Draft bill 312.

Summary.

The draft bill would add Chapter VIII to Law 25 of 1995 to govern the merger, division and reactivation of private interest foundations. It defines a merger as the combination of the assets, purposes and rights of two or more foundations into one legal entity. That entity succeeds the merging foundations with respect to their property, rights, obligations and liabilities. The merger agreement must be executed in a public deed, registered with the Public Registry (Registro Público) and published in a newspaper of national circulation for three (3) consecutive days.

A division allows a foundation to transfer all or part of its assets to existing foundations or foundations yet to be established. The agreement must identify the property and rights transferred, expressly allocate the obligations assumed by each recipient foundation and provide safeguards for beneficiaries and creditors. It also requires a public deed, registration with the Public Registry and publication for three (3) consecutive days. A transfer of assets at book value through a division is not treated as a disposal for tax purposes, subject to the verification powers of the Directorate General of Revenue (Dirección General de Ingresos). Foundations receiving assets through a merger or division are jointly and severally liable with the original foundation for obligations existing at the time of the reorganization, up to the value of the assets received, without affecting rights acquired by good-faith third parties.

A dissolved foundation may be reactivated before its liquidation ends or afterward if undistributed property emerges or its principal beneficiaries decide to continue its purposes. Reactivation after final liquidation must respect rights acquired by good-faith third parties over previously distributed property. The agreement requires a public deed, registration with the Public Registry and compliance with applicable due diligence and anti-money-laundering rules. Reactivation continues the foundation’s legal personality, retroactive to dissolution for outstanding property and obligations. The chapter also provides for legal effects from registration unless the agreement expressly provides otherwise. It permits recognition in the Republic of Panama (República de Panamá) of reorganizations of foreign foundations if the originating act is shown to exist and be valid, registration requirements are met and the reorganization does not contravene Panamanian public policy.

For all three transactions, the agreement requires an absolute majority of the Foundation Council or any stricter majority in the foundation charter. A designated Protector must authorize it unless the charter expressly provides otherwise. The Council must provide special protection for beneficiaries who are minors or lack legal capacity. The foundation must notify the Directorate General of Revenue thirty (30) days before execution of the public deed. Failure to meet these requirements entails relative nullity. Existing foundations are covered and must amend their charters if those powers are absent.

The Executive Branch (Órgano Ejecutivo) would issue implementing regulations within no more than six (6) months, in coordination with the Public Registry and the Directorate General of Revenue. The bill provides for commencement upon publication in the Official Gazette. The provisions concern those public bodies, private interest foundations, their beneficiaries and Protectors, creditors and participants in asset reorganizations.