Bearer Share Custody System
The bearer
share immobilization system was introduced in Panama by means of Law 47 of 6th
August 2013 and was substantially amended by Law 18 of 23rd April 2015. Luis
Quiel of Mossack Fonseca shall review
here the most important aspects of the custody system, as modified by the most
recent amendments.
Entry into Force is Moved Forward
Companies
that were formed before 4th May 2015 have up to 31st December 2015 to delete
from their articles of incorporation the possibility of issuing
bearer shares or to deposit the bearer share certificates with an
authorized custodian. The latter would require, either amending the articles of
incorporation to expressly allow bearer shares under the custody system, or
having such system approved in a board of directors minutes registered at the
Public Registry.
If any
company does not formally approve (before 31st December 2015) a decision to
allow the immobilization of bearer share certificates, the bearer share
certificates that it has issued shall be null and void by full right.
The deadline
of 31st December 2015 applies only to companies formed before 4th May 2015. For
bearer shares issued on or after 4th May 2015, the term expired on 4th August
2015.
Legal Consequences of Lack of Action
Articles of
incorporation of companies that envisage the issuance of bearer shares and that
have not been amended to provide for immobilization with authorized custodians
(save if the decision was adopted through a board resolution duly registered at
the Public Registry) will be deemed to have been amended by operation of law as
of 1st January 2016. This will cause two important consequences for such
companies: 1) bearer shares that are outstanding shall be irrevocably null and
void, and 2) the company may not issue new bearer shares.
Immobilization or Custody System
To benefit
from the bearer share custody system, certain requirements need to be complied
with as follows:
1. Amendment of the articles of
incorporation or registration of the decision of the corporation’s board of
directors before 31st December 2015, so as to envisage bearer shares in custody
according to the system created by Law 47 of 2013 and Law 18 of 2015.
2.
Deposit of the bearer share
certificates with an authorized custodian.
3.
The authorized custodian shall
require a sworn statement from the shareholder that includes information
allowing due identification of the owner of the bearer shares and the
corporation’s resident agent, including contact details.
The law
provides for two kinds of authorized custodians: 1) local authorized
custodians, and 2) foreign authorized custodians. The former may be banks
holding a general license and trust companies authorized by the Panama Bank
Superintendence (SBP―its initials in Spanish); brokerage houses and securities
clearing houses authorized by the Securities Market Superintendence (SMV―its
initials in Spanish); and attorneys at
law certified as such by the Supreme Court of
Justice.
Banks, trust
companies, and financial intermediaries may be foreign authorized custodians if
they hold a license for practicing their activities as set forth in
jurisdictions that are members of the Financial Action Task Force (FATF) on
Money Laundering or are associated members that are registered with the SBP on
a special register that the latter keeps to such end.
Rights over Certificates in Custody
The
ownership of shares in custody may be transferred without need for the physical
delivery of the certificates, provided that the owner advises the custodian
that he/she has made the transfer and that the acquirer submits a sworn
statement to the custodian that includes the required information (name and
identification data, as well as contact data).
The law
provides, likewise, for an interesting pledge system that allows the creation
of such encumbrance on bearer shares in custody, by the owner merely giving
notice to the authorized custodian whereby he/she advises the pledging of the
shares as well as the lienholder’s full name, physical address, telephone
number, and email address.
Lastly, a
special inheritance disposition system has been created for bearer shares that
allow owners to dispose mortis cause of their shares, without need for such
shares to be the object of a probate process for their transfer upon the
grantor’s death.
Conclusion
As Luis Quiel
of Mossack Fonseca has outlined, as of 1st January 2016, bearer shares that are
not regulated by the custody system in accordance with Law 47 of 2013, as
amended by Law 18 of 2015, shall be irrevocably null and void by operation of
law. It is important to take provisions in time and to make corporate decisions
in accordance with the formalities set by the law. Otherwise, the legal and
financial consequences of the annulment of the rights inherent to such bearer
shares may be quite costly.
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