International Corporate / M&A – Panama – Ana Josefina Clement

The Corporate/M&As practice in EY Law Panama mainly focuses on complex cross border transactions, which include all aspects of transactional legal services, such as due diligence, drafting, negotiation and review of agreements, pre and post- closing corporate matters, company restructuring, compliance and regulatory matters, competition and anti-trust advice, business continuity strategies, among others.

Since 2021, EY Law Panama provides resident agents services for legal entities incorporated under the laws of the Republic of Panama as part of our corporate legal portfolio, in strictly compliance with international standards on money laundering and financing of the terrorism.

I am pleased to lead a highly qualified team, formed by experienced and versatile lawyers with the ability to assist our client’s needs with a strong business sense, proficiency and multidisciplinary approach, which along with our personal multinational previous experience has given us a broader and more specialized view of the Region toward successful completion of M&A projects, that combined with EY’s digital solutions make our services more cost effective.

The Panamanian Commercial Code along with Law 32 of 1927 constitutes the regulatory framework for Panamanian corporations, characterized by its stability, as it has only been subject to very few amendments or additions since enacted on April 1, 1927.

Besides the commercial activities that can be performed by any Panamanian corporations, they are commonly used for asset protection and as holding companies as part of company restructuring and business continuity strategies. Panama law offers the flexibility and clarity that modern commercial law requires to facilitate a transparent and efficient governance of companies under international compliance standards,

Although within the Latin-American region there are not many substantial differences given that most of our countries are civil law-based systems, it is noteworthy:

• Spin-offs are expressly regulated as the process by which a company partial or completely divides its assets and transfer it to one or more beneficiary companies, having the same partners or shareholders. According to our legislation, if the transfer is made at book value, the spin-off process will be tax exempt.
• Cross border mergers are also permitted by our corporate law and can be executed among one or more companies, provided that the foreign corporation is registered at the Panamanian Public Registry prior to the merger.
• Re-domiciliation is another option contemplated in our corporate law that allows a corporation validly incorporated under a foreign law to voluntarily choose to continue its existence under the Panamanian corporate law, notwithstanding the provisions of its original jurisdiction.
• Corporate asset liquidation can be completed up to 3 years after the entity has been dissolved. During this period, the directors will act as trustees, with legal powers to carry out all the processes required to complete the liquidation process.

In addition to the Panamanian corporations, it is relevant mentioning the existence of private interest foundations, which combines the benefits of a trust and a corporation as a planning and asset protection instruments for holding purposes, investment portfolios and heritage organization. Law 25 of 1995, inspired by the Law on Mixed and Family Foundations of the Principle of Liechtenstein, reinforced Panama’s essential role as one of the overseas jurisdictions preferred by the international business and financial community.

We have been participating in relevant restructuring projects with a tendency towards a leaner corporate structure, making the company’s resources more efficient, without overlooking legal and tax implications which, in the case of Panama, are of the utmost importance due to the principle of fiscal territoriality, that is, income tax payment is mandatory only for incomes obtained from commercial activities carried out within the Panamanian territory and, therefore, offshore transactions are exempt.

Sell and buy side due diligence are also part of our regular workflow, which includes broad (full scope) or limited (red flag scope) reviews of information provided by the Target in the areas such as Corporate, Contractual, Real Estate, Trademarks, Data Protection, Litigation, Compliance and Regulatory, as well as all Labor related matters.

Our practice in Transaction Closing includes advice during negotiations, drafting of closing documents and execution of legal acts to formalize the transaction in accordance with applicable legislation.

It is interesting to note also that our practice has been characterized by an ample scope in sectors of the economy of the transactions that we have handled lately, for instance, logistics, education, food and beverages, retail, technology and transportation are among the areas in which our team has rendered legal advice to our client,

The other important aspect to highlight is the fact that new players have been very active in our market, such as private equity funds and family offices diversifying their investments, not only from a sector scope perspective, but also from a territorial perspective.

On 6th October 2022 the execution of the agreement whereby assets and trademarks of Ron Diplomático was acquired by Brown Forman Corporation was announced.

This is one of the largest transactions in which EY Law Panama has participated, rendering legal services to Destillers United Group (DUG) during the sell side due diligence process and in reviewing the Share and Assets Purchase Agreement in matters related to local transferred entities. We also coordinated EY team efforts from different jurisdictions around the world, outside Central America, such as Spain and Portugal.

During the negotiation phase, EY Law Panama assisted the US counsels, McDermott, Will and Emery, in better understanding the applicable Panamanian corporate legislation and actions plans to be executed during the closing of the transaction.

The uncertainty caused by Covid-19 had a pausing effect on M&A transactions during the time of the Pandemic. However, even at that time we had the opportunity to advise investors interested in pharmaceutical and personal hygiene companies whose revenues increased significantly as a result of healthy measures adopted by local authorities.

Passed quarantine, the recovery process has been sustained, returning to regular levels and even observing a positive trend towards certain activities favourable impacted by global lifestyle changes, such as distance education and online trading.

Factors such as political uncertainty in some Latin American jurisdictions along with the country’s advantages, such as its dollarized economy, privileged geographical position, connectivity infrastructure (air, sea and land) and a solid platform of international services, have attracted foreign investment to Panama and have directly impacted the M&A activity in our country.

Global supply chain issues have also led companies into “nearshoring” models from Panama. Aware of such situation, besides promoting free trade zones – main ones in Colon and Panama Pacific for the Caribbean and the Pacific Ocean, respectively – the Panamanian government has implemented special regimes making our country highly competitive in terms of the world economy, promoting investment in production processes and technology transfer, and creating new jobs. Such is the case of the Special Regime for the Establishment and Operation of Multinational Companies for the Provision of Services Related to Manufacturing (EMMA Regime – Law 159 of August 31, 2020) and the Special Regime for the Establishment and Operation of Companies Multinationals (SEM Regime – Law 41 of August 24, 2007).

Also worth highlighting, Law 54 of July 22, 1998, by which Panama guarantees legal stability, both to national or foreign investments over USD2,000,000.0, focusing on tourism, agricultural exports, agroforestation, mining, export processing zones, commercial and petroleum free zones, telecommunications, construction, port and railroad development, electric generation, irrigation and efficient management of hydric resources.

While retail and technology related projects has always been a main driver in our M&A practice, the steady growth on energy demand in Panama opens the local market to new interesting generation projects. Additionally, on January 24, 2022, the National Secretary of Energy issued resolution No. MIPRE-2022-0000235, adopting Phase 1 of the green hydrogen roadmap, for which we expect more energy related investments that would most probably have an impact on our M&A practice, already focusing on identifying opportunities for investors and develop our advisory services on Power Purchase Agreements and Guarantees of origin (GO).

Although we work with large law firms on a regular basis, we have strengthened relations with medium-sized enterprises on M&A projects, considering Panamanian corporations as secure legal instruments for asset protection and for holding purposes, as well as interested in Panama as an attractive jurisdiction for investing. As mentioned above, it is important to stress the increase of activity of private equity funds and family offices in the M&A Market.

In EY Central America we have a specialized subline named “Seed” by EY, dedicated to providing solutions that protect the entrepreneurs and other forms of startup initiatives from a legal perspective and also contribute to growing their business and reaching their goals. As part of our services, we assist the clients in setting up their corporate structure, considering the risks and benefits of the different business association forms pursuant to the entrepreneur needs. We also assist in preparing founder or shareholder agreements to ensure that the rights and obligations of each shareholder are clearly established, and intellectual property maters are well defined from the beginning.

Upon a financing round, we accompany the entrepreneur from negotiating investment terms to drafting investment documents, up to closing. Furthermore, we overview the legal aspects of the business’s day to day operations, by reviewing and drafting agreements with advisors, service providers, employees, and clients, providing legal opinions to ensure that the business complies with applicable regulations and guiding the client in complex legal matters.

Our purpose is to create long term relationships with entrepreneurs with the goal of becoming a trusted advisor in the achievement of business goals.

EY’s regional and global network allows us to reach clients from multiple countries, interested in Panama as an attractive jurisdiction for investment both due to its geographical position and its economic and legal stability.

We actively participate as speakers in webinars and as editors of EY’s Flash Alert bulletins, offered by the Firm to all our clients to endorse Panamanian corporate law and keep them updated on related topics of interest.

Also, as members of AmCham and the Chamber of Commerce, EY Law Panama have access to platforms that facilitates the exchange and commercial development between their members, promoting the interests of the business community in Panama under the framework of free trade and business ethics.

In recent years, Panama has adjusted its AML regulations to fully comply with international standards, both in reference to the FATF and the OECD, which has introduced a series of new obligations for legal entities incorporated under the laws of Panama, including, among others, an Ultimate Beneficial Owner Registry administered by the Superintendency of Non-Financial Subjects for lawyers and legal firms to register certain information regarding legal persons and their ultimate beneficial owners, to whom resident agent services are provided. It is important mentioning that this is a private registry, and all the recorded information and documentation are confidential, and access is restricted to competent authorities in case exchange of information is requested within a due process.

Additionally, all legal entities must provide their resident agent an annual copy of the accounting records, relating to the fiscal period that has ended on December 31 of the immediately preceding year.

Omission to comply with such obligations may result in fines for the legal entity and/or Resident Agent, ranging from US$5,000.00 to US$1,000,000.00. Furthermore, the tax authority can order the suspension of the corporate rights of the legal entity before the Public Registry of Panama, abstaining from registering any act, document and/or agreement or issuing certifications related to the suspended entity during the suspension period.

Being a multidisciplinary firm, EY offers both resident agent and account services, allowing our clients to teams to share the required information and documentation through private and protected systems.

The M&A services provided by the Firm have unique multidisciplinary capabilities that no other firm in the region can provide, turning us in a truly one stop shop advisory including legal, tax and finance areas, allowing a comprehensive review and broader analysis of the business that enables our teams to jointly identify relevant findings to the transaction and propose complementary action plans adjusted to our client’s needs and expectations.

Within the sell or buy side due diligence processes that we carry out, we are fully aware of the importance of being enablers and not deal breakers, therefore, we focus our efforts on advising our clients based on experience and lawful practical solutions, preserving both the feasibility of the transaction and our client’s best interest.

Additionally, EY´s geographical footprint with offices in 94 countries is an important reference as a consolidated and experienced global provider to international clients.