PANAMA Law and Practice Contributed by: Kharla Aizpurúa Olmos, Mónica Moreno and Eduardo Oteiza, Morgan & Morgan
There are two main types of trusts used in Panama for purposes of collateral: • Guarantee Trust Agreement: Its primary intention is to ensure the fulfilment of the “secured obligations” as defined in the respective trust agreement. This trust typically includes mortgage rights or pledge rights as trust assets, amongst others. • Administration and Guarantee Trust Agreement: In addition to ensuring fulfilment of the secured obli- gations, this has an additional purpose of adminis- tration of assets. Prior to a default that leads to the enforcement of the security interests, the trustee preserves, safeguards, and manages the trust’s assets. Trust assets are usually shares or participa- tion quotas, trust accounts (with their respective flows, which are assigned to the trust), real estate, among others. In accordance with the Trust Laws, the trust agree- ment, in general, must comply with the following for- malities for its establishment and validation: • Trust Agreement With Only Movable Property as Trust Assets: This can be established via a private document signed between the parties. The sig- natures of the settlor(s) and the trustee must be authenticated by: (i) if signed locally, a local public notary; or (ii) if signed outside Panama, apostilled or certified by the Panamanian consul of the place of signature, for purposes of enforceability against third parties. Additionally, it should be noted that depending on the type of “movable property” transferred to the trust, compliance with certain registration requirements may be required (for example, if vehicles are part of the trust’s assets, the change in owner must be documented in the municipality in which the vehicle is registered or there may be a requirement that the transfer docu- ment be made through a public deed). • Trust Agreement With Real Estate as Trust Assets: This must be established via a public deed and registered in the Public Registry for the transfer of the real estate to be transferred to the trustee. Therefore, the transfer of real estate to a trust will be enforceable against third parties from the date of registration in the Public Registry of the transfer in favour of the respective trust.
Shares (of a “ sociedad anónima ”) or quotas (of a “ sociedad de responsabilidad limitada ”) can also be transferred in favour of trusts, whether or not they are registered in the Public Registry (see the two bullet points above), as trusts that only hold shares or quo- tas are not required to be registered (nonetheless, the transfer or assignment of quotas does require said Sociedad de responsabilidad limitada to register the change in partner in the Panamanian Public Registry as detailed below). In this scenario, the trustee would become the shareholder/partner of the relevant com- pany. The settlors, who were shareholders before con- tributing the shares/quotas to the trust (hereinafter, the “Shareholder Settlors”), are usually allowed to maintain their political and/or economic rights until a default occurs under the financing documents. In certain cases, economic rights may also be restricted, for example, because dividends are also assigned as a trust asset to the respective trust. The trustee, as the new shareholder/partner of the company, can issue a revocable power of attorney in favour of the Shareholder Settlors with the agreed political rights over which they may vote until such power is revoked, which usually occurs when there has been a default under the financing documents. The trust agreement will contemplate the obligations of the trustee prior to a default of the financing docu- ments and after such default, including the foreclosure process. The share/quota registry book is often kept in cus- tody of the trustee, to facilitate the annotation of any changes of shareholder/quota holder, in case of fore- closure. The formalities for the transfer of shares or quotas include: (i) endorsement of the respective certificates in the name of the trustee; and (ii) annotation in the share/quota registry book. For purposes of quotas, the assignment will need to be protocolised in a public deed and registered in the Public Registry in accord- ance with Article 26 of Law 4 of 2009. Additionally, if there are other partners, they must waive their pre- emptive rights.
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