Guarantees and collateral for acquisition financings in Portugal

Guarantees and collateral

Are there restrictions on the provision of related company guarantees? Are there any limitations on the ability of foreign-registered related companies to provide guarantees?

In addition to the general prohibition on financial assistance, the Portuguese Companies Code limits the ability of Portuguese companies to grant guarantees to cover the debts of other entities. As such, Portuguese companies are only able to provide guarantees in respect of their own debts, and they may only grant guarantees for the benefit of third parties under limited and exceptional circumstances. Accordingly, in order to guarantee a third-party obligation, the guarantor must enjoy a justified self-interest in providing the guarantee, requiring, accordingly, an evaluation taking into account the separate and independent position of each company. The law also allows for the issuance of corporate guarantees if the third party that benefits from the guarantee is in a control or group relationship with the guarantor.

Additionally, stamp duty applies in Portugal on guarantees of any nature or form when granted or presented in the Portuguese territory for any legal purpose or when the beneficiary of the guarantee (provided outside Portugal) is resident in the Portuguese territory. There is an exception for guarantees that are materially ancillary to a contract specifically taxed under the Stamp Tax General Table (such as the use of credit) and granted simultaneously (on the same day) with the creation of the secured obligations or when there is other specific exemption that is applicable. The stamp duty rate on guarantees is:

• 0.04 per cent per month or part of a month on guarantees with a maturity of less than 12 months;
• 0.5 per cent for a period between one to up to five years; and
• 0.6 per cent for a period equal to or exceeding five years or with no term.

The tax is levied on the secured obligations amount.

Are there specific restrictions on the target’s provision of guarantees or collateral or financial assistance in an acquisition of its shares? What steps may be taken to permit such actions?

The Portuguese Companies Code establishes that a company limited by shares may not provide funds, financial support or guarantees to a third party for the acquisition of shares representing its own share capital.

Portuguese law is clear in determining the scope of financial assistance: financing or granting financial support to the acquisition of ‘its own shares’, not encompassing any other instruments or liabilities. Other elements of interpretation of the law may not be resorted to, but confirm the limited scope of the wording set out in this chapter.

Financial assistance provisions do not expressly encompass acquisition of a parent company, whereby the granting of guarantees or security by a subsidiary for the funding of the purchase price of its parent company’s own shares is interpreted as not falling within the scope of the legal prohibition. Portuguese law has not been modified to adapt to the softened rules legal framework governing financial assistance introduced by Directive 2012/30/EU, subsequently repealed by Directive 2017/1132/EU. However, Directive 2017/1132/EU is naturally an important element in the interpretation of financial assistance rules in Portugal.

What kinds of security are available? Are floating and fixed charges permitted? Can a blanket lien be granted on all assets of a company? What are the typical exceptions to an all-assets grant?

Under Portuguese law, the most common securities are security interests in rem, such as mortgages over immovable property, possessory pledges over shares, credit claims or bank accounts, but non-possessory pledges are also possible. Portuguese law also allows personal guarantees.

Portuguese law does not recognise floating charges or blanket liens.

The requirements established by Portuguese law for the creation of a security right vary according to the asset subject to that security, therefore requiring an agreement in relation to each security being given, even though they can be combined in a single security document. Additionally, to be effective, security over real estate assets or registered assets, such as automobiles, aircraft and ships, must be registered with the relevant Registry Office, covering a full security package containing security interests of various types.

Are there specific bodies of law governing the perfection of certain types of collateral? What kinds of notification or other steps must be taken to perfect a security interest against collateral?

Security interests are generically governed by the Portuguese Civil Code. However, certain registration requirements necessary for the perfection of such securities are governed by registration laws. For instance:

Pledge over shares

The creation of security interest over quotas (the ‘share’ part of the equity of a sociedade por quotas) must be made by means of a written agreement registered at the Commercial Registry Office.

The creation of a pledge over shares depends on the whether the shares are represented by nominative shares represented by certificates or dematerialised shares. With regard to nominative shares represented by certificates, a pledge declaration must be written in the certificate and the pledge recorded in the issuer’s share ledger book; with dematerialised shares, the pledge will be recorded as an entry as to the creation of the pledge in the charger’s bank account. Under Portuguese law, financial pledges may only be created in respect of shares.

Note that, as per Law No. 15/2017 of 3 May 2017 and Decree-Law No. 123/2017, bearer shares are no longer admissible under Portuguese law.

Real estate mortgages

Agreements on the creation of mortgages over real estate must be executed by means of a notarial deed (or private document authenticated by a lawyer) and registered with the Land Register Office, since failure to register a mortgage will result in its non-existence for legal purposes.

Pledge over receivables

Under Portuguese law, pledges over receivables are deemed a pledge of credits. Therefore, following the pledge over receivables, the pledgor’s counterparty (ie, the debtor) must be served notice of the pledge and the pledgee must hold the documents that may be required in order to enforce the rights arising from the relevant contract directly against the debtor.

Portuguese law does not allow a pledgee, upon enforcement of the pledge, to appropriate the pledged assets unless such pledge is made or characterised as a financial collateral arrangement enabling such appropriation to be made in line with the Directive on Financial Collateral Arrangements, as transposed into Portuguese law.

Pledge over machinery

This is usually achieved through a factory mortgage whereby security interests are created over industrial units and machinery, including land, equipment and movable assets encompassed within a factory’s activity. It must be made in writing and listed in the mortgage deed in the form of a specific inventory.

Pledge over chattels

The general rule is that for the perfection of the pledge, the relevant chattel must be in the possession of the pledgee or a third party (which may be construed in different ways). Commercial pledges must be agreed in writing.

Pledge over intellectual property rights

These must be agreed in writing and registered with the Portuguese Intellectual Property Institute.

Once a security interest is perfected, are there renewal procedures to keep the lien valid and recorded?

This is not usually required to maintain security. However, a pledge of future receivables may be provided for or in connection with future receivables; therefore, these may be updated. As such, the security document determining a pledge should contain obligations whereby the pledgor regularly pledges its new receivable, upon the new receivable being originated, by means of short-form supplemental pledges, thereby updating the receivables being secured.

Are there ‘works council’ or other similar consents required to approve the provision of guarantees or security by a company?

From a Portuguese legal perspective, in general, there is no obligation to obtain consents from a works council, trade union or from other employee-representative bodies for the provision of guarantees or securities by a Portuguese company.

Can security be granted to an agent for the benefit of all lenders or must collateral be granted to lenders individually and then amendments executed upon any assignment?

See question 11.

What protection is typically afforded to creditors before collateral can be released? Are there ways to structure around such protection?

The provision of such protection is not common in Portuguese law structures.

Describe the fraudulent transfer laws in your jurisdiction.

Fraudulent transactions (ie, those with fraudulent purpose or intention) are punishable under Portuguese law. More specifically, asset-stripping is classified as a crime, triggering severe penalties (including imprisonment) or, in situations of insolvency, possibly triggering additional penalties. Upon insolvency, see question 33.