Panama: The Insolvency Law In Panama

Last Updated: 4 November 2019
Article by Analissa Carles

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 "inefficient" companies in a prompt and orderly manner. This can be initiated at the request of the debtor by means of a Voluntary Liquidation or by means of a duly substantiated petition from a creditor, which in this case would be a Compulsory Liquidation.

In either case, the petition must be accompanied by a series of requirements and documentation. In the case of a Voluntary Liquidation petition, provided all requirements are met, the court will issue a resolution declaring that the company is in liquidation.

For Compulsory Liquidation, provided all requirements are met, the request will be accepted and the debtor will be given an opportunity to answer the creditor's petition. The court will then set a date for an initial hearing. If the debtor opposes the petitioner's claim against it and the judge deems such opposition to have sufficient grounds, it shall deny the claim and the proceeding shall terminate. However, if the court deems said opposition to have insufficient grounds or if the debtor does not even submit any opposition, the debtor may: a) allocate sufficient funds for the payment of the debt; b) agree with the requesting creditor for the hearing to be suspended in order for the parties to reach an arrangement; or, c) submit to a Reorganization Proceeding. If, however, the debtor does not choose any of the aforementioned options, the judge will issue a resolution for a Liquidation Declaration, with the corresponding legal effects.

It has been interesting to see the development and execution of this relatively new law before the courts of Panama, especially since it also provides for the creation of new Insolvency Circuit Courts, as well as the Fourth Superior Court of the First Judicial District, consisting of three justices elected by the Supreme Court, in full, with exclusive jurisdiction over insolvency proceedings. However, to date, these courts have not been created and, therefore, the Civil Circuit Courts are currently in charge of hearing such proceedings. These circumstances have forced the judges ruling over these cases to become overly reliant on the technical criteria of the Bankruptcy Administrators appointed by them within the proceeding. Consequently, said Bankruptcy Administrators, who serve as an assistant of the Court, must have the legal and accounting capacity to warn of possible irregularities within the proceeding, from the initial scrutiny of the insolvency application, together with all the supporting documentation. They must also be able to determine if, indeed, they are facing an efficient company that can improve its current financial condition, and they must even make recommendations against the aforementioned Reorganization Plan, before it is submitted to the Board of Creditors for their vote. This level of expertise, although not expressly required by law, has become a necessity given the unforeseen preponderance that the expert input of these Bankruptcy Administrators has acquired.


There are many conceptual and practical elements to analyze in Law 12 of 2016. However, as is often the case, only through the practice and application of this law has allowed both lawyers and financial institutions to fully grasp the challenges ahead. Regardless of the above, the objective of the Law is positive – especially since, previously, a bankruptcy declaration was a de facto death knell for a company. It is therefore worthwhile to focus efforts on maximizing the advantages created under the law in order to obtain the desired results. These, however, will ultimately depend to a large extent on the good will and good faith dealings of both creditors and debtors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions