VAT may be due on aircraft or engine sales agreements. However, in accordance with the Portuguese VAT Code, the sale of an aircraft or engine may be exempt from VAT if they are intended to be used by airlines operating on international routes. If an aircraft or an engine is subject to a sales agreement being used by a company that is exempt for VAT purposes, no difficulties are anticipated.
A sales agreement written in a foreign language should be accompanied by a translation certified by a Portuguese notary or lawyer to be enforceable against a domestic party.
In order for it to be enforced as a writ of execution, a sales agreement should be authenticated before a Portuguese lawyer or notary; if executed abroad, the sales agreement should be authenticated at a Portuguese consulate or before a foreign notary, but must bear the Hague Apostille.
A sales agreement and a bill of sale are mandatory for the transfer of title of an aircraft or engine. They do not extend to the inclusion of all installed parts, such as an APU, unless established in the agreement.
The sale of the ownership interest in an entity in such conditions does not itself constitute sale of the aircraft or engine, but as a practical legal issue it would be sufficient to confirm the sale.
It is possible for a bill of sale to be governed by a foreign law (including English or New York law). Such an agreement is recognised in Portugal in terms of its obligations. However, with respect to the aspects of its property where in rem rights are at stake, the governing law will be Portuguese law.
The document evidencing the transfer must be signed and the signatures duly recognised by attestations of the signatories' capacity and power to bind. The bill of sale should be signed/authenticated before a Portuguese lawyer or notary or, if executed abroad, authenticated at a Portuguese consulate or before a notary with the addition of the Hague Apostille.
A bill of sale written in a foreign language should be accompanied by a translation certified by a Portuguese notary or lawyer to be enforceable against a domestic party. In order to be enforced as a writ of execution, if that were to be the case, the document should be authenticated before a Portuguese lawyer or notary or, if executed abroad, be authenticated at a Portuguese consulate or before a foreign notary with the Hague Apostille.
Bills of sale should be registered with the Portuguese Authority for Civil Aviation (ANAC).
The bill of sale should be signed/authenticated before a Portuguese lawyer or notary or, if executed abroad, should be authenticated at a Portuguese consulate or before a notary with the Hague Apostille. If documents are filed as addressed, the registration with the ANAC is complete with immediate effect.
Transfer taxes, VAT (if applicable) or fees associated with the recording of the transfer of aircraft or beneficiary interests within the airspace of Portugal may be payable. Such taxes or charges are not payable in Portugal if the transfer does not occur within Portuguese territory.
VAT is payable on the transfer of an aircraft into Portugal, unless any of the exemptions provided in the VAT Code apply. Legislation exempts any transfer of an aircraft (eg, by way of sale) as well as any transformation, repair or any lease of an aircraft used by an air carrier whose business involves international flights. These exemptions also apply to any transfer, repair, maintenance and lease of objects incorporated in such an aircraft or as part of its use (eg, engines and spare parts).
It is possible to conclude operating, wet or finance leases concerning only engines or parts.
It is permitted for a lease involving either a domestic party or an asset to be governed by a foreign law in terms of its obligations. However, with respect to its property and register aspects where in rem rights are at stake, the governing law will be Portuguese.
As long as it is established in the lease agreement, there are no material restrictions imposed on domestic lessees making rent payments to foreign lessors in US dollars.
There are no exchange controls that could prevent rent payments under a lease or any repatriation of realisation proceeds, if the lease is enforced by a foreign lessor.
No fee is payable to the national aircraft register (Registo Aeronáutico Nacional or RAN) on execution and registration of a lease and there are no duties/taxes on it so that a lease agreement would be enforced or relied on in Portugal. No stamp tax will be due on the lease.
A lessor does need to be licensed or otherwise qualified in Portugal to do business with a domestic lessee.
No mandatory terms are applicable.
Tax and other withholding provisions are accepted under Portuguese law.
A lease may cover parts that are installed or replaced on an aircraft or engine after its execution, but only if those parts are separable. For this purpose, it is necessary to sign an addendum to the initial lease agreement.
The aircraft engines installed on an airframe should be indicated and legally separated from the aircraft if it is intended to avoid the risk of title annexation, otherwise the engines will not be considered as separate assets from the aircraft, legally speaking.
Under Portuguese law, such concepts in their proper sense do not exist. However, it is possible for a party to act on behalf and in representation of itself and/or of another party if a power of attorney has been granted in such terms. Although the ANAC does not recognise such concepts as they are understood under Anglo-American law, it has been possible to register a lease in which an owner trustee would be the beneficiary, even if it has not been common to do so. It is therefore suggested that a registration in such terms should made with the ANAC.
It is possible to note interests on the Aircraft Registry. This notation would confer publicity and effectiveness upon them.
An aircraft can be registered in Portugal in the name of the airport operator if this party is not also the owner and has a legal title to operate it (eg, a lease agreement), but the registration of the ownership must also be filed in the name of the owner, for the reason that it is mandatory to register an aircraft in the name of the owner even if the owner is not also the operator.
The RAN, which is run by the ANAC, is a specific register for leases concerning aircraft or engines.
Leases should be registered in the RAN but are not subject to any consent from government authorities, particularly the ANAC.
The following documents are required for the registration of leases (after the registration of ownership):
Furthermore, if all documents are duly legalised, the registration is carried out immediately by the ANAC. No government applications or consents are required as a prerequisite for the purposes in question.
Lease agreements should have the signatories of the parties authenticated by a Portuguese lawyer or a notary. If executed abroad, this authentication should be conducted by a notary and bear the Hague Apostille. The RAN accepts documents written in Portuguese and in English.
The registration of a lease does not require the payment of any taxes or duties.
This is not applicable in Portugal. There are not really any other alternative countries for such purposes.
See 2.3.5 Requirements for a Lease to Be Valid and Registrable.
If a lessor is incorporated in Portugal, payment of income taxes will be due, but if the lessor is not incorporated in the country the withholding tax may be due. The withholding tax should be paid (retained) by the lessee, for which reason a gross-up clause should be included in lease agreements. The withholding charge is 25% of the rent, regarding which the lessee is usually exempt according to the Tax Benefits Statute, if it is requested from the Ministry of Finance.
A foreign lessor cannot be deemed to be resident or domiciled in Portugal, notwithstanding the fact that as a party to the lease agreement and thus a beneficiary of income, it would be subject to taxes as previously explained.
In principle, the lessee or operator is liable for the operation and maintenance of an aircraft or engine. If the lessor is registered with the ANAC, that does not impose per se any liability with respect to operation and maintenance.
The law considers three kinds of entities: the registered owner of the aircraft (often the lessor), the operator and the air transporter, ie, the entity authorised to process the transportation of the aircraft. The owner (often also the operator) of the aircraft shall be liable, regardless of fault or negligence:
It is not possible for the lessor, as owner (but not operator) to be held responsible for the operation of the aircraft unless damage is suffered and can be attributed to an act or default of the lessor/owner or if the liability results as described above, namely, in the case of an accident, drug trafficking, etc. Portuguese law distinguishes between strict liability that may arise for the operator of the aircraft (as lessee) and any potential fault based on liability of the lessor or owner arising from the ownership of the aircraft. For this reason, it is important that the owner adequately insures the aircraft against these risks. In Portugal, locally registered aircraft have an implicit obligation to be adequately insured.
See 2.4.3 Engine Maintenance and Operations.
Creditors of a domestic lessee are not permitted to attach an aircraft leased to it but owned by a different entity.
The right of the beneficiary of a mortgage over an aircraft or engine lease, regardless of whether that lease/lessor is registered or not in the RAN, has precedence over the lessor's rights under that lease.
It is not mandatory that either all or part of the insurances be placed with domestic insurance companies, so it is possible to carry out insurances with foreign insurance companies.
According to EU law, airlines and aircraft operators must have insurance covering their liability towards passengers, luggage, cargo and third parties regarding acts of war, terrorism, hijacking of aircraft, acts of sabotage, illicit apprehension of aircraft and civil turmoil.
The minimum coverage requirements are set out in EU Regulation 785/2004, of the Parliament and of the Council of 21/04/2004, and the financial thresholds and limits (per occurrence/in aggregate) are as follows:
Reinsurances of up to 100% coverage can indeed be placed outside Portugal.
According to the Portuguese General Law of Insurance, it is possible for rights belonging to the insurer, and conferred under the reinsurance agreement, to be conferred to third parties whenever permitted by general law. In view of this, it follows that cut-through clauses in such documents are enforceable under Portuguese law.
Assignments of insurances or reinsurances are permitted.
There are no restrictions on the lessor's ability to terminate an aircraft lease and sell the aircraft following this, except where any limitations were established in the lease agreement in this regard. The aircraft need not be physically located in Portugal for such a termination and sale to take place, but the consent of the lessee to carry out the deregistration of the aircraft, given the termination of the agreement, is required. This consent is not required if the deregistration of the aircraft is a result of an event of default.
With regard to the re-export of the aircraft in such circumstances, it should be mentioned that Portugal has ratified the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft, which precludes the arrest of aircraft in several cases where it would seriously disrupt commercial traffic or interfere with public services such as air transportation.
If a deregistration power of attorney (DPOA) or irrevocable power of attorney has been granted by the lessee to the lessor, neither the consent nor a court order is required.
Aviation disputes should be resolved before the general judicial system set up in Portugal.
It is possible for a lessor to obtain a summary judgment, or equitable or other injunctive relief pending final resolution of judicial proceedings for such purposes, if the following conditions are met, where the applicant party proves:
Portuguese courts will uphold a foreign law as the governing law of an aircraft lease, the submission to foreign jurisdictions if the parties so choose (choice of law and of jurisdiction clauses or agreements), and also a waiver of immunity by the parties to that lease if the issues in dispute were to be regarded as non-disposable rights or inalienable rights.
Portuguese courts would recognise and enforce a final judgment of a foreign court or an arbitral award without carrying out any such re-examination.
It is possible for a lessor under an aircraft lease to obtain a judgment in a foreign currency if the lease agreement allows this possibility.
It would be possible for a lessor to recover default interest (or the compounding thereof), but, after termination of the lease for default, including if the lessee fails to return the aircraft, it would not be possible to charge additional rent, although it would be possible to claim the repossession of the aircraft and a compensation for the damages incurred by the lessor, given the lessee's failure to return the aircraft.
A lessor under an aircraft lease is not required to pay taxes or fees in a significant (ie, non-nominal) amount in connection with the enforcement of an aircraft lease, although it would be liable to pay court fees in regard to judicial enforcement of the lease.
If the document to be subject to the Portuguese court contains guarantees, the payment of the amount of stamp duty may be requested.
The lessor is only obliged to comply with mandatory notice periods for termination of the aircraft lease that are established in the lease agreement.
The lessee is not entitled to claim sovereign or other immunity from a suit and this cannot be waived.
Portugal is party to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the "New York Convention") and the national courts recognise and enforce arbitral decisions.
There are no other relevant issues of which a lessor should be aware in relation to the enforcement of its rights.
Portugal recognises the concepts of contractual assignment and novation.
Agreements governed by New York or English law would be held valid by a Portuguese court. Whether the consent of the lessee would be required or not would depend on the law governing the lease agreement and the assignment or novation agreement. In any case, under Portuguese law, such consent is required and for registration purposes the consent is mandatory.
It is advisable for these assignments and assumptions or novations to be notarised or authenticated to be enforceable against a domestic party. Additionally, should such enforcement be carried out via Portuguese judicial courts, a certified translation by a Portuguese lawyer or notary would also be required.
It is necessary to register and file an aircraft and/or engine lease assignment and assumption or novation with the Portuguese aircraft registry to be enforceable in Portugal. However, they are not subject to any consent from a government entity.
For the formalities concerning registration or filing of governmental consent, see 2.3.4 Registration of Leases with the Domestic Aircraft Registry and 2.3.5 Requirements for a Lease to Be Valid and Registrable.
The withholding charge is 25% of the rent, in relation to which the lessee is exempted under the Tax Benefits Statute, subject to the request to the Ministry of Finance. If the lessor is replaced as well as the rights being assigned, the lessee should file a new request.
Assignment and assumption or novation agreements are not subject to stamp duty since they are not referred to in the General Tariff Table.
Any transfer of ownership interest would not be considered per se as a transfer of ownership of the aircraft.
Deregistration of an aircraft should be carried out by its owner by filing the relevant application.
The consent of the lessee or operator would be required for the deregistration of the aircraft without the lessee’s or operator’s consent. A deregistration power of attorney should be delivered at the same time as the aircraft.
The power of attorney for the deregistration, and a deed of release in the case of a mortgage, will be required, as well as a statement of non-opposition duly executed by the lessee.
If all documents required for deregistration are in good order, the deregistration process would typically take up to a maximum of one week.
A duly notarised and apostilled POA is required.
Consent from the lessee (if an event of default is not the reason for the deregistration of the aircraft) will be mandatory and an export licence (Cof Exp) will be required when the aircraft is exported to a non-EU member state.
The fees to be paid for the deregistration of an aircraft will be a certificate of deregistration (EUR38.91).
A power of attorney for deregistration will be recognised and should be granted before a notary and registered with the Portuguese Irrevocable Power-of-Attorney Registry. The ANAC accepts documents written in Portuguese as well as in English, but a deregistration power of attorney that is written in a foreign language should be translated into Portuguese to be enforceable before a Portuguese court.
See 2.8.7 Deregistration Power of Attorney.
A deregistration power of attorney should be governed by Portuguese law.
It is not possible to revoke an irrevocable power of attorney if the beneficiary (the attorney or a third party) does not give its consent, except if just cause for revocation exists (eg, abuse of the granted powers). For revocation purposes the written consent of the beneficiary is mandatory.
An aircraft may only be exported if it is free of any liens or encumbrances.
Thus, the lessee’s consent is necessary for deregistration of the lease and the mortgagee may not export the aircraft without the owner’s or lessor’s consent.
DPoAs or IPoAs are instruments by which owners/lessors and mortgagees should require of the lessee (in the case of the owner, lessor or mortgagee) and of the owner or lessor (in the case of the mortgagee) to facilitate the export of an aircraft without the lessee’s or owner or lessor’s consent.
For deregistration purposes, an aircraft should be in Portugal for inspection purposes in order to be issued a Cof Exp.
It is possible to obtain an export licence. Upon the departure/export of an aircraft, with regard to the issuing of the deregistration certificate the following documents are required: the certificate of airworthiness, the certificate of registration, noise certification, aircraft station licence and tech log.
The requirements for a certificate of airworthiness for export purposes are the certificate of airworthiness, the certificate of registration, noise certificate, aircraft station licence, aircraft, engines and APU logbooks, maintenance status report, Ads/SBs list, STCs/MODs applied and the last maintenance report (carried out within a maximum of 30 days).
It is not possible to obtain an export permit in advance since it is only issued at the time of the exportation, or a few days earlier.
See 2.8 Aircraft Deregistration and Export.
There are no other issues of note.
The Code of Insolvency and Recuperation of Companies
In relation to an overview of the primary laws and statutory regimes in Portugal concerning restructuring and reorganisation issues, it should be noted that the Code of Insolvency and Recuperation of Companies sets out a specific procedure called a special revitalisation proceeding.
This procedure is established for entities that are in difficult economic situations or in a situation of imminent insolvency, but still susceptible to economic recovery. Therefore, it is envisaged that negotiations with the creditors should be established in view of concluding an agreement conducive to revitalisation.
Initiating a procedure and negotiations
It begins by the will of an entity in such situations and its creditors that hold, at least, 10% of the outstanding credits of such an entity.
After the submission of such initial application, the remaining creditors are notified in view of being invited to take part in the negotiations that should take place to establish the restructuring and reorganisation of the debts, with the purpose of their payment to the creditors by the entity in question.
Once such negotiations have taken place, since the proposed plan of recovery is approved by the creditors it is sent to the judge responsible for the case and, upon their approval, it is implemented in practical terms.
If the plan is not approved by a judge of the case and the entity in question is in a situation of actual insolvency, the special procedure is terminated and the entity is declared insolvent, following which an insolvency administrator is appointed and the relevant procedures are initiated (including the liquidation of the bankruptcy estate). If the entity is not in a situation of actual insolvency, the special revitalisation proceeding is immediately terminated.
Should the recovery plan not be approved by the creditors, the special revitalisation proceeding is terminated, and should the entity in question be in a situation of actual insolvency, the judge of the case will declare it as such and the insolvency proceeding as addressed below will take place (in any case, should the entity not be in a situation of actual insolvency, the special revitalisation proceeding is immediately terminated).
As to insolvency law within the Portuguese jurisdiction, it is important to mention that, in accordance with the Portuguese Code of Insolvency and Recuperation of Companies, a debtor is considered insolvent that is in a situation in which it is impossible for it to fulfil its due obligations, and such a debtor should request of the court the declaration of its insolvency status within 30 days subsequent to the day on which it becomes knowledgeable of such status.
Moreover, such an insolvency declaration may also be requested of the court by any creditor of such a debtor or anyone that is legally responsible for the debtor's debt (eg, guarantor).
It should be requested of the court and ruled by a judge, after having heard the debtor.
In the sentence in which the declaration of insolvency is issued, the judge will appoint an insolvency administrator, who becomes responsible, among other issues, to collect any revenues belonging to the debtor and carry out debts that its assets and patrimony allow.
Once such a procedure is terminated, the debtor will be closed and legally extinct in cases where it is an entity.
Terminating lease agreements
Where the court declares the debtor insolvent, and should this party be a lessee domiciled in Portugal, it is important to note that such a declaration does not suspend the lease agreement taking place, but the insolvency administrator may terminate it with a 60-day prior notice for such termination.
Such termination shall determine the payment, as a credit over the insolvency, of the remunerations corresponding to the period between the date on which such termination should take place and the end of the term established in the lease agreement for termination – deducted from the inherent costs to the lessor's undertakings, as well as of the gains obtained via an alternative application of the leased asset, as long as they are imputable to the anticipation of the end of the said term for the termination of the lease agreement, with the update of all amounts, as legally established, for the day set forth for the termination of the lease agreement.
Notwithstanding, the lessor cannot request the termination of the lease agreement after the lessee's declaration of insolvency on the following grounds:
If the leased asset has not been delivered to the lessee at the time of its insolvency declaration, the insolvency administrator and the lessor may terminate the lease agreement, it being permitted to any of them to establish to the other party another reasonable term for such an end. Conversely, should the lessor be the insolvent party, the declaration of its insolvency does not suspend the lease agreement and its termination by either party is only possible in accordance with the term set forth for it in that very same agreement.
However, should the leased asset not have been delivered to the lessee at the time of its insolvency declaration, the insolvency administrator and the lessee may terminate the lease agreement, it being permitted to any of them to establish to the other party another reasonable term for such an end.
As to the liquidation of the bankruptcy estate within an insolvency proceeding, in accordance with the Portuguese Code of Insolvency and Recuperation of Companies, once the sentence concerning the declaration of insolvency has been issued, all assets and patrimony belonging to the debtor are gathered and seized. The insolvency administrator prepares an inventory and the list of creditors, and issues a final report on this. Subsequently, an assembly to deliberate on such a report takes place, in which the debtor/insolvent, the creditors, and employees (if such is the case) are present and during which an opportunity is given to them to address this. Once this assembly takes place, the insolvency administrator carries out the sale of the debtor/insolvent's assets, in order to subsequently carry out payment to the creditors and debts of the bankruptcy estate itself.
Please note that the payment of the credits and the liquidation of the bankruptcy estate and its distribution by creditors can be regulated by an insolvency plan, in which the rules and procedures set forth by the said Code in relation to such matters are waived, and it is given the chance to set up rules and procedures individually designed for the specific case.
Such a plan can be presented by the insolvency administrator, any creditor or by anyone that is legally liable for the debts of the debtor/insolvent; though in any event, this plan has to be approved by the judge of the case.
In relation to relevant types of voluntary restructurings and reorganisations concerning insolvency issues, see 2.9.1 Overview of Relevant Laws and Statutory Regimes Governing Restructurings, Reorganisations, Insolvencies and Liquidations. There are no involuntary restructurings or reorganisation procedures.
As to insolvencies, it should be said that under Portuguese law, the debtor should request to the court the declaration of its own insolvency within 30 days after becoming insolvent (the debtor that is unable to fulfil its overdue financial obligations or entities that have liabilities patently superior to its assets, evaluated in accordance with applicable accounting standards).
In such cases, the debtor has the duty to request its own insolvency.
Requesting a Declaration of Insolvency
Conversely, the declaration of insolvency may also be requested to the court by any creditor who is also liable for the debts of the debtor (eg, guarantor) or the public prosecutor, in representation of entities whose interest is legally incumbent, should any of the following circumstances occur:
In such cases, the request of declaration of insolvency of the debtor and related proceeding is made voluntarily on the part of the above-mentioned parties.
In relation to receivership, such a legal framework does not exist under Portuguese law.
As a continental European-based legal system, under Portuguese law an insolvency administrator is appointed by the court within the scope of the sentence that declares the debtor as insolvent. Thus, according to the Portuguese Code of Insolvency and Recuperation of Companies, an insolvency administrator can:
The actual company that is a part of the bankruptcy estate is sold as a whole, unless there is a satisfactory proposal, or there is perceived as being an advantage in liquidating or in selling separately certain parts of such a company.
It is also incumbent on the insolvent administrator to carry out the necessary procedures to sell the company or its establishments.
EU Member States
In relation to oversees proceedings, a judgment given on restructuring, reorganisations, insolvencies, and receivership issues in any EU member state is recognised in Portugal without any special procedure being required, in accordance with Regulation (EU) 2015/848, of the Parliament and the Council on insolvency proceedings, which applies to cross-border insolvency proceedings within the EU.
Non-EU Member States
For such judgments of non-EU member states, a review of the judgment or orders is required. These judgments will only be executable in Portugal after being reviewed by the Portuguese courts, and their recognition will be issued if the foreign court that declared the insolvency based its competence on the criteria of the location of the residence or headquarters of the debtor or of its centre of main interests and the recognition does not violate Portuguese public order.
According to Portuguese law, Portuguese courts have exclusive jurisdiction for the declaration of insolvency of companies which have their headquarters in Portugal, meaning that no foreign judgments (outside the EU) will be recognised in this regard.
Once the requirements set forth for the recognition of the declaration of insolvency issued by a non-EU member state court are met, a Portuguese court may order, at the request of the foreign insolvency administrator (or equivalent), the publicity of the essential content of the insolvency declaration decision as well as the decision of appointing the insolvency administrator in question.
If the debtor is note registered or domiciled in Portugal, or the centre of their main interests are there, insolvency proceedings cover only the assets situated in Portugal.
The Secondary Proceeding
The recognition of a main insolvency proceeding in Portugal does not stop the possibility of another insolvency proceeding being lodged (under the terms of Portuguese law): ie, the secondary proceeding. In this case, the foreign judicial administrator (or equivalent) is legitimised to lodge such a secondary proceeding, as well as to take part in the creditors assembly that should take place in it, as well as to file an insolvency plan as previously addressed.
International Case Law
In international cases parties should follow the rules and procedures previously addressed as set forth under Portuguese and European law, and not adopt co-ordination principles not therein established; most notably, the American Law Institute and International Insolvency Institute Guidelines Applicable to Court-to-Court Communications in Cross-Border Cases 2001 and the INSOL International (International Association of Restructuring, Insolvency and Bankruptcy Professionals) Global Principles for Multi-Creditor Workouts 2000 are not applicable under the Portuguese jurisdiction.
Moreover, the UNCITRAL Model Law on Cross-Border Insolvency was not adopted, and is not valid or under consideration in Portugal.
Irrevocable powers of attorney regarding the assets which integrate the patrimony of the insolvent party will not survive its insolvency. However, and taking into account that the aircraft is not owned by the lessee/insolvent, the aircraft is not part of the patrimony of the insolvency, for which reason the deregistration power of attorney will survive. If the amounts regarding the lease are not paid, the lessor may invoke an event of default to terminate the agreement, requesting the repossession and deregistration of the aircraft through a deregistration power of attorney.
Revoking, Suspending or Terminating a Lease
In Portugal, the declaration of the insolvency of a lessee does not suspend a lease agreement, albeit there may be a possibility that the insolvency administrator has to terminate the lease with 60 days' prior notice. The only exception to this is the provision according to which, if the leased asset has not yet been delivered to the lessee upon the date of the declaration of insolvency, either the lessor or the insolvency administrator may terminate the lease agreement, with either party being allowed to establish to the other a reasonable term for that purpose at the end of which the right to terminate the agreement ends. The lessor is obviously not subject to bankruptcy proceedings affecting the lessee. Therefore, they may apply such deposited funds under their own discretion against amounts due from the counterparty in accordance with the applicable legal limits.
If the lessor is allowed by the insolvency administrator to revoke the lease agreement (and repossess the aircraft), the question of how and when the lessor will be paid will be determined by the status of the lessor, notably if the lessor is a secured creditor. If not, the chances are that payments to the lessor in respect of any arrears or other losses that may have arisen as a result of the breach/termination of the lease agreement will be made at a later stage and together, on a pro rata basis, with the remaining unsecured creditors. Other losses (such as loss of profits, etc) will not be automatically included, and will require a court decision.
If the insolvency administrator decides to continue the lease agreement despite the lessee's insolvency, the administrator is likely to file a petition with the court asking for authorisation from the latter to pay to the lessor the amounts concerning the lease payments. The administrator cannot continue the lease without paying the contractual amounts.
The Final Stages of a Lease
In the final stages of the lease, in the course of time or on the initiative of the lessee or its representative, the lessor has the right to proceed to the deregistration of the aircraft. The insolvency proceedings may cause some delay in the repossession of the aircraft, which will probably never take less than two months. If an aircraft is not owned by the lessee, then, in the case of winding up, the title of the aircraft will not be affected. The only exception would be regarding the right of retention in the very specific case where the lessee would somehow have a credit against the owner/lessor as a result of expenses arising because of the asset in question or damages caused by it.
These expenses and losses would be within the scope of the owner’s/lessor’s liability and the lessee is obliged to deliver the asset to the owner/lessor. Apart from in this case, no liens or encumbrances may be created by the counterparty as lessee to the lease agreement. However, there is the possibility that, due to a debt of the lessee to a third party regarding the aircraft, this third party may use its retention right, which will be valid.
The owner of an aircraft has the legal right to go to court to preclude any third party from executing against the asset within its ownership. The owner is protected, but in certain circumstances it may have to take action and seek the protection of the courts, which will be granted except in cases in which the aircraft has been utilised in drug-trafficking offences. In this case, the ownership of the aircraft and its components and parts will be vested in the state without compensation. Obviously, the owner will not be prevented from seeking indemnity from the operator in such a situation. In the case of rentals, when the winding-up of a lessee occurs, the right of the owner/lessor to receive the rentals will remain valid, but it will be necessary to respect the priority of the existing credits up to the date of the winding-up of the company, as in the case of insolvency.
With a deregistration power of attorney, in the case of an event of default, the owner may proceed to the deregistration of the aircraft and export it outside Portugal.
Lastly, the administrator would impose the rights of other creditors such as the tax authorities, the employees and the courts (regarding court costs credits) in priority to those of the lessor.
The inexistence of enough assets to provide for the payment of the insolvent creditors, including the lender, which if not having a guarantee of its own (eg, a mortgage), will be deemed as any other common creditor which should be equally paid accordingly with the debtor's existing assets.
No moratorium or similar stay is imposed in connection with insolvency proceedings. Additionally, the declaration of the lessee's insolvency does not suspend the execution of the lease agreement, but the insolvency administrator can always terminate it by undertaking to pay the retributions corresponding to the existing period between the date of the production of its effects and the end of the term established in the contract, or the date on which termination by the insolvent would have been possible.
A request for the declaration of a company’s insolvency may be made by the person legally responsible for the payment of its debts, any creditor and the public prosecutor in the case of:
See 2.9.5 Other Effects of a Lessee's Insolvency.
See 2.9.5 Other Effects of a Lessee's Insolvency.
Portugal is not a party to the Cape Town Convention on International Interests in Mobile Equipment (the "Convention") or the related Protocol on Matters Specific to Aircraft Equipment (the "Protocol").
See 2.10.1 Conventions in Force.
See 2.10.1 Conventions in Force.
See 2.10.1 Conventions in Force.
Portugal is a party to both the 1948 Geneva Convention on the International Recognition of Rights in Aircraft and the 1933 Rome Convention on the Unification of Certain Rules relating to the Precautionary Arrest of Aircraft.
There are no restrictions on foreign lenders financing an aircraft locally or on borrowers using the loan proceeds.
There are no exchange controls or government consents required in respect of financing or repatriation of realisation proceeds under a loan, guarantee or security document.
Borrowers are permitted to grant security to foreign lenders.
Downstream, upstream and/or cross-stream guarantees are permitted. Notwithstanding, the rendering of real or personal guarantees to debts of others/third parties is considered contrary to the object/purposes of the company, except if there is a justified interest of the company which renders the guarantee, or if there is a dominant or group relationship between the guarantor company and the debtor company and Portuguese jurisprudence has accepted guarantees rendered by companies in the interest of third parties, whenever the company has a justified interest in rendering such a guarantee.
It is not advisable for a lender to take share security over a domestic special-purpose vehicle that owns the financed aircraft. Pledge of shares is permitted.
Negative pledges are not applicable under Portuguese law.
There are no material restrictions or requirements imposed on intercreditor arrangements.
The concept of agency and the role of an agent (such as the facility agent) under a syndicated loan is not applicable under Portuguese law since the figure of the agent does not exist. The concept of an agent and its role can, however, be carried out by an attorney with a power of attorney granting the powers intended for the specific purposes envisaged, and thus can be accepted.
It is not possible to rank creditors and therefore no methods of debt subordination in this regard are allowed.
It is permissible to transfer or assign all or part of an outstanding debt under an English or New York law-governed loan.
There are limitation laws regarding usury interests, that is, annual interests that supersede legal interests (4% in the case of civil interests, and 8% regarding commercial interests applicable to commercial companies) above 3% or 5% if an in rem security (a security applicable to any third parties to it and not only to its parties) exists or not, respectively. Such usury interests are reduced to the maximum legal amount.
The typical forms of security and recourse that would be granted in an aviation finance transaction domestically are mortgages and guarantees.
It is not possible to set up pledges over aircraft or related moveable assets such as engines, as they are only subject to mortgages.
Under Portuguese law, the concept of a trust and of the security trustee proper does not exist. However, it is possible for a party to act on behalf and in representation of itself or another party as long as it has a power of attorney in this regard. The ANAC has not recognised the concept of a trust, but it has been possible to register aircraft in favour of the owner trustee, although it has not been common to proceed before this authority for civil aircraft registration to carry out the registration of the transfer of the beneficial interest. Such a registration should be carried out before the ANAC.
It is permitted for a borrower to assign to a third party, including a security trustee, its rights to the aircraft or under an aircraft lease, pursuant to a security assignment or a mortgage.
It is possible to assign a credit that one owns, including the credits that a lessor is entitled to under an aircraft lease, such as the rents resulting from such an agreement, but it is not permitted to assign only the rights and benefits without also assigning the attendant obligations of the lessor, considering that when a party assigns its contractual position it also assigns its rights, benefits, duties and obligations.
It is permitted and enforceable for security assignments or guarantees to be governed by English or New York law.
It is a requirement to have a written contract or document that is duly authenticated. The registration of such an assignment is also advisable in order to be enforceable. Taking into account that under Portuguese law, rights may only be fully enforced against parties via judicial proceedings and that according to the Portuguese Code of Civil Procedure all documents filed with courts should have a translation to the official language of the country, in such a circumstance it is necessary to file a translation of those documents.
If an English or New York law-governed security assignment were to be taken in respect of an aircraft registered in Portugal, there would be no specific domestic security instrument that a financier should take additionally. Portugal is not a party to the Cape Town Convention.
It is permissible to register an English or New York law-governed security assignment or a domestic law security instrument domestically.
The transfer of such security interests is permitted.
Should the identity of a secured party change, the security interests are not jeopardised as long as this change is documented.
See 3.2.5 Assignment of Rights and Benefits without Attendant Obligations.
A secured party under a security assignment would not be deemed to be resident or domiciled in Portugal and would only be subject to taxes if it received any income in Portugal, eg, if also the lessor.
It is necessary to file a domestic law mortgage over an aircraft or engine with the registry to produce legal effects.
There are no differences between the form of security (or perfection) taken over an aircraft and that taken over spare engines.
Such security is an on-first-demand bank guarantee, by which the bank, at the request of its beneficiary, should immediately make payment of the secured amount or a pledge account.
Portuguese law expressly gives a right of retention (direito de retenção) to airport authorities regarding unpaid airport fees owed by the operator of an aircraft. This right, a possessory lien, will arise because of the operator's behaviour and not that of the owner of the aircraft. It does not affect any changes in the ownership of an aircraft, nor the owner's rights to dispose of its assets, including any aircraft.
The lien only covers work done on the actual secured asset for the value of the work done and cannot cover the value of work done on other assets.
A feet lien would be recognised if it were established in the corresponding contract and under the general principle of contractual freedom (the parties are free to establish agreements and clauses as they deem fit, as long as no law is broken) and considering that, to the best of available knowledge, such liens would not breach any existing law in Portugal. Third parties that could detain the aircraft include any creditor in favour of which such a lien would be established. Any such third party could enforce the lien by, eg, retaining the aircraft until compliance by the debtor.
There is no specific timeframe to discharge a lien or mortgage over an aircraft. The timeframe would depend on the lien or mortgage to be discharged. As long as all documentation is provided, the average timeframe is not expected to exceed seven days.
The RAN is the registry for mortgages, within which the interests of an aircraft mortgagee or a security trustee may be filed. The effect of such registration is to give publicity and effectiveness to these interests. Mortgages should be mandatorily registered in order for them to be valid and enforceable.
Statutory rights of detention or non-consensual preferential liens emerging from the non-payment of airport fees would prevail over consensual liens.
A potential purchaser of an aircraft should check the RAN to verify that an aircraft is free of encumbrances.
There are no relevant differences between enforcing a security assignment and enforcing a loan or guarantee.
It would be permitted for a third party (a security trustee, etc), to enforce its rights under a security assignment, by which a security is granted to it by a lessor in respect of its rights under an aircraft lease, pursuant to a notice and acknowledgment executed by the lessor and the lessee respectively in connection with that security assignment. This will depend, however, on the actual terms set forth in the security and security assignment, as well as the specific rights, since under Portuguese law it is only possible to enforce certain rights via a judicial order (eg, payment of compensations).
Courts in Portugal will uphold a foreign law as the governing law of a finance or security document and the submission to a foreign jurisdiction. However, the contract in question must be an international agreement (ie, connecting more than one jurisdiction) accepted by the designated jurisdiction, and the submission to the foreign jurisdiction must be justified by a serious interest of at least one of the parties and not cause grave inconvenience to the counterparty. The clause concerning the submission to a foreign jurisdiction should also be put in writing.
Portuguese courts will accept and enforce a final judgment of a foreign court or an arbitral award without re-examination of the matter, with some exceptions.
It would be possible for a secured party to take physical possession of an aircraft to enforce a security agreement/aircraft mortgage without the lessee or operator's consent. However, taking into account that the aircraft would remain in the custody of the court until the final decision and/or execution thereof, it may not do this directly.
The deregistration powers-of-attorney in favour of the secured party may be an instrument for repossession purposes.
There is no specific court to uphold proceedings concerning security agreements/aircraft mortgages, which are therefore subject to the general court system. Notwithstanding, the Court for Executions would be competent to enforce security agreements/aircraft mortgages should such security agreements/aircraft mortgages have been granted before a public notary, which would mean that they were considered as a writ of execution and therefore immediately executable and enforceable upon the debtor in question via, eg, seizure and judicial sale of the assets of that debtor.
It is possible for a secured party to obtain an injunction or a protective or precautionary measure pending a final resolution of judicial proceedings to enforce a security agreement/aircraft mortgage if the following conditions are met:
It is possible for a secured party under a security agreement/aircraft mortgage to obtain a judgment in a foreign currency as long as it has requested it in its complaint.
Although the secured party is liable to pay court fees in order to enforce its claim with a court, these fees are nominal and there is no requirement for it to pay any non-nominal amount in this regard.
The payment of stamp duty may be requested.
There are no other relevant issues of which a lender should be aware in relation to the enforcement of its rights.
There are no other relevant issues or court judgments that are relevant to these matters.
No current legislative proposals are worth mentioning.
Trends and Developments
The Use of Drones in Portugal
The use of drones in Portugal is essentially regulated by the Commission Implementing Regulation (EU) 2019/947 of 24 May 2019 on the rules and procedures for the operation of unmanned aircraft, created by the European Union Aviation Safety Agency. In Portugal, this legal framework is applied by the so-called ANAC – Autoridade Nacional de Aviação Civil (National Authority for Civil Aviation), which legally is the public authority in Portugal competent to regulate and supervise the civil aviation sector, including, consequently, the use of unmanned aircraft or “drones”.
This regulation has been put in place by the European Union in view of creating a harmonised drone market in Europe, with the highest level of safety and, as its biggest advantage and in practice, means that once a drone pilot has received an authorisation from its state of registry – in this case, Portugal – he or she will be fully allowed to freely circulate, not only in Portuguese territory but in all of the European Union as well.
The aforementioned regulation sets the rules and procedures for the operation of unmanned aircraft – or drones – as well as for the personnel, including remote pilots and organisations, involved in these operations. As a consequence, this requires that drone pilots fulfil a set of operational rules and training that aim to protect the safety of all – pilots and non-pilots. Flying a drone professionally or as a hobby is therefore subject to the same legal framework, and the rules only vary in accordance with three categories of operational framework that are defined based on the level of risk.
In fact, according to the above regulation, unmanned aircraft systems (UAS) – ie, unmanned aircraft and the equipment used to control them remotely – operations are classified and performed in the “open”, “specific” or “certified” category, which consequently establishes different rules for each:
As to the “open” category, since it concerns the lowest degree of risk, it is the category that involves almost all activities usually associated with leisure and is intended for aircraft of less than 25 kg, and with construction marking in accordance with the European community or of homemade construction (without European marking). Drones in this category cannot fly near a gathering of people and should fly at a maximum height of 120 metres above ground, and during flights should not carry any dangerous goods or drop any material.
Furthermore, UAS operations within this category are divided into three subcategories – A1, A2 and A3 – each of them with specific operational limitations, requirements for the remote pilot, and technical requirements for legally established UAS. For example, UAS operations in subcategory A1 must be performed by a remote pilot familiar with the user's manual provided by the manufacturer of the UAS, whereas UAS operations in subcategory A2 must be performed by a remote pilot who is familiar with the user's manual provided by the manufacturer of the UAS and holds a certificate of remote pilot competency issued by the ANAC. In the case of UAS operations in subcategory A3, these must be performed by a remote pilot who has completed an online training course and passed an online theoretical knowledge examination set out in specific legislation.
Regarding the requirements for the “specific” category – which is set for medium risk – these will apply, for example, in the case of a flight above 120 metres, for an aircraft of more than 25 kg, over people not involved in the flight or with cargo transportation or in the so-called beyond-visual-line-of-sight (BVLOS) operation. Visual-line-of-sight (VLOS) operations are UAS operations in which the remote pilot is able to maintain continuous unaided visual contact with the unmanned aircraft, allowing the remote pilot to control the flight path of the unmanned aircraft in relation to other aircraft, people and obstacles for the purpose of avoiding collisions.
Under this category, it is only possible to fly with a declaration of operational authorisation issued by the ANAC, and as such it will be necessary for the application in question to lodge a risk assessment for the flight scenario that he/she intends to carry out.
The third of the above-mentioned categories – the “certified” category – applies to high-risk UAS operations which require a UAS certification in accordance with the Delegated Regulation (EU) 2019/945 and the certification of the operator and, where applicable, the licensing of the remote pilot. Moreover, the operation in question may be carried out over a gathering of people, involve transportation or the carriage of dangerous goods, with a high degree of risk to third parties in the possible case of accident.
UAS operations are also always classified as “certified” whenever the competent authority, on the basis of a risk assessment, considers that the risk of the operation in question cannot properly be mitigated without UAS certification (and the certification of the UAS operator whenever such is applicable without the licensing of the remote pilot).
In respect of the aforementioned Commission Implementing Regulation (EU) 2019/947 of 24 May 2019, training for all drone pilots is set as a mandatory requirement, and such training is determined by the level of risk associated with the operational category in which the fight is to be carried out. The certificate of competence issued by the ANAC is valid for five years, which means that the pilot should carry out their operation in accordance with the rules set out for each category.
Thus, in relation to the “open” category, training can be performed remotely (online). There is a theoretical component and a practical one, carried out by a school certified by the ANAC or via practical self-training. The pilot in question will only be certified after having completed a face-to-face exam at the ANAC, and in any circumstances applicants should be at least 16 years of age to be able to fly under this category.
Regarding the “specific” and “certified” categories, the pilot in question must carry out theoretical training, provided by the ANAC, as well as practical training performed by an entity certified by the ANAC. In cases under the “specific” category, pilots must also possess an approved light UAS operator certificate (LUC), issued to a UAS operator by the ANAC. In view of this, pilots who wish to complete training for these categories must be able to implement and maintain a security management system, considering the dangers and risks connected with the flights they intend to perform. Moreover, pilots who wish to operate in the “certified” category must have training similar to that which manned aircraft pilots undertake.
Drone operators or drone owners with equipment equal to or above 25 kg in weight are required to register themselves with the ANAC, notably at https://uas.anac.pt. Such registration is also necessary for smaller drones equipped with sensors that capture personal data, such as cameras or microphones. All such registrations are connected to a single European platform that allows pilots to freely operate within all EU territory, though only with the competent authorisation and registration issued by the relevant member state (in this case, Portugal).
At the above-mentioned website provided by the ANAC, it is also possible to complete registration of the operator and the pilot of the drone in question.
Registration of the operator concerns the owner of the equipment (similar to the owner of an automobile performing registration with the competent automobile registry), and who is therefore the person responsible for licences and authorisations concerning the unmanned aircraft. Operators’ registration numbers issued by the ANAC should be placed visibly on the drone in question, in the same way as car number plates are shown on such vehicles.
Pilot registration must also be carried out, considering that such person is responsible for compliance with safety flying conditions, as well as for obeying the operational local requirements in which the equipment will be operated.
Naturally, the operator and the pilot of a drone can be – and often are – the same person.
Lastly, please note that for a drone weighing more than 900 grams, insurance is required – the purpose of such requirement is to cover any possible compensation for damages caused to third parties during its operation.
In conclusion, it is important to mention that, since the entry into force in Portugal of the aforementioned EU legislation on 1 January 2021, a few difficulties have already been noted by drone users in the country – notably the fact that there is little on offer in regards to training schools, and several insurers have refused to take on risk or provide insurance prize amounts except amounts equal to or above those provided for car insurance, which has proven expensive for small and medium-sized drones operated in Portugal.