without a PE. In addition, they shall comply with their formal duties and obligations, including filing income tax returns (subject to the payment of tax on their taxable net income – gross income minus deductions admitted by the DR Tax Code), the payment of Tax on the Transfer of Industrialised Goods and Services (ITBIS), withholdings applicable to its employees and third parties, the payment of asset tax, etc.

If a foreign company, person or entity is not registered with the Tax Administration as a PE, it will be treated as a non-resident or non-domiciled entity or person. Therefore, any Dominican company that makes any payment to a person or entity abroad, regardless of the concept/source of said payment, shall comply with the DR Tax Law regulations stating the withholding of taxes on the gross income paid, which will be considered as a single and definitive payment, without any deduction.

Current regulations allow a foreign investor to establish their business in the DR directly (as a foreign company) or through any of the legal forms allowed under DR law, while local companies (even with foreign capital)] can operate and access internal credit with the same rights and obligations as those companies registered under local law.

From a public sector perspective and depending on the nature of the project, DR law may grant tax credits or tax exemptions to debtors to conduct high-scale project finance. This is conditioned on the type of project the investors are moving to develop: for tourism, there are regulations on the matter; for renewable energy, there is a different regulation; for free trade zones, there is a different tax normative, etc.

The DR is governed by Monetary and Financial Law 183-02, which establishes the principles and processes of interest in the regulation of the monetary and financial system, its administrative bodies and foreign exchange policy, which include the following noteworthy points:

• Article 24 allows monetary and financial operations to be conducted under free market conditions, as determined by the parties, and that interest rates for transactions in local and foreign currency can be freely determined among market agents;
• the repeal of Executive Order 312, of 1 July 1919, on Legal Interest, which established a legal interest rate of 1% per month and sanctioned “usury” as a criminal offence;
• Article 28 makes the use of currency more flexible, by providing for, the principle of free convertibility, by virtue of which it is possible to convert local currency into any other foreign currency; and
• Article 29 repeals the previous requirements in relation to transactions conducted in foreign currency, including restrictions inherent to their international transfer.

In contractual matters, in the DR the contracting parties may agree on the interest rate they deem convenient, by virtue of Articles 1134 and 1135 of the Civil Code, relating to the freedom to contract and to execute the obligation arising from the contract, not only in good faith but also on the basis of what has been agreed.

DR law offers flexibility to lenders and project sponsors to choose the laws of any jurisdiction to govern their relationships. The parties might be more inclined to make a choice of law depending on the location/characteristics of the project itself.

DR law offers flexibility to lenders and project sponsors to choose the laws of any jurisdiction to govern their relationships. Usually, the borrower asks for the loan agreement to be governed by the law of their own jurisdiction. The lender usually seeks the law of a jurisdiction with a legal system that is suited to dealing with commercial disputes and, when possible, treaties for the reciprocal enforcement of judgments. Therefore, the parties might feel inclined to select a neutral law (eg, New York law).

However, securities (eg, real estate mortgages and non-possessory pledges of local movable property) are governed by local law.

Real estate mortgages and non-possessory pledges of local movable property are governed by local law.

Sovereign guarantees are no longer issued by the Dominican State, although the government is authorised to grant them if needed, subject to approval by the National Congress. Such guarantees used to include:

• revolving letters of credit;
• the return of investment and minimum income guarantee; and
• change of law and economic equilibrium protections, among others.