7 April 2020.
The health crisis caused by COVID-19 (better known as “Coronavirus”) has had a significant impact on both global and local trade. In our country, the first case, which was confirmed on March 9, triggered the implementation of significant sanitary measures that led to the necessary temporary closure of multiple enterprises, as well as limited the movement of the population, and restricted commercial and governmental activity. The impact of such measures is expected to be greater in some sectors, such as hotels, restaurants, retail (excluding pharmacies and supermarkets).
All this, in the end, could cause many of these enterprises to be unable to meet their financial and / or monetary obligations, as they face a state of “foreseeable lack of liquidity”, a “situation of cessation of payment” or “insolvency”- all of which are terms defined by Law No. 12 of 2016 (the “Insolvency Law”), which regulates both reorganization insolvency proceedings and liquidation insolvency proceedings.
The Insolvency Law has important effects on companies that decide to avail themselves of, or are subject to, either proceeding.
Therefore, below, we briefly and generally emphasize on the Insolvency Law’s most relevant effects, and consider its applicability, in practice, considering the implementation of the aforementioned measures in our country.
Reorganization Insolvency Proceedings
This must be requested before the pertinent court by the debtor company, after which the judge examines said request and decides, assuming it complies with the provisions of the Law, to admit it and initiate the reorganization insolvency proceeding. It is important to note that the mere presentation of the application has certain substantial effects on the company and its creditors, the most relevant effect being the “insolvency financial protection” period, which is granted to the debtor by means of resolution declaring the start of the reorganization insolvency proceeding (issued by the judge after the previously mentioned request for reorganization has been granted).
Said “insolvency financial protection” implies that: (i) executory proceedings (“procesos ejecutivos”) of any class, proceedings for restitution of assets or evictions of the debtor are prohibited from commencing; (ii) all the contracts entered into by the debtor, including their conditions of payment, will remain in full force, and may not be either unilaterally terminated early, or required to be complied with in advance, and neither can the guarantees contracted for become effective; and (iii) the debtor may not be deemed unfit or be disqualified from contracting with state entities. Only in exceptional cases, according to the Insolvency Law, can some of these effects be countered.
Liquidation Insolvency Proceeding
This is appropriate when a company defaults on an obligation documented as an executory title (“título ejecutivo”); has at least three executory proceedings filed against it and has not presented sufficient assets to comply with full payment; or hides or abandons its business or closes its commercial establishment without having named an agent sufficiently authorized to fulfil its outstanding obligations.
A liquidation insolvency proceeding may be initiated at the request of the debtor, at the request of a creditor, or at the request of the representative of a foreign insolvency proceeding.
Among the effects that a declaration of liquidation has on the debtor, its assets and contracts, we underscore the appointment of a liquidator, who represents the creditors and has the power to sell and dispose of the debtor’s assets, and use the proceeds to pay the credits that have been recognized in the insolvency proceeding and recorded as company liabilities (the “qualified credits”); the suspension of the statute of limitations on actions against the debtor for the credits presented to the liquidation insolvency proceeding; and also, the closure of current accounts of the debtor as of the date of cessation of payment, among others.
It is also important to note that, unlike a reorganization insolvency proceeding, during a liquidation insolvency proceeding, creditors with security interests (“derechos reales”) constituted over the debtor’ assets may continue their actions against assets so encumbered by a mortgage, antichresis or pledge, without affecting the ability of such actions to be carried out in the liquidation insolvency proceeding.
International Effects and Local Situation
In multiple jurisdictions around the world, modifications to insolvency laws similar to ours have been adopted as a response to the Coronavirus crisis, with the intention of protecting administrators of companies that, in those jurisdictions, have the legal obligation to declare insolvency when, for example, the company’s liabilities exceed its assets.
However, in Panama, the Insolvency Law does not impose a similar obligation on directors or administrators of the company (although this obligation did exist in the old and repealed bankruptcy regime of our Commercial Code). Another global trend, in terms of insolvency laws, has been to grant moratoriums or suspension on the rights of creditors, for example, to request the forced liquidation of companies during this crisis.
Although in Panama, as of the date of this writing, no changes to the Insolvency Law have been made in response to the current crisis, the Government has taken multiple measures to support various economic actors, and additionally the banking industry has opted to offer certain safeguards and protections to debtors.
With that in mind, at the moment we do not foresee that there will be requests for forced liquidation or reorganization by debtors during the crisis given that the Judicial Branch, as of the date of publication, keeps its doors closed and the filing of a bankruptcy request could not be complied with pursuant to the Insolvency Law.
However, as mentioned, it is of utmost importance to keep in mind our insolvency regulations since, in most likely, once the health crisis is over, on the economic front, multiple companies will be in need of “reorganization”, as established by the Insolvency Law, or otherwise opt for liquidation.
That said, nothing in the Insolvency Law prevents creditors and debtors from reaching out of court agreements to refinance their obligations.
MORGAN & MORGAN
Miguel Arias M.
MORGAN & MORGAN
 Said measures include, Executive Decree No. 490 of March 17, 2020 (published in Official Gazette No. 28983-A of March 18, 2020), supplemented by Correction (in Spanish, “Fe de Errata”) of the Ministry of Health published through Official Gazette No. 28983-B of March 18, 2020, which established a curfew throughout the national territory; which would then be expanded to 24 hours a day, through Executive Decree No. 507 of March 24, 2020 (published in Official Gazette No. 28987-B of March 24, 2020). See, for example, Agreement No. 146 of March 13, 2020 issued by the Supreme Court of Justice “Through which the suspension of judicial terms is decreed at a national level.” “La Prensa” Newspaper, Panama, April 5, 2020, 1B, “Crisis tendrá un impacto desigual en las actividades“, Roberto González Jiménez, Article 4, numeral 3, of the Insolvency Law defines “cessation of payment” as “Situation in which the debtor finds himself when he defaults on one or more overdue obligations that are documented as a ‘título ejecutivo’ (executive title)”; numeral 14, of the same Article 4 of the Insolvency Law defines “foreseeable lack of liquidity” as “Situation in which the debtor foresees the impossibility of paying its future obligations as they become due or experiences financial difficulties that may cause an imminent state of insolvency “; and, numeral 16 also of said Article 4 of the Insolvency Law, defines the term “Insolvency” as the “the state of a debtor that cannot tend to the general payment of its debts as they become due” or the “financial state of a company whose liabilities exceed the value of its assets”. Take note that Article 27 of the Insolvency Law establishes that a reorganization request may also be submitted by the Creditors General Assembly, although such general assembly, in our view, should be previously constituted by means of a liquidation insolvency proceeding. The same Article 27 also establishes that the request for reorganization of a debtor can be requested by the representative of a foreign insolvency proceeding. Article 39 of the Insolvency Law. Article 80 of the Insolvency Law. See Cosgrave, B.B., Lawrence, J. (March 29, 2020). COVID-19: Changes to UK Insolvency Law to Assist Directors and Companies, K&L Gates. http://www.klgates.com/covid-19-changes-to-uk-insolvency-law-to-assist-directors-and-companies-03-29-2020/; see also Covid-19: Restrictions on creditor rights, relaxation of obligations to file and other insolvency-related reforms/proposals (April 3, 2020), Linklaters. https://www.linklaters.com/en/insights/publications/2020/march/covid-19-relaxation-of-obligations-to-file-and-other-insolvency-related-reforms-proposals; see also O’brien, M.,Walter, D., Lucarelli, P. (March 23, 2020). Australia: Australian Government Responds on COVID-19 Insolvency Risks, Baker Mckenzie. https://restructuring.bakermckenzie.com/2020/03/23/australia-australian-government-responds-on-covid-19-insolvency-risks/
Morgan & Morgan advised First Quantum Minerals Ltd. in connection with a Senior Notes Offering for an amount of up to US$750 million
Panama, January 13, 2020. Morgan & Morgan acted as Panamanian counsel to First Quantum Minerals, Ltd. in its offering (under Rule 144A of the U.S. Securities Regulation) of US$500,000,000 in aggregate principal amount of 7.250% senior notes due 2023, and US$250,000,000 in aggregate principal amount of 7.500% senior notes due 2025.
Morgan & Morgan advised in connection with a Senior Secured Convertible Securities Purchase Agreement for an amount of up to US$50 million
Panama, January 9, 2020. Morgan & Morgan acted as Panamanian counsel to Avianca Holdings, S.A., Latin Airways Corp., Taca, S.A., AV International Investments, S.A., AV International Holdings S.A., AV International Holdco S.A., AV International Ventures S.A., AV TACA International Holdco, S.A., and Aviacorp Enterprises, S.A., as Note Parties in connection with the transactions contemplated by that certain Senior Secured Convertible Securities Purchase Agreement for US$ 50,000,000.00 dated as of January, 9, 2020, between Avianca Holdings, S.A., as Issuer, and Citadel Equity (Ireland) DAC, as a Purchaser, among other parties.
Morgan & Morgan received top-tier rankings in the international directory IFLR1000, a guide that analyzes the work of lawyers in the financial and corporate transactional area.
In addition, five lawyers of the firm are listed as leading professionals:
- Aristides Anguizola – Rising Star
- Francisco Arias – Highly Regarded
- Carlos Ernesto González Ramírez – Highly Regarded
- Inocencio Galindo – Highly Regarded
Meet them at Here.
Panama, November 1, 2019.
Morgan & Morgan advised Avianca Holdings, S.A., a company incorporated under the laws of the Republic of Panama (the “Company”), in launch and consummation of an exchange offer of the Company’s previously issued US$550,000,000 8.375% Senior Notes due 2020 for newly issued US$550,000,000 8.375% Senior Secured Notes Due 2020 (the “Exchange Notes”). The Exchange Notes will have terms that are identical in all material respects to the terms of the Existing Notes, except that, among other differences, (1) the Exchange Notes will be issued by the Company and will be guaranteed by Avianca Leasing, LLC and Grupo Taca Holdings Limited (“Taca”), which were co-issuers of the previous notes, and will additionally be guaranteed by Avianca Ecuador S.A., Tampa Cargo S.A.S., Aviateca, S.A., Latin Logistics, LLC, International Trade Marks Agency Inc., and a newly created intermediate holding company (“Parent HoldCo”), which did not guarantee the previous notes, (2) the Exchange Notes will be secured by a pledge or assignment of (a) the AVIANCA brand and certain other intellectual property registered in different jurisdictions, including Panama, (b) certain unencumbered aircraft which are currently owned directly by or in trust for the benefit of Tampa Cargo S.A.S. or by Aerovías del Continente Americano S.A. – Avianca (“Aerovias”), and (c) the residual interest in substantially all aircraft which are owned and financed now or in the future by the Company and its subsidiaries, and (3) the Exchange Notes will automatically be exchanged (the “Mandatory Exchange”) for an equivalent principal amount of 9.00% Senior Secured Notes due 2023 (the “New Notes”) on December 31, 2019 upon the closing of an investment of not less than U.S.$250 million of new equity or convertible debt in Avianca Holdings from United Airlines, Inc. (“United”), Kingsland Holdings Limited (“Kingsland”) and one or more financial institutions, of which at least U.S.$200 million thereof will be made by United and Kingsland (the “Stakeholder Investment”) and the receipt of such funds on or prior to December 31, 2019.
BofA Securities, Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC acted as the Dealer Managers of the Exchange Offer, with BofA Securities, Inc. acting as Global Coordinator of the Exchange Offer. Wilmington Savings Fund Society, FSB, acted as indenture trustee and collateral trustee, Citibank, N.A. acted as transfer agent, registrar and principal paying agent, and Cititrust Colombia S.A., Sociedad Fiduciaria, acted as Colombian collateral agent.
Attorneys Ricardo Aleman, Aristides Anguizola, Jose Carrizo, Mayte Sanchez and Ramon Varela, participated as contributors in the investigation process for Panama of the publication Doing Business 2019: Training for Reform, an emblematic report of the World Bank Group that summarizes regulations that enhance business activity across 190 economies.
The full report is available for download here.
Morgan & Morgan and five attorneys of the firm recognized by the IFLR1000 Financial and Corporate guide 2019
Panama, January 4, 2019. Morgan & Morgan received top-tier rankings in the IFLR1000´s 2019 Financial and Corporate guide in the categories Financial and Corporate and Project Development.
In addition, five (5) lawyers of the firm are listed as leading professionals in their areas of practice:
• Francisco Arias
• Carlos Ernesto Gonzalez Ramirez
• Inocencio Galindo
• Ramón Varela
• Aristides Anguizola
The IFLR1000 rankings are the result of a 6-month, in depth research project by IFLR 1000 independent editorial team who consider three main criteria: transactional evidence, peer feedback, and client feedback.
Morgan & Morgan advised the Hitachi, Ltd., Mitsubishi Corporation, and Ansaldo STS, S.p.A. with an Agreement to provide a monorail system for Line 3 of the Metro of Panama
Morgan & Morgan advised the Hitachi, Ltd., Mitsubishi Corporation, and Ansaldo STS, S.p.A., in connection with an Agreement signed with Metro de Panamá, S.A., a corporation 100% owned by the Republic of Panama, regarding the participation of this group of companies that, led by Hitachi, Ltd., shall perform the works of the Nominated Subcontractor under the turn-key contract for the Monorail type Line 3 of the Metro of Panama Project (the Line 3 Project), which will be signed with a Main Contractor selected through a public bidding process under the laws of the Republic of Panama.
The Nominated Subcontractor will be responsible for the design, supply, and putting into operation of the Integrated Operating Systems (SIO) of the Line 3 Project, including Monorail type of Rolling Stock, signaling system, train control based on CBTC technology and communication system, control center, traction power system and low-voltage transformation system, track switches and automatic platform doors, among other responsibilities.
This transaction’s complexity was mainly that the contractual terms and conditions of the Nominated Subcontractor’s contract had to be agreed with Metro de Panama, S.A. as the Project’s Owner, but not as a party of the said contract between the Nominated subcontractor and the Main Contractor. Such terms and conditions, which had to
anticipate the contractual relationship with the resulting Main Contractor of the Line 3 Project bidding process, are to be reflected as part of said bidding process’ bid documents.
The Metro of Panama is the most important public infrastructure project under development in the Republic of Panama and the first of its class in Central America.
Partner Inocencio Galindo and senior associate Aristides Anguizola contributed with the Panama chapter of Chambers & Partners Mining Guide 2018. In this edition, expert attorneys in the mining sector summarized the key aspects and developments in fourteen jurisdictions.
The complete guide is available here
Morgan & Morgan advised First Quantum Minerals Ltd. in the offering of senior notes for an amount of up to US$1.85 Billion
Morgan & Morgan acted as Panamanian legal counsel to First Quantum Minerals Ltd., in connection with the offer of up to US$850,000,000.00 in aggregate principal amount of 6.500% senior notes due 2024 and up to US$1,000,000,000.00 in aggregate principal amount of 6.875% senior notes due 2026. The issuance was agreed pursuant to the terms and subject to the conditions set forth in the offering memorandum dated February 20, 2018.
The proceeds of the issuance will be used to repay the company’s revolving credit facility with a view to providing liquidity sufficient to fund the company’s share of remaining capital expenditures at the Cobre Panama project (a US$6.4 Billion open-pit copper mining, the biggest private sector investment in Panama´s history), to repay its term loan facility, for general corporate purposes and to pay fees associated with the offering.