The access to credit test
February 10, 2015
Atimeless standard by which to assess the ease of doing business in a given jurisdiction, and, indeed, the strength of an economy, is access to credit. With this connection between access to credit and ease of doing business in mind, Panama has recently updated its legislation governing the creation of security interests on personal property by means of Law 129 of 2013. Intended to replace the outdated Decree Law 2 of 1955, the stated purpose of Law 129 is to ‘promote access to credit and modernise the system of security interests on personal property.
In particular, some of the shortcomings of the prior regulatory framework were the high costs involved in obtaining credit, the cumbersome and repetitive registration process, the prohibition on obtaining a second or third mortgage on the same property, and the limitations placed on the rates and timeframes of the security Law 129, based on the model prepared by the Organization of American States (OAS) used in similar legislation throughout Latin America, provides numerous advantages to businesses seeking credit, and especially to small businessmen, who are typically only able to provide security in the form of movable property rather than real estate.
Specifically, Law 129 enlarges the types of goods upon which a security interest can be placed, such as the inventory of a business and its intangibles, including trade marks, patents, and intellectual property. Further, the newly enacted law allows for successive mortgages on the same good, establishes priority rules for security interests, provides a mechanism for the return of money to the consumer when the value of the secured goods exceeds the amount of the outstanding obligation, and streamlines the registration process by replacing the necessity of a Public Deed for personal property, with the submission of certain forms or sworn declarations which can be directly registered with the Public Registry, thus saving both time and money.
The passage of Law 129 is a prime example of an attentive legislative body listening to the needs of the market and responding accordingly. It will definitely benefit potential investors, lenders, and businessmen in Panama for years to come.