The Insolvency Law In Panama

On May 19, 2016, the concept of a "Bankruptcy," as the legal term was defined, ceased to exist under Panamanian law. Law 12 of 2016 (the "Insolvency Law") entered into force on that date and introduced new proceedings into our legal system. These proceedings are referred to as Reorganization and Liquidation.

The enactment of the Insolvency Law sought not only the protection of the rights of creditors, but also to achieve a differentiation between "efficient" and "non-efficient" companies, depending on the reasons and circumstances that give rise to their insolvency status.


For "efficient companies", the law introduces the "Reorganization Proceeding," the main purpose of which is the recovery and continuation of the company as an economic unit and employer.

A Reorganization Proceeding pursues similar objectives as the bankruptcy protection provisions established in Chapter 11 of the United States Bankruptcy Code. Thus, a Reorganization Proceeding allows the restructuring of a company's debt obligations and can be initiated at the request of the insolvent company or by its duly organized creditors through a "Board of Creditors." The insolvency petition must be accompanied by a series of documents that include, among others, the company's financial statements, an inventory of its assets and liabilities, payroll obligations and the Reorganization Plan, in which the debtor must provide a financial, organizational, operational and competitiveness restructuring project with the intention of solving the causes that led to the company's failure to make required payments, its imminent insolvency or foreseeable lack of liquidity.

This Reorganization Plan is significant in that it serves to initiate the proceeding itself. Subsequently, when the creditors formally join the proceeding to submit evidence of their credits, the Reorganization Plan must be subjected to a vote by the established Board of Creditors, who must either approved or reject said plan. The result of this vote will decide whether: a) the company will in effect be reorganized through the execution of said plan; b) the culmination of the proceeding without any agreement, in which case the bankruptcy protections would be lifted and the debtor would have to negotiate with each of its creditors separately; or, c) the Judicial Liquidation of the Company.

Judicial Liquidation Proceeding

The Judicial Liquidation Proceeding, as the name implies, focuses on liquidating...

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