EXHIBIT A
TRANSLATION
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DECREE LAW NO. 5
(of 2nd July 1997)
OF THE REPUBLIC OF PANAMA
"Whereby certain articles are amended and added to the Code of
Commerce with the purpose of modernizing some of its
institutions, Law 1 of 1984 on Trusts is amended and other
provisions are decreed."
THE PRESIDENT OF THE REPUBLIC
In the use of his constitutional powers and particularly those
granted to him by subsection 4 of Law No. 20 of 27th June 1997,
having received the Cabinet Council's approval.
DECREES:
Article 1. Article 11B is added to the Code of Commerce as
follows:
"Article 11B. A company that is validly organized under a
foreign law may opt to be governed by the laws of the
Republic of Panama and to continue its existence under the
laws thereof, as a Panamanian Corporation, notwithstanding
the provisions in its law of origin, by filing the following
documents at the Public Registry for their registration:
1) Evidence of its organization and valid existence in
accordance with the laws of the pertinent country or
jurisdiction, issued by a competent authority of (such
country or jurisdiction or, lacking same, through a
notarial certification).
2) Certificate or certified copy of the agreement or
resolution of the competent body evidencing
authorization to continue the existence of the
corporation in accordance with the laws of the Republic
of Panama.
3) Organization deed or articles of incorporation
subscribed in accordance with the requirements
prescribed by the corresponding laws of the Republic of
Panama, indicating that same replaces the incorporation
or formation document of the foreign corporation.
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The documentation issued in foreign countries or
jurisdictions must be apostilled or authenticated by a
Consul of the Republic of the Panama or, lacking same,
by that of a friendly nation in the country or
jurisdiction where the documentation originates."
Article 2. Article 11C is added to the Code of Commerce as
follows:
"Article 11C. Once the corresponding documents have been
registered at the Public Registry, the continuation of the
corporation under the laws of the Republic of Panama shall
have effect between the parties and vis-a-vis third parties
as from the date of the initial organization of the company
in the country or jurisdiction of origin. The corporation
shall continue with all its assets, rights, privileges,
powers and franchises, as the owner and holder thereof,
subject to all restrictions, obligations and duties
corresponding to the corporation in its country or
jurisdiction of origin, it being understood that the rights
of the corporation's creditors and the encumbrances on its
assets shall not be impaired by its continuation under the
laws of the Republic of Panama."
Article 3. Article 11D is added to the Code of Commerce as
follows:
"Article 11D. A corporation validly organized and existing
under a foreign law may conditionally register its
continuation in the Republic of Panama at the Public
Registry in accordance with the preceding provisions on
condition that such continuation be made effective once the
declaration to such effect that is issued by its
representative or duly authorized attorney in fact is
registered.
Once such formality has been complied with, the provisions
in the foregoing article shall be applied."
Article 4. Article 11E is added to the Code of Commerce as
follows:
"Article 11E. A corporation organized in accordance with
Panama Law may, as may be provided for in the incorporation
deed or in its amendments, continue under the laws of
another country or jurisdiction provided the laws of such
country or jurisdiction so allows and the corporation is not
in default as to its tax obligations in the Republic of
Panama.
To such end, the corporation shall file a certification or a
certified copy of the pertinent decision or resolution, as
well as certification evidencing due registration in the
jurisdiction it is transferred to, for registration at the
Public Registry of the Republic of Panama through the
intermediary an attorney at law.
Once the registration has been made, the corporation shall
continue with all its assets, rights, privileges, powers and
franchises as the owner and holder thereof, subject to all
restrictions, obligations and duties corresponding to the
corporation, it being understood
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that the rights of the corporation's creditors and the
encumbrances on its assets shall not be impaired by its
continuation in the foreign country.
Non-registration of the corporation in the other country
which has been duly verified shall not impair the effects of
its registration in the jurisdiction of origin."
Article 5. Article 38A is added to the Code of Commerce as
follows:
"Article 38A. The name of a corporation may be reserved at
the Public Registry for a term not exceeding thirty (30)
calendar days through a written request that shall be
decided outright by the Public Registry upon verification of
the availability of the name. Once such term has expired,
the reservation of the name shall terminate by full right
without need for any annotation in this regard."
Article 6. Article 58A is added to the Code of Commerce as
follows:
"Article 58A. At the option of mercantile companies, their
financial statements, approved by their Board of Directors
or by such companies' members or shareholders, duly
countersigned by a certified public accountant, may also be
registered at the Public Registry."
Article 7. Article 71 of the Code of Commerce shall read as
follows:
"Article 71. Every merchant is obliged to keep accounting
books that clearly and precisely indicate its commercial
operations, assets, liabilities and property. The
accounting must always reflect the amounts of the
transactions and the nature thereof.
For the purposes of the provisions in this Title, a merchant
may keep its accounting and make its entries by using either
books, electronic media or other mechanisms that are
authorized by the Law and which allow a clear determination
of the commercial operations made, provided same can be
printed."
Likewise, corporate entities may keep their Minute Books and
Share Registers by using books, electronic media and other
mechanisms as described in the foregoing paragraph.
Article 8. Article 72 of the Code of Commerce shall read as
follows:
"Article 72. The number and kind of accounting books, as
well as the manner of keeping same, shall be at the
merchant's option, provided same conform to the accounting
standards generally accepted and applied in the Republic of
Panama."
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Article 9. Article 73 of the Code of Commerce shall read as
follows:
"Article 73. The accounting records that every merchant
must keep are: a Journal and a Ledger. Commercial
companies must also keep a Minute Book and a Share and
Shareholder Book or, as may be required, a Parts or Shares
of Asset or Corporate Participation Book.
Corporate entities that do not carry out operations that are
perfected, consummated or have effect in the Republic of
Panama are not obliged to keep the required accounting books
referred to in this Article in the Republic of Panama unless
they have their domicile and operate in the Republic of
Panama."
Article 10. Article 77 of the Code of Commerce shall read as
follows:
"Article 77. Accounting books must be kept precisely and
clearly, in a chronological order, including the dates on
which the transactions are carried out or on which the
periods are affected.
It is absolutely forbidden to enter or register transactions
in a manner other than that in which same originated,
including the dates they are perfected, leaving blank
spaces, erasures or crossing out. The reversions,
corrections of mistakes or omissions must also be clearly
made and identified as such in the accounting books."
Article 11. Article 78 of the Code of Commerce shall read as
follows:
"Article 78. Every merchant that has a commercial
establishment in the Republic of Panama, regardless of its
location, shall be obliged to keep its accounting books in
Spanish and in the legal or commercial currency of the
Republic of Panama. The documentation evidencing the
transactions and correspondence may be kept in the
originating language and, should a translation be required
by any competent authority, the merchant shall be obliged to
provide the translation of same, within a reasonable term
and at its cost."
Article 12. Article 81 of the Code of Commerce shall read as
follows:
"Article 81. All operations that the merchant carries out
shall be entered in the book called the Journal, in a
chronological order, the date, amount and nature of each of
such transactions being clearly specified, and as well as
the precise identification of the accounts affected being
precisely specified in the book called the Ledger."
Article 13. Article 83 of the Code of Commerce shall read as
follows:
"Article 83. The entries of the transactions made in the
Journal shall be transferred to the Ledger in a
chronological order, in accounts duly classified as assets,
liabilities, equity,
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income, expenses and memorandum accounts, with cross
reference to the entries in the Journal."
Article 14. Article 85 of the Code of Commerce shall read as
follows:
"Article 85. Merchants may keep auxiliary accounting books
that reflect, with further details, the information required
to complement the entries made in the Journal and the
Ledger, provided the facts, amounts and nature of the
original transactions are not changed."
Article 15. Article 86 of the Code of Commerce shall read as
follows:
"Article 86. The resolutions adopted at the Board Meetings,
whether of shareholders, interest holders, partners or
directors, shall be entered in the Minute Book. The date of
the prior notice or waiver thereof shall be included, as
well as the place and date where same was held and other
circumstances leading to an exact description of the
resolution taken. The minutes must include the names of the
persons who acted as chairman and as secretary, and these
persons shall sign such minutes. Either of such persons may
certify the minutes.
The Share, Shareholder, Asset or Corporate Participation
Register shall specify the names of the title holders if the
shares are nominative, including the title, number, the
amount in number or percentage that same represents, the
amount paid and the nature of the security and title
concerned."
Article 16. Article 87 of the Code of Commerce shall read as
follows:
"Article 87. The Accounting of every merchant shall be kept
by an Accountant or Certified Public Accountant whose
qualification has been approved by the Technical Board of
Accounting of the Ministry of Commerce and Industry.
Every merchant is obligated to keep its accounting books up
to date. It shall be understood that the accounting records
are up to date when their entries are made every month, in
the required books, within sixty (60) days of the pertinent
month.
Defaulting merchants shall be penalized with a fine of one
hundred Balboas (B/.100.00) to five hundred Balboas
(B/.500.00) for every month that their accounting is behind. It
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shall fall on the Directorate General of Income of the
Ministry of Finance and Treasury to make the review referred
to in this article and to levy the pertinent penalties."
Article 17. Article 93 of the Code of Commerce shall read as
follows:
"Article 93. Every merchant or broker is obliged to keep
its required accounting books throughout such period as its
administration shall last and up to five (5) years after
closing of its business.
The auxiliary books, vouchers and documentation evidencing
the mercantile operations must be kept until prescription of
every action that may derive therefrom.
The responsibility of keeping the required accounting books
and submitting them when they are required by competent
authorities shall fall on the merchant or its heirs or
assignees. In the case of corporate entities, the person
responsible shall be whoever is their legal representative
or, in the absence of the latter, whether temporary or
permanent, whoever legally substitutes such legal
representative.
The required accounting books, auxiliary books and other
documents evidencing the transactions of the business shall
be kept in any of the forms authorized by the Law in the
establishment so that they may be examined by the
corresponding competent authority. It is forbidden to
transfer same outside the country or to places that are not
easily accessible. Infringement of this interdiction shall
be penalized with a fine not exceeding five hundred Balboas
(B/500.00) and successive fines may be applied for
continuous infringement following repeated unanswered
requests."
Article 18. Article 94 of the Code of Commerce shall read as
follows:
"Article 94. Any merchant or broker that does not keep the
accounting books referred to in Title III of Book One of the
Code of Commerce, feigningly records the transactions
differently from the manner and original date on which same
were made, distorts the true and real nature of same, or
conceals or omits any of them shall incur a fine of one
hundred balboas (B/.100.00) up to five thousand balboas
(B/.5,000.00), being liable to successive and multiple fines
if the infringement and breaches should give rise thereto.
The fines referred to in Title III of Book One of the Code
of Commerce shall be levied by the respective Regional
Administration of Income of the Directorate General of
Income of the Ministry of Finance and Treasury, with right
to file a petition for reconsideration before the first
instance official and a subordinated appeal before the
Appeals Commission of such Directorate. The fines may be
levied on the merchants or owners as well as on the brokers.
In the case of corporate entities, same may be levied on the
company or, otherwise, on its legal representatives, its
directors, managers and officers, in such order."
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Article 19. Article 95 of the Code of Commerce shall read as
follows:
"Article 95. Every merchant is obliged to prepare and keep
in its establishment, financial statements correctly and
truthfully reflecting the results of its annual operations
or operations of a fraction of a year for those that have
not completed twelve months of operation. Such reports
shall be prepared in accordance with the standards and
principles of accounting generally accepted and applied in
the Republic of Panama.
The required basic financial statements shall include a
balance sheet, a profit and loss statement, an asset
statement including the changes in retained earnings and a
cash flow statement.
The financial statements referred to shall be countersigned
by a Certified Public Accountant in the case of merchants
engaged in activities of any nature whose capital exceeds
one hundred thousand balboas (B/.100,000.00) or merchants
having an annual sale volume exceeding fifty thousand
balboas (B/.50,000.00). Same must be issued within one
hundred and twenty (120) days following the closing date of
the fiscal period and must be maintained at the disposal of
the competent authorities, who may require original copies
of same in order to document the inspection proceeding in
the corresponding file.
Any merchant or broker that does not comply with the
provisions of this article shall incur a fault penalized by
the fines and penalties described in Article 94 of the Code
of Commerce.
Any Certified Public Accountant who, in the exercise of his
professional functions should countersign the financial
statements, shall be subject, in the event of infringement
of the provisions regulating the required accounting books,
auxiliary books and pertinent documentation, to the
penalties envisaged in the legal provisions regulating the
exercise of his profession.
Transitory Paragraph: The obligation of preparing and
keeping financial statements shall be effective as from the
year 1997 and the fiscal periods that begin that same year."
Article 20. Article 142 of the Code of Commerce shall read as
follows:
"Article 142. Every kind of contract, transaction,
negotiation and other acts proper to their course of
business may be carried out in stock exchanges if they are
not forbidden by the laws."
Article 21. Article 143 of the Code of Commerce shall read as
follows:
"Article 143. Stock exchange acts and contracts shall be
governed by the applicable laws and, lacking same, by local
customs and practices."
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Article 22. Article 144 of the Code of Commerce shall read as
follows:
"Article 144. For the purpose of issuing and negotiating
securities in the stock market, same may be represented
through single or global titles or by any other document
formally acknowledging them, through annotations in accounts
or by any other form that is common in stock market
practice.
For custody, compensation and liquidation purposes,
securities may be endorsed to the treasury."
Article 23. Article 144A is added to the Code of Commerce as
follows:
"Article 144A. Books for the recording of shares and the
holders of other securities negotiated in the stock market,
books for recording the minutes of the corresponding
issuers, transfers and other records and legal evidence in
respect of securities may be kept through manual,
mechanical, electronic, optic, magnetic or other kind of
procedures guaranteeing their accuracy, availability and
conservation."
Article 24. Article 146A be added to the Code of Commerce as
follows:
"Article 146A. Both public and private securities, whether
domestic or foreign, that comply with the legal and
contractual requirements applicable thereto and whose issue
and negotiation have been previously approved by the
issuers, as well as the National Securities Commission in
the case of public offers, are the special subject of
trading in stock exchanges."
Article 25. Article 147 of the Code of Commerce shall read as
follows:
"Article 147. The public offer of securities, whether
domestic or foreign, made by any means, towards, from or
within Panama, shall be subject to pertinent prior
authorization from and registration with the National
Securities Commission, which may require classification of
the securities by an authorized risk classifier for their
placement in the primary market and negotiation in the
secondary market."
Article 26. Article 148 of the Code of Commerce shall read as
follows:
"Article 148. Intermediation in stock market acts may only
be carried out by duly authorized holders of seats and stock
brokers in accordance with and subject to the legal
standards and special regulations governing the matter."
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Article 27. Article 149A is added to the Code of Commerce as
follows:
"Article 149A. The ownership of fungible securities may be
transferred for a set price, the party receiving same or
reporter assuming the obligation to transfer the ownership
of such securities or of other securities of the same or a
similar issue to the party transferring same or receiver of
reports, upon expiry of the established term, in exchange
for a greater price or the same price plus a premium,
commission or interest."
Article 28. Article 149B is added to the Code of Commerce as
follows:
"Article 149B. Repurchase agreements are allowed in stock
market matters for terms not exceeding three (3) years."
Article 29. The Title of Chapter IV of Title VI, Book One of
the Code of Commerce shall read as follows:
CHAPTER IV
On Clearing Houses and
Securities Custody, Compensation and Liquidation Centers
Article 30. Article 193 of the Code of Commerce shall read as
follows:
"Article 193. Stock markets and other financial
intermediaries may establish centers for the custody,
compensation and liquidation of securities, subject to
authorization, supervision and inspection by the National
Securities Commission."
Article 31. Article 203 of the Code of Commerce shall read as
follows:
"Article 203. Acts or contracts entered into over the
telephone or by telefax or by electronic communication media
shall be considered to have been entered into between
individuals who are present if the parties or their
representatives or attorneys in fact have been directly in
communication with each other.
Meetings of the Board of Directors or of the partners or
shareholders assembly or of liquidators of companies of any
kind where the participants have been directly in
communication through any of the media indicated in the
preceding paragraph shall likewise be considered to be
meetings with the parties present. In such a case, a minute
must be issued indicating the meeting that was held, the
resolutions adopted and the manner in which the participants
were in communication.
Resolutions of directors, partners, shareholders,
administrators or liquidators of companies of any kind shall
be valid even if the document is signed in different places
and on different dates."
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Article 32. Article 223A is added to the Code of Commerce as
follows:
"Article 223A. Any interest charged in operations
perfected, consummated or having effects outside the
Republic of Panama shall not be subject to the provisions of
Law 5 of 1933 nor those of Law 4 of 1935."
Article 33. Article 249 of the Code of Commerce shall read as
follows:
"Article 249. Two or more natural persons or corporate
entities may form a company of any kind and one or more of
them may be shareholders, directors, officers,
administrators, attorneys in fact or liquidators thereof."
Article 34. Article 275 of the Code of Commerce shall read as
follows:
"Article 275. The assets contributed to the corporate funds
may not be reclaimed for payment of the personal debts of a
partner or a shareholder save by virtue of a lien
constituted in favor of a third party before such assets
were contributed to the company.
The disposal or encumbrance of corporate assets shall be
made by the subscribers, the partners, the shareholder or
shareholders, administrators or directors, attorneys in fact
or liquidators, as provided for in the articles of
incorporation, and lacking such provisions in the article of
incorporation, same shall be done in accordance with the
Law."
Article 35. The following article 580A is added to the Code of
Commerce:
"Article 580A. Any mandate, whether general or special,
that is granted through a public deed or by a private
document with a definite date shall have effect with regard
to third parties as from the date of its execution and may
be registered at the Public Registry at the option of the
interested party. However, the revocation of any mandate
that was previously registered shall be recorded at the
Public Registry save if otherwise provided for in the
document itself or if a mandate with a set term or for the
performance of a set act or event is concerned."
Article 36. Article 820 of the Code of Commerce shall read as
follows:
"Article 820. In the event of non-compliance and if no
special form of disposal has been covenanted, the creditor
or the depositor shall have the right to dispose of personal
assets given in pledge upon prior notice in writing to the
owner thereof at least thirty (30) calendar days before the
date on which the sale is to be made and upon an assessment
as referred to in Article 821."
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Article 37. Article 821 of the Code of Commerce shall read as
follows:
"Article 821. In the case envisaged in Articles 820 and
822, the parties shall agree in the pledge agreement on the
method to be used to determine the value of the things given
in pledge in order to ensure its fair value at the time they
are applied to the debt. Lacking this, the pledge shall be
assessed by two experts each appointed by either party, or
by a third expert appointed by such experts in the event of
dispute, or by the judicial authority lacking such experts.
In any event, the creditor shall be liable for any damages
caused in the application of the provisions of this article
or the provisions of the foregoing article."
Article 38. Article 829A is added to the Code of Commerce as
follows:
"Article 829A. Any company may pledge its assets located
outside the Republic of Panama in a general manner, without
need to deliver same to the creditor, and without impairing
the credits having preference over certain movable or
immovable goods.
The general pledge of assets shall be set down on record by
means of a public deed or a private document authenticated
by a notary public in the place of execution. Such document
may contain all such stipulations as the parties may deem
expedient to include, but shall in any case include the name
and address of the grantor company and those of the creditor
or creditors and the set or maximum amount of the credit
guaranteed.
If such document is executed outside the Republic of Panama,
it must be apostilled or legalized by a Panamanian Consul in
the place of issue or, lacking such Consul, by that of a
friendly nation. The protocolized public or private
document evidencing the general pledge of assets shall be
registered at the Public Registry and, once registered, its
effects shall be retroactive to the date of entry in the
Journal of the Public Registry of the filing of such
document for registration.
Once the formalities established herein have been complied
with, the general pledge of assets shall have preference
over credits with no special privileges that are evidenced
in a public deed, executed judgment or private document with
a definite date.
A general pledge of assets document may be preliminarily
registered. The manner in which this is to be done and the
effects thereof shall be regulated by an executive decree."
Article 39. Any companies organized before this law enters
into effect may at any time choose to be governed by the
provisions thereof, for which such fact must be
evidenced in a resolution adopted by the partners or
shareholders that must be registered at the Public
Registry.
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Article 40. The final paragraph of Article 9 of Law I of 5th
January 1984 on trusts is amended as follows:
"Article 9. The trust instrument must contain:
Where the trust is constituted through a private
document, the signatures of the settlor and of the
trustee or their attorneys in fact for the
constitution must be authenticated by a Notary
Public."
Article 41. Paragraph One of Article 35 of Law 1 of 1984 is
amended as follows:
"Article 35. ... Paragraph One: The foregoing exemptions
shall not apply in cases where the assets, money, shares or
securities mentioned in subsections 1, 2 and 3 above are
used in operations that are not exempt from taxes,
assessments, charges or encumbrances in the Republic of
Panama, save if same are invested in housing, housing
development projects, industrial or urban development parks
in the Republic of Panama, in which case the profits of such
investments shall be exempt from income tax."
Article 42. Article 317-A is added to the Fiscal Code as
follows:
"Article 317-A. The reservation of a company name at the
Public Registry shall be charged a twenty-five
balboa (B/.25.00) fee."
Article 43. Paragraph one is amended and subsection 5 is added
to Article 318 of the Fiscal Code as follows:
"Article 318. The registration of public or
authenticated documents or documents whereby a
company is organized, made or continued in the
Mercantile Section of the Public Registry, as
the case may be, shall be subject to the
following fees:
.......
5. The registration fee for the general pledge of assets
shall be one hundred balboas (B/.100.00)."
Article 44. All the provisions in the Code or other laws
referring to accounting books shall be understood to be
referring to the records mentioned in the present Decree
Law.
Article 45. The present Decree Law revokes subsection 7 of
Article 57, Articles 74, 76, 79, 80 and 82 of the Code
of Commerce, subsection 7 of Article 1776 of the Civil
Code and point q) of Article of Law 2 of 16th January
1991; Articles 11B, 11C, 11D, 11E, 38A, 58A, 99A, 144A,
146A, 149A, 149B, 223A, 558A and 829A are added, and
Articles 71, 72, 73, 77, 78, 81, 83, 85, 86, 87, 93, 94,
95, 142, 143, 144, 147, 148, 193, 203, 249, 275, 820 and
821 of the Code of Commerce are amended;
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Article 317-A is added and Article 318 of the Fiscal Code is
amended and added; and Articles 9 and 35 of Law 1 of 5th January
1984 are amended.
Article 46. This Decree Law shall enter into effect as from
its promulgation.
LET IT BE COMMUNICATED AND PUBLISHED.
Given in the City of Panama on the second day of the month of
July nineteen hundred and ninety seven (1997).
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