Judgment of the Court of Appeal of Porto of October 8, 2015 

Culpable insolvency – Duration of disqualification of the insolvent party

In this judgment, it was understood that the insolvency should be classified as culpabl e when the defendant, at the time the company was already in a situation of insolvency, did not start an insolvency procedure and transferred the entirety of the company’s assets to a company recently set up by his wife and son, without this second company having paid any financial consideration for the acquisition of the assets.

In this case, the company set up assumed, by a contract, the obligation to pay debts of the insolvent party’s company, which, according to the judgment, is not sufficient to sup- port the claim that financial consideration had been paid. 

Article 186 of the Insolvency and Corporate Recovery Code regulates culpable insolvency. Given the facts established and described above, it was deemed that it is subsumed in Article 186.2(d), for which reason the judgment is of interest insofar as it clarifies the delimitation of this provision.

Judgment of the Court of Appeal of Porto of October 28, 2015 Swap agreement – Nullity

The main problem of this judgment concerns the lawfulness of a swap agreement. The parties agreed to the reciprocal and future payment of two amounts, on dates set in ad- vance, calculated by reference (in this specific case) to an interest rate.

As set out in the text of the decision, swap agreements are normally instruments of hedg- ing or protection of interest rate risk. In this case, the sole purpose of the agreement was speculation with the interest rate, containing a registered notional amount that had no correspondence in terms of the underlying relationship between the parties, being purely abstract. The question here concerned is the possible nullity of an agreement of this type.

The judgment decided that this type of agreement is lawful, adopting the position of the Decision of the Supreme Court of Justice of February 11, 2015, and rejecting the three causes of nullity alleged by the Appellant, notably: (i) that it represents mere betting or illegal gambling, (ii) that it was illegally structured and also that (iii) it was aimed at mere speculation, which is an offence against public order.

In justification, the judgment notes that “(…) in practice, a derivative may be used without any connection to an underlying nominate contract, since the swap agreement is sufficient in itself”, basing this opinion on the argument put forward by the abovementioned Decision of the Supreme Court of Justice. It concludes saying that swap agreements in which the notional value does not have any connection with the liabilities or loans of the contracting party are not prohibited.

This position therefore gains further support in case law, contrary to the position defended in the Decision of the Supreme Court of Justice of January 29, 2015, which deemed a similar agreement to be null and void as contrary to public order, which was not accepted in this case.