On the last 16th of March 2017, the Portuguese government Council of Ministers approved a set of laws and amendments to the law that will aim to streamline the process of corporate restructuring, creating better conditions for the survival of companies considered economically viable.

The abovementioned set of laws and amendments will materialize and shape the Capitalizar Program approved by the Council of Ministers Resolution no. 42/2016, of August 18, 2016. This Program aims to develop and promote more balanced financial structures, reducing the liabilities of economically viable companies, even those with excessive levels of indebtedness, as well as improving financing access conditions of micro, small and medium-sized companies.

With regards to legislative changes on the existing judicial, restructuring and insolvency mechanisms, amendments were proposed to the Commercial Companies Code and the Insolvency and Corporate Recovery Code (hereinafter “CIRE”), all with the clear aim to increase transparency, effectiveness and legal certainty of the Special Revitalization Process (hereinafter “PER”) and Insolvency Proceedings:

1. Changes to PER’s legal framework

  • Access to PER is now limited to companies in difficult economic situation or imminent insolvency, allowing natural persons to continue to have a simpler instrument for obtaining a payment agreement with their creditors;
  • As legal requirements to initiate PER proceedings, the debtor, now needs support of at least 10% of the non-subordinated debt creditors. These creditors cannot have any special relation with the debtor as defined by CIRE;
  • The submission of a debtor to PER now requires a statement from the company’s Certified Public Accountant/Auditor or Chartered Accountant stating that the debtor is not in payment default at the date of the submission to the competent court;
  • It will be possible to submit lodgements of Claim via the online courts platform – CITIUS;
  • More flexible payment and restructuring conditions for Tax Authority and Social Security debts, through more favourable instalment payment plans, now with the possibility to include grace periods, writing off interests and exemptions to the legal obligation of providing guarantees;
  • Possibility to attach several PER proceedings when each relate to the same Business Group. In this scenario, it will be possible to appoint a common Provisional Judicial Administrator to all the proceedings.

2. Changes to CIRE’s legal framework

  • It will be possible to submit lodgements of Claim via the online courts platform – CITIUS;
  • CIRE will be adapted to European Parliament EU Regulation 2015/848 and of the European Council of 20 May 2015, this latter will enter in force on the 26th June 2017 for cross-border insolvency proceedings;
  • Possibility to appoint a single insolvency administrator for situations where the debtors are in Group Relation or dominium;
  • Reorganization of the selling of assets proceedings in the insolvency, through the immediate publication of an asset report with an explicit reference to the insolvent’s assets and preference for the modality of electronic auction selling.

Besides the aforementioned changes Portuguese government decided to create new legal framework and concepts, particularly in extrajudicial proceedings with the aim to simplify the existing recovery of companies’ proceedings:

A- Legal Framework of the Extrajudicial Company Recovery System (RERE)

  • This legal framework will grant to a debtor in difficult economic situation or insolvency to engage in a negotiation with its creditors to reach an agreement – voluntary, free-content and confidential – aimed at the insolvents recovery;
  • If certain legal requirements are met, the extrajudicial agreement may have the same effect as if it was approved in the context of a PER;
  • It will only be applicable to Companies and sole traders;
  • Participation in the negotiations and restructuring agreement shall be free and the debtor may summon all, or just a few of its creditors, as it deems more appropriate;
  • The restructuring agreement’s deposit will determine the immediate suspension of all the enforcements proceedings for debt collection and requests of insolvency against the debtor;
  • The RERE Restructuring Agreement only binds those creditors who have participated in and signed the agreement. It does not affect the rights of creditors who have not participated in the Agreement;
  • The Agreement shall be enforceable in respect of the payment obligations assumed by the debtor and may be enforced in case of non-compliance;

B- Legal Framework of the Company Recovery Mediator (MRE)

  • A new legal concept/figure shall be created -  the MRE – and will be responsible for assisting a debtor company in diagnosing its economic situation and negotiating with its creditors bearing in mind an out-of-court restructuring agreement aimed at its recovery;
  • The MRE shall be appointed by IAPMEI – Agência para a Competitividade e Inovação, I.P. (Portuguese agency for the Competitiveness and Innovation of Companies), at the debtor’s request;
  • The MRE may not only assist the company which requested its appointment but all the companies that may be in Group relation or dominium with the debtor.

C- Legal framework for Conversion of Claims into Capital

  • Will allow companies with negative equity capital to restructure their balance sheet and strengthen their equity, as long as majority of creditors proposes a conversion of credits into capital;
  • The legal framework will provide several precautions in order to ensure that this mechanism is reserved to justifiable situations, dully certified by an independent professional, Certified Public Accountant/Auditor or Chartered Accountant;
  • Legal right of nonparticipating creditors shall not be affected;
  • This legal framework will not include any credits from financial institutions, financial companies, investment firms, publicly-held companies and entities integrated in the public business sector, pursuant to the definitions provided by Decree-Law no. 133/2013 of 3 October, as amended by Law no. 75-A / 2014, of September 30 and by Law no. 42/2016, of December 28;
  • The conversion proposal shall be accompanied by draft amendments to the articles of association of the company and, where applicable, may provide for the transformation of the company into another form, as well as the exclusion of all shareholders, provided that the shares are devoid of any value;
  • All the effects if this proceeding cease in case the company is declared insolvent.

D- Legal framework for the appropriation of pledged asset in commercial lien:

  • This legal framework corresponds to an agreement under which in the event of the debtor’s default, the assed pledged within the commercial lien is transferred to the creditor, however, this latter, will be obliged to return to the debtor a sum corresponding to the difference between the value of the asset and the amount owned;
  •  Fulfilled the requirements of the agreement, it is accepted that the creditor appropriates the asset given as collateral, but with the obligation to repay the excess in respect of the amount owed.

The above mentioned legal framework and sets of laws have been in public consultation since last April the 14th 2017 and it is expected that will enter into force on the next 1st of July 2017.