CONTENTS CORPORATE LAW NEWSLETTER I MARCH, 2017 I CAPITALIZAR PROGRAMME – PRESS RELEASE FROM THE COUNCIL OF MINISTERS OF 16 MARCH 2017 2 II NATIONAL LEGISLATION 5 III NATIONAL CASE LAW 6 NEWSLETTER I CORPORATE WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE 2/7 NEWSLETTER CORPORATE LAW I CAPITALIZAR PROGRAMME – PRESS RELEASE FROM THE COUNCIL OF MINISTERS OF 16 MARCH 2017 One of the priorities of the programme of the 21st Constitutional Government is to reduce the high level of corporate borrowing and to improve conditions for investment, which is why the capitalisation of companies is one of the pillars of the National Reform Programme. In August 2016, the Government approved, through Resolution of the Council of Ministers No. 42/2016, the Capitalizar Programme, comprising five strategic areas, as the strategic programme to support the capitalisation of companies, the revival of investment and the relaunch of the economy, with the aim of developing more balanced financial structures, reducing the liabilities of economically viable companies and improving access to financing for micro, small and medium-sized enterprises. In 16 March 2017, the Council of Ministers approved a series of legislative measures concerning the strategic area of “Corporate Restructuring” under the Capitalizar Programme and these have been put forward for public discussion up to 14 April 2017. The Government has proposed that these measures, once they are approved, enter into effect on 1 July 2017. The measures approved in the Council of Ministers under the Capitalizar Programme include the following, which are of particularly importance due to their relevance and practical utility: Creation of the Extrajudicial Business Recovery System (“RERE”) RERE enables debtors that are in a difficult economic situation or facing imminent insolvency to start negotiations with creditors in order to reach a voluntary agreement of unrestricted and generally confidential content, with a view to their recovery; Applicable to legal persons and sole traders, not applying to natural persons who are not owners of companies; Participation in the negotiations and in the restructuring agreement is free and the debtor may summon all or just a few of its creditors, as it deems appropriate; The deposit of the restructuring agreement determines the immediate suspension of enforcement proceedings concerning the debts included in the restructuring agreement and the insolvency proceedings, provided the insolvency has not yet been declared, that have been brought against the debtor by an entity that is a party in the restructuring agreement; WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE 3/7 The company restructuring agreement approved under the RERE only affects the credit rights referred to therein that are held by creditors that signed the agreement and does not alter the credit rights of third parties that have not been involved in the agreement; This agreement, provided certain requirements are met, produces the same effects as if it were approved in the context of a Special Revitalisation Procedure (“PER”); The RERE can be used to obtain, outside courts, tax treatment identical to that reserved for agreements obtained in Special Revitalisation Procedures (“PER”) and Insolvencies; Protection is granted to financing under the RERE and to associated guarantees, which cannot be the subject of a decision benefiting the estate itself, if insolvency proceedings are opened, provided these legal transactions are specifically provided for in the restructuring agreement and this agreement includes restructuring of debts corresponding to, at least, 30% of the total unsubordinated liabilities of the debtor; The agreement is enforceable with regard to the payment obligations taken on therein by the debtor and may be enforced in the event of failure to comply with the agreement. PER: Access to the PER is limited to companies in a difficult economic situation or facing imminent insolvency, putting an end to the jurisprudential dispute regarding access to this tool by natural persons; Creation of the Special arrangement payment process, applicable to natural persons, which starts with an expression of intent on the part of the debtor and at least one of its creditors; The PER now starts with the expression of intent of the company and creditors that, without a special relationship with the debtor, hold at least 10% of the unsubordinated debt, thus reinforcing the requirements with regard to the agreement that can lead to the PER; The presentation for PER now requires a statement from the Statutory Auditor or a Chartered Accountant that the debtor it is not the subject of insolvency proceedings. More flexible alternatives for restructuring debts to the Tax Authorities and Social Security, to the extent that instalment plans more favourable to companies in recovery are now permitted, as well as grace periods, longer payment terms, writing off interest and exemption from the provision of a guarantee; Submission of claims via CITIUS; In principle, the impossibility of accessing PER before two years have elapsed since the closure of the previous PER; WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE 4/7 Possibility of appending PERs of groups of companies, with the appointment of a common Provisional Judicial Administrator. Insolvency: Submission of claims via CITIUS; Reorganisation of the process of verifying and ranking claims; Reorganisation of the process of selling assets, particularly through the immediate and mandatory publication on a website of the liquidation of the company, with an express reference to its assets and the preference for an electronic auction to sell the assets; Possibility of appointing the same insolvency administrator in the case of companies in a control or group relationship; Adaptation of CIRE to Regulation (EU) 2015/848, of the European Parliament and of the Council of 20 May 2015, which will enter into force on 26 June 2017, on the subject of cross-border insolvency proceedings. Legal Framework for Conversion of Claimsinto Capital: Companies that have negative equity can now restructure their balance sheet and strengthen their equity, provided a majority of creditors propose the conversion of their claims into capital; The partners of the debtor company to whom the proposal is addressed have pre-emptive rights in the capital increase through cash contributions, as well as the right to acquire or acquire through third parties they indicate shares subscribed by creditors, once they are subscribed, the proceeds intended for payment of debts that, under the terms of the proposal, would be converted into capital; The position of non-participating creditors is not affected; In the event of rejection of the proposal by the debtor company or if it does not respond in time, a form of subrogation of the company’s intent is ensured, the judgment approving this being sufficient to reduce or increase the share capital, alter company bylaws, transform the company and exclude shareholders, as well as to make any necessary registration; The company may file for insolvency at any time, in which case this process is deemed void. Legal Framework for the Business Recovery Mediator: Creates the figure of the mediator of companies, to be appointed by IAPMEI – Agência para a Competitividade e Inovação, IP, at the request of the debtor, specialising in assisting debtors in the diagnosis of their situation and in negotiating with their creditors in order to reach an extrajudicial restructuring agreement with a view to their recovery; WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE 5/7 A mediator that has taken part in drawing up a proposal for a restructuring plan may also assist the debtor in negotiations under the PER that is started at the request of that same debtor; The same mediator can generally be appointed to work with companies in a control or group relationship. Rules governing the possession of pledged property in a commercial lien: If the debtor breaches its obligations, the property pledged under the commercial lien is transferred to the creditor, which is however required to return to the debtor a sum corresponding to the difference between the value of the property and the amount of outstanding debt, thus enabling the creditor to appropriate the property pledged by refunding the surplus, with reference to the value of the debt. Technological and legislative measures: Book of electronic minutes; Online judicial certificate; Electronic processing of the procedures provided for in the Insolvency and Corporate Recovery Code (“CIRE”). II NATIONAL LEGISLATION Ordinance no. 122/2017 - Diário da República no. 60/2017, Series I of 2017-03-24 Justice Applies the special procedure for transfer, encumbrance and immediate registration of properties with one-time face-to-face services to legal purchase and sale transactions with finance leases or division of common property. Ordinance no. 117/2017 - Diário da República no. 57/2017, Series I of 2017-03-21 Justice First amendment to Ordinance 46/2015, of 23 February (regulates the processing of acts and the terms of the probate proceedings at notary’s offices, as part of the Legal Framework for Probate Proceedings). Notice no. 2583/2017 - Diário da República no. 52/2017, Series II of 2017-03-14 Finance - Directorate-General of Treasury and Finance Supplementary rates of interest on arrears in effect in the first half of 2017. WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE 6/7 Law no. 9/2017 - Diário da República no. 45/2017, Series I of 2017-03-03 Parliament Authorises the Government to create the public service of electronic notifications associated with a single digital address. III NATIONAL CASE LAW Judgment of the Court of Appeal of Coimbra, of 09-01-2017 Under Article 412 of the Companies Code, it is lawful for any partner to request from the general meeting a declaration of invalidity or cancellation of a decision of the board of directors and, in the case of overall assessment of acts of directors, the general meeting may decide on the declaration of invalidity or cancellation, regardless of whether the subject was set out in the notice of meeting. However, the possibility of investigation by the corporate boards of the lawfulness of the decisions of the board of directors or of acts of directors does not mean that the legislature has denied the injured party the opportunity to directly and judicially contest these acts. Indeed, a direct challenge of resolutions of a board of directors does not require a prior resolution of the general meeting on the invalidity or voidability of these resolutions, since this could disrupt the life of the company and, in many cases, would be totally ineffective, particularly when the controlling shareholders are directors of the company. Judgment of the Court of Appeal of Coimbra, of 24-01-2017 The dissolution of the legal personality of a company, through cancellation of its registration, does not determine any expiry of the legal relationships held by the dissolved company, namely its debts, instead causing a legal succession of liability for the outstanding debts, which is then held by those who appear as partners of the company at the date of dissolution. This succession does not depend on the effective receipt by the partner assuming liability, through the division of the company’s assets, of goods that are part of those assets, such receipt being merely a substantive condition that the personal assets of the partner may be effectively used to cover outstanding liabilities and also a limit on the possibility of use of those assets to cover the company’s liabilities. Thus, the dissolution of the legal personality of a company does not imply the extinction of any mortgages it may have taken out to guarantee its debts, even if the properties encumbered with these guarantees have been transferred to third parties at a time before the dissolution, the survival of these mortgages not therefore generating any violation of Article 730 (a), of the Portuguese Civil Code. WWW.CUATRECASAS.COM NEWSLETTER I CORPORATE 7/7 Judgment of the Supreme Court of 07-02-2017 With the requirement of consent from the company to transfer private shares, provided for in Article 228.2, of the Companies Code, the law aims to provide shareholders with an opportunity to oppose the entry, into the company, of persons other than those with whom they agreed to be associated. As long as the consent of the company is withheld, the transfer engendered is void in relation to the company. If the articles of association state that the transfer to third parties always requires the consent of the company, which has pre-emption rights, the legal rules based on the absence of consent to the transfer of private shares shall prevail over any rules that might arise from a preemption clause. Thus, if the company withholds its consent, there is no room for the preemption clause to be applied: the private share is either bought back or it is acquired. Nor would there be any interest in the application of the pre-emption clause, since the result that the partners sought was achieved, by other means: the private share was not acquired by a third party. CONTACTS CUATRECASAS, GONÇALVES PEREIRA & ASSOCIADOS, RL Sociedade de Advogados de Responsabilidade Limitada LISBOA Praça Marquês de Pombal, 2 (e 1-8º) I 1250-160 Lisboa I Portugal Tel. 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