PANAMA Law and Practice Contributed by: Nadya Price and Joaquín De Obarrio, Patton Moreno & Asvat
ed abroad in any language and, to be fully effective against third parties, must be: • notarised and legalised by Panamanian consul or by apostille; • protocolised by a Panama notary public; and • registered with the Directorate General of the Ships Registry. Once registered, the mortgage benefits from privi - leged maritime lien status, and enforcement is car - ried out before Panama’s specialised maritime courts through in rem proceedings and judicial sale. The most frequent ship finance transactions involving the Panamanian flag include: • acquisition and refinancing facilities secured by Panamanian mortgages; • fleet financings involving multiple vessels; • sale-and-leaseback transactions; and • refinancing linked to the re-flagging of vessels into or out of Panama. In addition to the mortgage, lenders usually require a broader security package aligned with international practice, which may include: • assignments of earnings and insurances; • pledges over bank accounts; • Panamanian law share pledges over the ship-own - ing company; • corporate guarantees; and • ship-building-related security where construction financing is involved. Together, these elements form a comprehensive and internationally recognised security package, rein - forced by Panama’s robust maritime lien and mort - gage enforcement framework. 2.2 Ship Leasing Although Panama is not a market where leasing prod - ucts are originated, leasing and sale-and-leaseback structures involving Panama-flagged vessels have clearly increased in recent years, driven by global market dynamics rather than by local regulation. In practice, this reflects a broader shift away from tradi -
tional European bank lending towards Chinese leas - ing houses, Japanese lessors and other alternative credit providers, which are particularly active in sale- and-leaseback platforms using Panama as a flag and security jurisdiction. Sale-and-leaseback structures are common in prac - tice where the vessel is or will be registered under the Panamanian flag. Typically, the core sale-and-lease - back documents are governed by foreign law, while Panama is selected as the flag state, with the cor - responding registration of title, any bareboat charters (where applicable) and, in some cases, Panamanian mortgages or additional local security in favour of the finance parties. In these structures, Panama’s role is mainly to register title, record any bareboat or lease arrangements where required, and provide a reliable forum for arrest and judicial sale when necessary. There are also substantive legal differences between the lessor/lessee relationship and the lender/borrower relationship. In a traditional loan structure, the ship- owning SPV remains the owner of the vessel and the lender holds a Panamanian ship mortgage as an in rem security over the asset. In a leasing or sale-and- leaseback structure, title is typically retained by the lessor (or finance vehicle), and the lessee’s position is primarily contractual and possessory, with rights of use and enjoyment rather than ownership. These distinctions are reflected in enforcement. A Panamanian ship mortgage is enforced through an in rem action before Panama’s maritime courts, allow - ing the mortgagee to arrest the vessel (when located within Panamanian jurisdiction) and seek a judicial sale. The mortgage benefits from privileged maritime lien status, giving lenders a strong enforcement posi - tion under Panamanian substantive maritime law and maritime procedural rules. By contrast, lease defaults are enforced in personam and are primarily contractual in nature. Where title remains with the lessor, remedies typically involve termination of the lease, recognition of ownership and repossession of the vessel, with the underlying dispute usually determined by foreign courts or arbi - tral tribunals, depending on the governing law and dispute resolution clause in the lease. In such cases,
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