Dissolution and Liquidation of Companies

Voluntary Dissolution
Judicial Proceedings

According to Article 517 of the Commercial Code, companies will cease to exist:

• by consent or agreement of the shareholders;

• by lack or loss of the purpose for which the company was originally incorporated, or the impossibility of such achievement;

• by merger;

• by judicial order; or

• in the circumstances stipulated in the laws of incorporation.

Companies may also be dissolved and liquidated either voluntarily or by means of judicial proceedings.

Voluntary Dissolution

The voluntary winding up of a company may take place only when its liabilities are less than the total amount of its assets. An instrument of dissolution must be issued (executed by shareholders or the consent of a shareholders' general meeting) and registered in the Public Registry.

The subscribers of the company's articles of incorporation may also undertake a voluntary dissolution when no company shares have been issued.

Judicial Proceedings

If the company has a negative balance, withholding more liabilities than the total amount of its assets, bankruptcy proceedings must be initiated. These may be initiated by any of the company's creditors. A creditor's standing to sue in a bankruptcy process is established in Articles 1534 and 1538 of the Code of Commerce. Pursuant to Article 1538, the interested party must prove that he/she has an enforceable commercial credit against the company. The creditor must also prove the insolvency of the company by providing evidence that payment has been requested and has not been made.

Once the petition is filed, the competent court must declare the bankruptcy of the debtor within the next 24 hours, after which a special proceeding known as a 'meeting of creditors' commences. Further to this meeting, all pending proceedings brought against the company within the previous four years will be accumulated.

In the resolution of bankruptcy the judge orders the debtor company to file certain documents, including:

• a dated and signed report containing a description of all assets, movable or otherwise;

• the status of all debts and credits, and the name and domicile of creditors with descriptions of all debts, their terms and existing guarantees;

• an explanation of the reasons for the bankruptcy;

• a list of existing business operations with a report on losses and profits and a detailed list of monthly company expenses;

• the exact date on which the debtor company stopped making payments; and

• the name and domicile of the board members, managers, officers and other executives of the company.
  

The court orders publication of a notice of the bankruptcy declaration in a local newspaper for three consecutive days. Existing creditors then have 10 working days to appear before the court claiming their rights.

An appraisal of all the debtor's assets is undertaken as soon as the liquidator or curator is in office. The curator receives the petitions of all existing creditors and prepares a report establishing the status of each credit, with recommendations.

At the creditor's general meeting the judge reads the curator's report, hears statements of the debtor company, curator and creditors, and then submits the report to the decision of the creditors' assembly.

The liquidator then begins selling the existing assets and collects the correspondent monies. Eight days after the last sale, the curator prepares a further report detailing:

• all sales;

• the amounts collected and deposited;

• the pending credits in favour of the debtor company; and

• the expenses incurred in the selling process.

A distribution plan for the creditors is then prepared. After the creditors approve this plan and all sums of money are distributed to them, the process is deemed to be completed and is declared so by the court. At the meeting for the approval of final distribution, the curator presents a report in respect of her administration.

Pursuant to the rules of civil procedure, after six months from the date that the bankruptcy status of the debtor company is declared, the liquidator may request that the bankruptcy be qualified as fraudulent or guilty. A separate criminal case may then be filed before the competent authorities for criminal prosecution.

During bankruptcy proceedings the debtor has the right to oppose the bankruptcy declaration through a special proceeding known as 'reposition demand'. This must be filed within eight working days of the court's bankruptcy declaration. Within 20 working days the court then decides whether the bankruptcy declaration must be sustained.

Bankruptcy and meetings of creditors proceedings are substantiated in four different judicial files:

• a general file regarding the opening of the proceedings (the bankruptcy declaration) and the closing of the case;

• a special file for the creditors' petitions for recognition of their respective credits, the general assembly meetings, and the review and recognition of the credits;

• a third file dedicated to the issues regarding the administration of assets by the curator and her reports; and

• a fourth file exclusively for the qualification of the bankruptcy as guilty or fraudulent.

Pursuant to Article 1641 of the Commercial Code, resident creditors in Panama may initiate local bankruptcy proceedings in which they take priority over foreign creditors and are paid with the majority of assets. According to Article 1644 'resident creditors' are those whose credits should be satisfied in Panama, even if these creditors are domiciled outside the Republic of Panama.

During the winding up of a company, the existence of any award issued outside the republic must be recognized by Panamanian authorities prior to initiating judicial proceedings. Compliance with the rules for recognition and execution of foreign judgments or awards established by the Judicial Code is mandatory.