Banking & Finance 2020 Comparisons

Last Updated October 05, 2020

Contributed By Cuatrecasas

Law and Practice


Cuatrecasas is a leading Iberian law firm with its main offices in Portugal and Spain, and an international presence through offices in 11 other countries. Clients include companies in all commercial and industrial sectors, financial institutions, funds, supervisory authorities and governmental entities. The firm offers high-standard advice in the context of clients’ international strategies.

The COVID-19 pandemic has had a brutal effect and has dramatically changed trends and the regulatory environment.

The European Central Bank and the Bank of Portugal approved exceptional regulatory measures in order to allow for the credit moratorium regimes that enabled companies and individuals to suspend bank loan payments, as further detailed below.

In terms of trends, there was disruption to the real estate loan market, which was basically suspended for new transactions and is now slowly returning to its pace, whilst conditions in the loan market in general worsened and concentrated on liquidity transactions or the financing backed by the State.

The Portuguese loan market has been affected by the economic crisis triggered by the COVID-19 pandemic, particularly in two ways:

  • several projects/transactions were postponed or cancelled and some are now returning;
  • the government adopted measures aimed at facilitating access to credit by companies (credit lines to support treasury needs) and easing banking payments (eg, moratoriums).

On moratoriums, the following are the legal boundaries applicable until 31 March 2021:

  • prohibition of termination of the relevant financings;
  • extension of the term of credits, with repayment of the principal at the end of the contract;
  • suspension of payments of the principal, rents and interest, in relation to credits or amounts payable in instalments.

Other measures that indirectly impact the loan market are:

  • suspension of the enforcement of mortgages over the personal/permanent residence of the debtor;
  • suspension of the deadline to apply for insolvency;
  • suspension of acts in enforcement/insolvency proceedings related to the personal/permanent residence of the debtor.

The high-yield market continued to be active during 2019 and was quite common in the corporate debt issuance and high-yield segments, where the high-yield volumes increased every quarter (from EUR32 billion in the first quarter to EUR42 billion in the fourth quarter), ascending to an amount of EUR147 billion raised through 284 high-yield deals in 2019 across Europe.

The increasing use of the high-yield market has generated more flexibility on the side of the banking loan industry and there is clearly more convergence in respect of borrowers’ protection.

The markets have also shown that high-yield deals are mainly sought and carried out by professional investors such as institutional investors, mutual funds, insurance undertakings and other big players, rather than by retail investors (ie, the non-professional investors).

Alternative credit-providers have not seen any significant growth because credit activity is a regulated activity in Portugal. This limits substantially the activity of alternative credit-providers, such as funds, which can only grant loans in specific situations – eg, loans granted by a certain type of investment fund (ie, venture capital funds, the European social entrepreneurship funds and the European long-term investment funds) to SMEs.

The Portuguese Securities Market Commission (CMVM) regulates the activity of loan funds, amending the requirements to be met from a prudential and behavioural perspective. Loan funds can grant credits (loan origination) and participate in loans acquired from the credit’s originator or from third parties (loan participation), subject to the applicable requirements.

Despite the limitations previously referred to, there has been some development and growth of financing through crowd-funding, new digital platforms and loan funds.

This growth has been boosted by legislation specifically applicable to this activity (see 1.6 Legal, Tax, Regulatory or Other Developments).

Banking and finance techniques have been evolving in Portugal, mainly in debt secondary markets and the restructuring sector, or have been driven by regulatory requirements (eg, the Bank Recovery and Resolution Directive (BRRD), the Capital Requirements Regulation (CRR), the Capital Requirements Directive IV (CRD IV) and the international regulatory framework for banks (Basel III). This year the major changes result from COVID-19 measures.

Given the economic crisis that will arise from the COVID-19 pandemic, banks will again face challenges with future (non-performing loans) NPLs, which are likely to increase significantly, and consequently more difficulties in issuing debt with a structure allowing for loss-absorbing capacity and complying with minimum requirements for own funds and eligible liabilities (MREL) and total loss-absorbing capacity (TLAC) requirements. Probably, regulators will ease compliance with some of these requirements in the meantime.

The granting of loans or other financing, which includes factoring, financial leasing and granting of guarantees, on a professional basis, is a regulated activity. Non-banks are, in principle, not authorised to provide financing to a company organised in Portugal, unless they incorporate one of the relevant credit institutions or financial companies authorised by the regulator to exercise such activity.

EU-domiciled banks may benefit from the EU passport established in the CRD IV and may be registered with the Bank of Portugal to carry out credit activity, enjoying the freedom to provide services on a cross-border basis without any local presence in Portugal.

This registration is made by a notification made in the home country indicating the activities that the entity wants to render in Portugal, which is then sent by that entity to the Bank of Portugal to make the respective registration. After such a notification, the credit institution or financial company may start providing its services in Portugal under the EU passport.

However, a non-EU-domiciled entity is only allowed to carry out banking activities in Portugal through the set-up of a branch or the incorporation of a subsidiary, both subject to specific authorisation procedures with the Bank of Portugal.

Only credit institutions and financial companies previously registered with the Bank of Portugal can engage, on a professional basis, in activity related to credit operations, including the granting of guarantees and other commitments, financial leasing and factoring.

However, if the credit operation is an isolated transaction and there is no further transaction in the future, one can be sure that it is not an exercise of a credit activity on a professional basis.

Additionally, the aforementioned registration/authorisation with the Bank of Portugal will not be required to the extent that, in respect of a specific transaction, the Portuguese-domiciled client contacts the non-EU-domiciled banking entity and requests a certain banking service on its own initiative without any prior solicitation and marketing of such a service by the banking entity (ie, the reverse-solicitation principle).

An alternative method to raise financing is the issuance of bonds integrated in a Portuguese clearing system, given that it is not qualified as a credit activity for regulatory purposes and as a favourable tax regime.

The granting of security or guarantees is not restricted in terms of credit activity. However, there are relevant corporate limitations on the granting of security or guarantees.

Under the Portuguese Companies Code (PCC), companies can only grant guarantees or security in favour of third parties, provided that it:

  • has a justified corporate self-interest; or
  • is in a control or group relationship with the beneficiary of the security or guarantees.

A “control relationship” is defined as the relationship between Portuguese companies where one has, directly or indirectly, a dominant influence over the other. Such influence is presumed to exist whenever one of the companies, as regards the other, directly or indirectly:

  • holds the majority of the share capital;
  • has more than half of the voting rights;
  • is able to appoint the majority of the members of the board of directors or supervisory board.

However, two or more Portuguese companies will be in a “group relationship” whenever:

  • one of the companies holds, directly or indirectly, 100% of the other;
  • the companies have entered into a group contract; or
  • the companies have entered into a subordination agreement whereby one of them is subject to the instructions or management of the other.

Furthermore, the PCC includes a prohibition on financial assistance and therefore guarantees or security granted by Portuguese companies cannot guarantee obligations related to financing incurred for the acquisition of either the shares representing the share capital of the guarantor or the shares representing the share capital of its direct or indirect parent company. Any such guarantees or security would be deemed null and void and trigger both civil and criminal liability of the directors of the target company.

For tax reasons, the secured obligations are typically limited to an agreed maximum amount, which is linked to the value of the asset being encumbered or to the intrinsic value of the Portuguese target or subsidiary company.

There are no restrictions or controls regarding foreign currency exchange and there is no limitation on the expatriation of dividends or investments abroad. Nonetheless, reporting obligations to the Bank of Portugal apply in respect of certain finance transactions and there are the standard Anti Money Laundering (AML) rules.

Apart from those mentioned above, there are no restrictions on the borrower’s use of proceeds from loans or debt securities. However, it should be noted that it is market practice to set out contractually that the capital granted to the borrower may not be used for any purpose other than the purpose established in the facility agreement.

Portuguese law does not recognise the concept of parallel debt or of trusteeship, except for a very specific regime in the Madeira Free Trade Zone. Therefore, the beneficiary of the security needs to have a valid underlying obligation duly secured by the security and, accordingly, the lenders need to be registered as holders of the security with the competent registry office.

Typically, the security agreement and/or indenture, as well as the inter-creditor agreement, provide that only the security agent has the right to enforce the security documents in its capacity as agent and also as joint and several creditor, thus being the only entity registered as beneficiary of the security and the only entity legally entitled to enforce the security.

Accordingly, the guarantee or security is usually enforced by the security agent after the occurrence of an event of default and following instructions from the lenders in accordance with the provisions of the inter-creditor agreement, the security agreement and/or any other agreement (as applicable).

Alternatively, the banks may request to have the security registered in their own name to have the ability to enforce it upon the occurrence of an event of default (more common when Portuguese banks are involved).

Loans can be transferred through an assignment of credits or by way of an assignment of contractual position.

Usually, parties prefer the assignment of credits’ mechanism, which, contrary to the assignment of contractual position, does not require the consent of the borrower. There can be limitations established for the assignment, namely, related to tax (given that foreign lenders may be more expensive in terms of taxation if there is a gross-up obligation) and regulatory issues.

The assignment is made by private contract between the assignor and the assignee and entails the transfer of the security package associated with it. Should the security comprise mortgages, a public deed or private document with recognition of signatures is required as a formality for the security to be adequately transferred. Further steps for the transfer may be required, depending on the type of security, namely, registration with the real estate registry office in the case of mortgages, registration with the bank in the case of pledges over bank accounts, registration with the commercial registry in the case of pledges over quotas or registration with the depositary bank in the case of deposited or dematerialised shares.

A debt buy-back by the borrower is typically not allowed, as it may trigger a subordination of the debt in the case of insolvency. Alternatively, and in order to overcome this limitation, the borrower is usually entitled to repay the loan partially in advance.

There are no specific rules regarding “certain funds” similar to those in the City Code on Takeovers and Mergers.

An offeror in a takeover bid is only required to have the funds deposited or to present a bank guarantee for payment when applying for the registration of the takeover bid with the CMVM. There can be debt financing for the consideration of the offer, but such financing will always need to take the final format of a bank guarantee or a deposit in favour of the shareholders of the target company. Thus, in such cases, there will need to be a direct commitment of the lenders towards those shareholders.

Additionally, when a public takeover bid is at stake, there will usually be a financial intermediary who will co-ordinate all relevant arrangements for the financing of the offer with the offeror. Considering the above, “certain funds” provisions are not very common in public acquisition finance transactions.

Under Portuguese Corporate Income Tax (CIT) rules, interest owed by Portuguese residents to non-resident entities is liable to final withholding tax herein, at the domestic rate of 25%, over the interest gross amount.

The domestic withholding tax rate may, however, be reduced pursuant to the provisions of a double taxation agreement concluded between Portugal and the country of residence of the lender, typically to 10% or 15%.

Notwithstanding, interest derived from loans granted by non-resident financial institutions to resident credit institutions are exempt from withholding tax to the extent that the interest is not allocated to a local permanent establishment of the non-resident creditor. However, this exemption is not applicable if:

  • the recipient of the interest is resident in a “tax-blacklisted jurisdiction”; or
  • the recipient of the interest, without a permanent establishment in Portugal, is held, directly or indirectly, in more than 25%, by resident entities, except when the entity is resident in another EU country, in an European Economic Area (EEA) country bound by fiscal co-operation identical to the one established within the EU or in a country that has concluded a double tax treaty with Portugal providing for exchange of information.

Non-residents may also benefit from withholding tax exemption on interest derived from listed bonds, pursuant to the regime set forth in Decree Law No 193/2005, as amended (which also provides for capital gains' exemption upon disposal of the bonds). See 4.2 Other Taxes, Duties, Charges or Tax Considerations for stamp duty on issues of bonds.

In summary, and to the extent that the necessary requirements regarding the beneficiaries (ie, bond-holders) are met, no withholding tax applies over the interest, to the extent that all the necessary formalities are duly fulfilled, namely, proof of the non-residence status of the beneficiaries and the required data regarding the debt securities and the beneficiaries.

The bonds must be integrated in a centralised system managed by an entity resident for tax purposes in Portugal (ie, Interbolsa), or an international clearing system managing entity established in another EU Member State (ie, Euroclear and Clearstream Luxembourg) or in an EEA member state, provided it is bound by an administrative co-operation in tax matters similar to the one established within the EU or integrated in other centralised systems. In this last case, the competent government member must authorise the application of the special tax regime.

The Court of Justice of the European Union found that the Portuguese domestic CIT rules imposing withholding tax over interest obtained by non-residents are in breach of EU Law, considering that the withholding is imposed on the gross amount of the interest, whereas resident financial institutions are (only) taxed on their net income (decision of 13 July 2016, on Brisal – Auto Estradas do Litoral SA, KBC Finance Ireland v Fazenda Publica – Case C-18/15). Although it was expected that this decision would determine tax rules, that has not been the case so far.

The reimbursement of the principal and other payments to the lender are not liable to Portuguese withholding tax.

Value-Added Tax (VAT)

Financial transactions are, as a rule, exempt from VAT under domestic VAT law. This exemption covers notably the granting and negotiation of credit, the respective administration and management by the entity granting the credit, the negotiation and granting of security and guarantees, and transactions (including negotiation) related to the deposit of funds, current accounts, payments, transfers, collection and cheques.

The VAT treatment of bank commissions and fees is determined on a case-by-case basis, depending on their actual features, although those commissions corresponding to the transactions referred to above will be in principle VAT-exempt.

Conversely, other commissions or fees charged by the banks – eg, for consultancy, certain structuring and settlement services – are in principle out of the scope of the referred exemption, hence liable to VAT taxation. Where these fees are charged by non-resident banks to Portuguese VAT taxpayers, Portuguese VAT will apply by means of the “reverse charge mechanism”.

Financial transactions subject to but exempt from VAT are subject to stamp duty, as described below.

Stamp Duty

Portuguese stamp duty is due on a list of specified taxable events when deemed as occurring in Portugal, including several transactions, contracts, acts and documents, as outlined in the stamp duty chart, including financial transactions. However, no stamp duty is levied over transactions subject to and not exempt from VAT – eg, certain services provided by banks, as referred to above.

The granting of credit is liable to stamp duty, levied over the principal at rates that vary upon the term during which the credit is used as follows:

  • credit for less than one year: 0.04% per month or fraction thereof;
  • credit for one or more years: 0.5%; and
  • credit for five or more years: 0.6%.

The extension of the term of the contract is considered as a new granting of credit, hence raising additional taxation – stamp duty is borne by the borrower. No stamp duty, however, applies in the case of funding obtained through the issue of bonds over the principal or interest (see taxation of interest below).

The granting of security is also subject to stamp duty whenever it is:

  • granted in the Portuguese territory;
  • for the benefit of a Portuguese resident entity; or
  • herein presented to produce legal effects, except if it is:
    1. materially accessory to a taxable stamp duty event; and
    2. granted simultaneously with it.

Stamp duty is borne by the entity required to present the guarantee (ie, the debtor). Accordingly, security granted in the context of a loan agreement tends not to be subject to stamp duty, as the use of credit under the loan agreement will itself be subject to taxation – provided that (a) and (b) above are met – such as in the case where a Portuguese company borrows funds from a non-resident bank. In the case of issuance of bonds, the security granted for the benefit of the relevant bond-holders may trigger Portuguese stamp duty.

When due, the stamp duty taxable basis is the value of the underlying security (ie, maximum secured amount), which is the effective tax rate, dependent on the applicable term, as follows:

  • security with a term lower than one year: 0.04% per month or fraction thereof;
  • security with a term equal to one year and up to five years: 0.5%; and
  • security with a term equal to or over five years or without any specific term: 0.6%.

In the case of transactions carried out by or with the intermediation of credit institutions, financing companies or other entities legally equated to them, or any other financial institutions, interest is also liable to stamp duty over the respective amount at a rate of 4%, as well as commissions and other bank fees over the respective amount at a rate of 3% (commissions for guarantees), or 4% (other commissions and fees for financial services).

As outlined above, no stamp duty is levied over operations subject to and not exempt from VAT – eg, those bank commissions subject and not exempt from VAT.

Notwithstanding the above, an exemption applies to interest and commissions charged, security granted, as well as to the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, and in addition to companies or entities the form and object of which corresponds to those of credit institutions, financial companies, financial institutions as provided in EU Law, both domiciled in the EU Member States or in other states, with the exception of jurisdictions with a more favourable tax regime as defined by Ordinance No 150/2004 of the Ministry of Finance (as amended).

Apart from the criminal framework, there are two main legal regimes regarding usury: (i) for credit agreements between professionals and consumers and (ii) for credit agreements between credit or financial institutions and consumers.

In relation to the first, Article 1146 of the Portuguese Civil Code (CC) states that any loan agreement stipulating an annual interest that exceeds the legal interest, plus 3% or 5% (depending on whether there is an in rem guarantee or not), is always deemed a usurious agreement. Additionally, whenever the interest rate exceeds the referred-to threshold, the interest rate shall be considered reduced to that maximum threshold. Currently, the annual legal interest rate is 4% or 7% for, respectively, civil or commercial contracts.

The CC also establishes a generic prohibition whereby an agreement is void as a result of usury when someone, exploiting a situation of need, inexperience, dependence, mental state or weakness of character of others, obtains the promise or granting of excessive or unjustified benefits.

Decree Law No 133/2009, regarding agreements for consumer credit between credit institutions and consumers (DL 133/2009), considers an agreement to be usurious whenever the overall effective annual rate (TAEG) at the time of the conclusion of the agreement:

  • exceeds by 25% the average TAEG applied by the credit institutions in the previous quarter for any type of credit agreement for consumers; or
  • it exceeds by 50% the average TAEG for any type of credit agreement for consumers in the previous quarter.

Additionally, the following credit agreements are considered usurious:

  • an overdraft facility with a repayment obligation of one month and the TAEG of which, at the time of its conclusion, and calculated in accordance with these methods, exceeds the maximum TAEG value set for credit agreements in the form of an overdraft facility with a repayment-obligation period exceeding one month; and
  • overrunning, the nominal annual percentage rate (TAN) of which, at the time of its conclusion, exceeds the maximum TAEG value, defined in accordance with these methods, of the credit agreements in such a way that establishes the credit-repayment obligation for a period exceeding one month.

Article 28 of DL 133/2009 also considers that any interest rate above the threshold established by law is automatically reduced to half of the stated maximum limit, without prejudice to any criminal and/or administrative liability.

The maximum rates applicable for the third quarter of 2020 published by the Bank of Portugal are:

  • personal loans:
    1. education, health, renewable energies and equipment leasing – 6.3%;
    2. other personal loans (no specific scope) – 12.8%;
  • auto loans:
    1. leasing or long-term rentals (new cars/used cars) – 4.0%/5.5%;
    2. with retention of title and others (new cars/used cars) – 9.3%/12.1%;
  • credit cards, credit lines, bank accounts, overdraft facilities – 15.5%.

DL 133/2009 is not applicable to:

  • loans secured by mortgage for the acquisition of houses;
  • lease agreements that do not grant the right or obligation to purchase the leased assets;
  • loans granted without interest and other charges; or
  • loans granted by the employer to his or her employees, without interest or with a lower TAEG than the one practised by the market.

The typical Portuguese collateral package includes:

  • mortgages over real estate properties in Portugal;
  • pledges over the shares of material guarantors or financed companies;
  • pledges over fixed movable assets (namely stock, equipment or inventory);
  • pledges over bank accounts;
  • pledges over intercompany receivables;
  • assignment of receivables; and
  • assignments or pledges over insurance policies and, in some cases (although less frequently) intellectual property rights (ie, patents, trade marks).

Security over real estate assets is less frequent, except on project finance or real estate transactions or where real estate is the key asset of the guarantor/financed company. In certain specific financing transactions (such as vessel financing and aircraft financing), security is taken over the financed assets, in this case mortgages over the vessel or the aircraft.

If the requirements are met, the lenders will use the financial collateral regime, such as bank account pledges or share security.


Formalities vary significantly according to the type of security.

In terms of documentation, mortgages over properties and banking pledges require a public deed or a document with a term of authentication of the notary. Conversely, bank account pledges and share pledges require only a simple private document, except for commercial pledges with appropriation. For certain types of security, public deeds or notarial term of authentication are usually recommended, as they can be used afterwards as judicial enforcement titles.

As for possessory or other similar actions, the creation of pledges over the movable assets requires the delivery of the asset to the creditor (except if the pledge at stake is a banking pledge). Assignments of receivables and pledges over credits require a notice of the assignment or the pledge to the respective debtors.

The most relevant costs arise from taxation, as notarial costs are usually not material.


The registration requirements also vary with the type of security at stake.

Pledges over bank accounts require a registration with the bank with which the account is held.

Pledges over shares are:

  • subject to registration with the issuer (in the shares' registry book and inscription of the pledge in the share certificates, if they exist);
  • subject to registration with the relevant depositary bank in the case of deposits, or with the relevant financial intermediary with which the shares are registered in the case of dematerialised shares (regardless of being integrated in a centralised clearing system).

Pledges over quotas are subject to registration with the commercial registry.

Mortgages over properties or registrable movable assets – such as aircraft, vessels, vehicles – are subject to registration with the competent registry office (real estate or other).

Registration costs are also not material (eg, mortgage registration costs EUR122).

It is not possible to grant a floating charge or any other universal or similar security interest over all present and future assets of a company. Security is granted over specific assets, which need to be identified. Security over future assets can be granted to the extent that they are identifiable, although there are further limitations depending on the type of security. However, some authors have recently argued the admissibility, even if in a limited way, of floating charges.

Under the PCC, downstream, upstream and cross-stream guarantees are allowed, provided that certain requirements are met. However, a few scholars have argued that in cases in which there is only a dominant influence (capable of originating a “de facto group”), upstream guarantees are not allowed, considering the legal lack of protection of the controlled company.

As previously mentioned, Portuguese companies shall have a justified corporate self-interest in granting guarantees or security in favour of third parties or otherwise be in a group or control relationship with the beneficiaries (see 3.2 Restrictions on Foreign Lenders Granting Security).

Usually, cross-guarantees cannot fulfil the requirement of the group or control relationship. As such, they need to meet the requirement of the justified corporate interest, otherwise they will be null and void.

The PCC provides for a prohibition of financial assistance. The target company is prohibited from granting any type of guarantees or security or any other type of funding in respect of any financing for the purposes of acquiring shares in the target company or in its direct or indirect parent company. This shall also include any guarantees or security for the refinancing of a previous debt incurred in the acquisition of shares of the target company or its parent company.

Breach of the financial assistance prohibition renders the respective guarantees, security, financing or funding made by the target company null and void. In addition, directors may incur civil and criminal liability. For this reason, it is common to include guarantee-limitation language in a guarantee or security agreement.

The parties usually agree, for tax reasons, to limit the maximum amount secured by the guarantees or security in order to limit the impact of stamp duty that is due in connection therewith (see 4.2 Other Taxes, Duties, Charges or Tax Considerations).

In the event that the assets of the Portuguese companies are covered by legal immunities, namely, public-domain assets of the Portuguese Republic, or are allocated to any public-service purposes, those companies can claim immunity from suit, attachment or other legal process in respect of this.

Finally, any guarantee or security must guarantee or secure one or more obligations, to which they are ancillary, and such obligations shall be identified in the guarantee or security agreement. Accordingly, the guarantee/security will always follow the underlying secured obligation and the invalidity of the underlying obligation entails the invalidity of the guarantee/security and termination of the underlying obligation entails termination of the guarantee/security.

Guarantees and security are ancillary to the guaranteed or secured obligation and thus the repayment, satisfaction or cancellation in full of such obligations automatically determines the release of the guarantees or security.

Nonetheless, it is market practice to execute a formal release agreement in order to obtain all necessary documentation from the lenders that allows perfection of the release of the security with the relevant authorities. This is particularly relevant if the security had been registered with a real estate or commercial registry office (mortgages and quota pledges) or with a bank (bank account pledges). Other actions such as notices, return of share certificates and cancellation of registrations may also be required, depending on the type of security that is being released.

The priority of competing security interests is determined by the date of registration of the security interest if the security is subject to registration, such as in the cases of mortgages over properties, vessels, aircraft, factory and car mortgages, quota pledges, pledges over bank accounts and pledges over deposited and dematerialised shares. Conversely, if no registration is required but merely the transfer of possession (eg, assignment of receivables), priority is determined by the date on which the relevant perfection requirements of the security are completed, namely, the act of possession by the creditor or similar (eg, notification to debtors in an assignment of receivables).

Contractual subordination is allowed under Portuguese law. Creditors may qualify their debt as subordinated and have it treated as such in an insolvency proceeding. However, contractual subordination is only recognised if it is made before all creditors (eg, deeply subordinated debt) and not just before certain creditors (eg, mezzanine debt). This is because insolvency law has general classes of creditors (see 7 Bankruptcy and Insolvency).

Therefore, waterfall provisions of inter-creditor agreements are not recognised in an insolvency proceeding thus distributions may be corrected amongst creditors after having received the proceeds in an insolvency proceeding based on payment provisions of the inter-creditor agreement.

Structural or legal subordination resulting from law are also permitted under Portuguese law.

Security interests are usually enforced by the secured parties directly (if lenders hold the security directly and retain the enforcement right) or by the security agent upon the occurrence of an enforcement event following an instruction of all or the majority of lenders.

Early termination clauses based exclusively on the declaration of insolvency are generically not allowed, although it is commonly accepted that, in credit agreements to corporate entities, they are accepted based on customary practice.

Enforcement procedures vary significantly, depending on the type of security. The enforcement of mortgages is subject to a judicial enforcement proceeding, and no private or out-of-court enforcement is allowed.

In general, appropriation by the creditor is not allowed, thus enforcement requires a court sale or an extra-judicial sale. However, the financial pledges over shares and bank accounts and other financial collateral arrangements allow for an appropriation of the asset and for an extra-judicial sale, provided that the agreement sets forth rules for the evaluation of the asset, as well as for disposal of the underlying asset even before enforcement.

Decree Law No 75/2017 on commercial pledges also allows for appropriation, provided that the pledgee has the obligation to repay the pledgor the difference between the value of the appropriated asset and the secured amount owed. Finally, assignment of receivables only requires a notification to the debtor/client of the borrower or guarantor to make payments directly to the secured parties.

Borrowers or guarantors usually grant irrevocable powers of attorney in favour of the security agent for it to have the necessary powers to create additional security over the new asset or to enforce security and sell the assets upon the occurrence of an event of default.

The choice of a foreign law is valid, recognised and enforceable under Portuguese law, unless there is a mandatory provision that determines the competence of Portuguese law in accordance with Regulation (EC) No 593/2008 on the law applicable to contractual obligations (Rome I).

The submission to a foreign jurisdiction is also valid, recognised and enforceable under Portuguese law, provided that the exclusive jurisdiction provisions, set forth in Council Regulation (EC) No 1215/2012 (Regulation 1215/2012), are complied with.

A waiver of immunity is also recognised, except where, as previously mentioned, the assets are in the public domain (bens do domínio público) or allocated to public interests or in the case of states and diplomatic sectors.

Judgments rendered by EU Member State courts are enforceable in Portugal in accordance with the terms of Regulation 1215/2012.

Judgments rendered by foreign courts outside the EU, should there be no bilateral treaty, will also be recognised and enforced in Portugal according to the procedures set out in the Portuguese Civil Procedure Code on the recognition of foreign judgments, provided that the following requirements are met:

  • the judgment must be final, translated into Portuguese and apostilled;
  • the judgment shall not be contrary to Portuguese public policy, and the obligation that the petitioner is attempting to execute must be lawful in Portugal;
  • there shall not be a pending proceeding between the same parties and in relation to the same issues in Portugal;
  • there shall not be a judgment rendered between the same parties and for the same cause of action in Portugal or in another country;
  • the matters under discussion shall not be related to matters in which the Portuguese courts consider themselves exclusively competent, and the competency of such foreign courts shall not have been obtained by unlawfully circumventing applicable rules;
  • the rights of defence of the defendant should have been protected when rendering the foreign judgment (princípio do contraditório) and with respect for the principle of equal treatment of the parties; and
  • the request of recognition of a judgment rendered by a court of competent foreign jurisdiction may be challenged if the party against whom the judgment was rendered is a Portuguese citizen or a Portuguese company and the result of the judgment would be more favourable to that party if the foreign court had applied Portuguese law (assuming that the Portuguese law would be applicable according to the Portuguese rules of conflict of laws).

In respect of foreign arbitral awards, the enforcement scenarios may vary, depending on the concrete situation. Foreign arbitral awards that are covered by the New York Convention or by any bilateral agreement between Portugal and a foreign state are recognised and can be enforced in Portugal under the New York Convention (the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards) or pursuant to the terms of the respective bilateral agreement respectively. Foreign arbitral awards that are not covered by the New York Convention or any bilateral agreement are enforceable in Portugal pursuant to the terms of Portugal's internal arbitral legislation.

Aside from the above, there are no other matters which might impact a foreign lender’s ability to enforce its rights under a loan or security agreement (other than all documents having to be translated into Portuguese, including any enforcement titles).

There are two main recovery/reorganisation procedures outside of insolvency proceedings: Out of Court Recovery Proceeding (RERE) and Special Revitalisation Proceeding (PER). Due to the COVID-19 pandemic, the Portuguese government is developing an extraordinary procedure Processo Extraordinário de Viabilização de Empresas intended to allow for the judicial homologation of an out-of-court agreement between a debtor and its creditors.

The RERE is an extra-judicial voluntary mechanism aimed at allowing the recovery of companies in financial difficulties or imminent insolvency through negotiations with creditors for its revitalisation. If the parties' aim that the negotiations for reaching a restructuring agreement produce the effects provided for in the RERE, the company and the creditors, representing at least 15% of the company’s liabilities (non-subordinated), must sign a negotiation protocol and promote its deposit at the commercial registry. Once the requirements have been met, the agreement reached will have the same effects as the agreement in a PER.

The PER aims at allowing debtors in financial difficulties or imminent insolvency, but whose recovery is still feasible, to negotiate with creditors an agreement for the revitalisation of the company. The PER basically allows for the debtor to have a moratorium from creditors whilst he or she tries to agree a recovery plan with them. For the approval of the recovery plan, it is required that a vote be held among creditors whose claims represent at least one third of the total voting-related credits contained in the list of credits which results in a favourable vote of more than two thirds of the votes cast and more than half of the votes cast corresponding to non-subordinated claims; alternatively, it is necessary to obtain a favourable vote of creditors whose claims represent more than half of the total voting rights and where more than half of these votes correspond to non-subordinated claims. This plan may be agreed beforehand with the necessary majority of the creditors for the revitalisation plan to be approved.

There is a specific Legal Framework for Conversion of Debt into Equity that allows companies in a negative equity position to restructure their balance sheet and strengthen equity, assuming that a majority of creditors propose a conversion of debt into equity.

The declaration of insolvency triggers, in principle, the automatic acceleration of the liabilities of the insolvent entity. As such, there will be, in principle, an automatic acceleration of the loan.

In respect of guarantees, the declaration of insolvency determines the automatic claw-back actions of:

  • granting of in rem guarantees ancillary to pre-existing obligations, or others that replace them, within six months prior to the beginning of the insolvency proceeding;
  • personal guarantees, sub-guarantees, sureties and credit mandates made within six months prior to the beginning of the insolvency proceeding; and
  • granting of in rem guarantees simultaneously to the creation of the secured obligations within 60 days prior to the beginning of the insolvency proceeding.

These automatic claw-back actions do not apply to financial collateral arrangements, such as financial pledges.

Additionally, enforcement of guarantees and security are made within the insolvency proceeding of the guarantor, except for, eg, financial collateral arrangements. Therefore, all future enforcement proceedings will no longer be allowed and those ones currently pending will be suspended, and creditors will need to lodge their claims in the insolvency proceeding and wait for the liquidation of the assets and payment to creditors within that proceeding.

The PIC provides for the following classes and ranking of credits:

  • guaranteed credits: credits secured by in rem guarantees, including special statutory liens; accordingly, these include real estate special statutory liens (eg, state credits related to the real estate property tax, IMI), third-party credits (eg, mortgage, income assignment, pledge), movable assets' special statutory liens (eg, credits resulting from justice expenses incurred in the interest of the creditors);
  • privileged credits: credits secured by general statutory liens over assets integrated in the insolvent estate up to the amount corresponding to the value of the assets that are the object of the guarantee or the general statutory liens; these include movable assets' general statutory liens (eg, employment credits), and real estate general statutory liens;
  • common credits: all credits not included in another class;
  • subordinated credits: namely, the interests and credits held by persons with special relations to the debtor (eg, controlling shareholder), the directors or members of the supervisory board.

The payment will be performed according to the credit ranking: firstly, guaranteed credits, followed by privileged credits, then common credits and finally subordinated credits.

If the assets of the insolvent estate are insufficient to pay all creditors in full, the payment to common creditors will be made by apportionment amongst all creditors and in proportion to their credits.

The payment of subordinated credits will only take place after full payment of common credits.

Subordinated credits ranking last are defined as any credits held by “related entities” to the insolvent company, provided that the special relationship existed at the time the credit was constituted, and those that were transmitted in the two years prior to the insolvency proceeding. Credits arising from shareholders’ loans are subordinated.

Aside from the above, all security over assets of the insolvent entity (except for financial collateral arrangements) will need to be enforced in the respective insolvency proceeding, and accordingly the creditors will need to wait for the liquidation of the assets and respective payments to creditors to be made.

Furthermore, if there were any pending judicial enforcement proceedings, these will be suspended and the creditors will need to lodge their claims in the insolvency proceeding and wait for the liquidation of the assets and payment to creditors within that proceeding.

In addition, and from a practical perspective, it should also be outlined that the insolvency proceeding can jeopardise the day-to-day functioning of the company (debtor, guarantor or other) and thereby the value of the company and recoveries of the lender. Additionally, the special recovery processes referred to above are dependent on the debtor’s will, which makes it more difficult to entail a recovery proceeding based on an agreement exclusively between creditors.

After decades of intense growth in project finance, the financial crisis of Portugal led to a significant decrease in project finance. There was a suspension of almost all relevant public projects and a renegotiation of remaining projects; the only relevant projects were renewables, certain municipal concessions and certain refinancing of project finance or the secondary market of the PPP road sector.

In 2014, the Portuguese government approved priority projects in the infrastructure sector, such as the modernisation of rail freight, expansion and construction of ports and others in the road and airport sectors. However, the majority of them did not move forward. Following the recent enactment of the National Investment Plan, defining the structural investment priorities for the next ten years, there may be a new incentive for public investments and PPP, although the COVID-19 pandemic could now put them on hold.

There is no specific legal framework for project finance. The Portuguese Public Contracts Code (PPCC), approved by Decree Law No 18/2008, which implemented Directives 2004/17/EC and 2004/18/CE, establishes the legal regime applicable to public contracts and the material regime applicable to contracts of an administrative nature. One of the PPCC’s major innovations is the creation of adequate regulation of some aspects of project finance techniques not reflected in ordinary legislation and which had hitherto created a conflict between the contractual techniques and the legal rules relating to public procurement.

The PPP legal framework emerges from the PCC and Decree Law No 111/2012 (PPP Laws), setting forth the regime for the preparation, launch, implementation and subsequent change of PPP in Portugal.

Portuguese PPP typically follow project finance structures with a Build Operate-Transfer (BOT) model. The concession agreement regulates the major contractual issues of the PPP, namely, the terms on which the project company will construct the project and operate it and the payment terms of the PPP. Attached to the concession agreements are also the remaining documents comprising the PPP package: the equity subscription agreement, the shareholder’s agreement, the direct agreement, the construction contract, the operation contract and the finance documents.

Before launching and awarding the PPP, the environmental impact declaration and urban planning licences need to be issued. An environmental licence may also be required for certain industrial projects.

Under PPP Laws, the risks of the project shall be clearly and contractually identified, and its allocation shall be made in accordance with each partner's ability to manage it. Nonetheless, the partnership shall entail a significant and effective transfer of risk to the private partner, particularly the financing risk, which will always be on the private partner’s side.

The financial rebalance, as the main mechanism covering project risks, remains with the public contracting entity.

Following the execution of the PPP contract, and prior to its entry into force, the Court of Auditors will review the agreement to verify that the acts, contracts or other instruments that generate expenditure or represent direct or indirect financial liabilities are in accordance with the laws in force. The acts, contracts and other instruments subject to the previous auditing by the Court of Auditors may produce its findings prior to the visa, except in respect to payments resulting from such acts, contracts or instruments being audited.

Project finance transactions do not need any governmental approval, except for certain sectors of activity or public concessions (namely, energy, transport, health and others). The authority for such approvals lies with the relevant ministries or governmental agencies or departments (eg, IMT for transports, DGEG for energy). In addition, the Court of Auditors is responsible for verifying that the acts, contracts or other instruments that generate expenditure or represent direct or indirect financial liabilities are compliant with the laws in force.

As regards PPP, the Technical Unit for Monitoring Projects (UTAP – Unidade Técnica de Acompanhamento de Projetos) has the role of executing the majority and most relevant tasks in respect of the preparation and implementation of PPP contracts.

Typically, the project finance documents do not need to be registered or filed with the governmental body, except for the cases referred to above and those where is necessary to execute a public deed or make a term of authentication with the notary.

Stamp duty may be due in respect of the granting of guarantees or security, as well as for providing loans (see 4.2 Other Taxes, Duties, Charges or Tax Considerations).

The regulatory authorities for oil and gas are the Ministry of Economy, the General Directorate for Energy and Geology (Direcção Geral de Energia e Geologia – DGEG), the Regulatory Entity for Energy Services (Entidade Reguladora do Sector Energético – ERSE), and the Energy Sector National Entity (Entidade Nacional para o Sector Energético – ENSE). For oil and gas, the primary laws and regulations are:

  • Decree Law No 31/2006, with respect to the survey, exploration, development and production of hydrocarbons, which settles the General Framework for the Organisation and Functioning of the National Oil System;
  • Decree Law No 13/2016, establishing provisions concerning the safety measures in oil and gas offshore operations, transposing Directive 2013/30/EU; and
  • Decree Law No 109/94, establishing the legal regime for the prospection, exploration and production of petroleum.

In the power sector, the responsible government bodies are the Ministry of Economy, ERSE, DGEG and ENSE. 

There is a history of state ownership in the power sector but, following the 2011 financial assistance programme, Portugal has sold all its relevant stakes in the major power companies, namely, EDP (electricity) and Galp (oil and gas).

The Portuguese electrical system is regulated by Decree Law No 29/2006, and by Decree Law No 172/2006, as amended.

Additionally, the following ERSE regulations are relevant (as amended):

  • Regulation No 561/2014, which regulates the commercial relationships between the various players in the National Electrical System (SEN);
  • Regulation No 619/2017, ruling the determination of regulated activities revenues and the definition of regulated tariffs and prices;
  • Regulation No 629/2017, regulating the quality-service obligations of technical or commercial nature applicable to SEN operators;
  • Regulation No 560/2014, establishing the access conditions to electricity networks;
  • Regulation No 557/2014, establishing the conditions for the management of the electricity flow in the National Electricity Transmission Network.

Regarding the mining sector, the main regulatory entity is the DGEG, currently integrated into the Ministry of Environment and Energy Transition.

The main regulatory framework for the exploration and extraction of mineral resources in Portugal is provided in (as amended):

  • Law No 54/2015, containing the legal framework for the discovery and exploitation of geological resources;
  • Decree Law No 88/90, setting forth the mineral deposits' regulation;
  • Decree Law No 270/2001, containing the legal framework regarding the exploration and exploitation of mineral masses.

Regulations relating to environment, public procurement, health and safety, labour, tax, planning and expropriation of lands shall also apply.

Additionally, there are a couple of local mining laws applicable in the archipelagos of the Azores and Madeira.

Project finance structures in Portugal are similar to those used internationally. A special-purpose vehicle (SPV) is usually incorporated as a share company. The financing structure is usually a loan, although bond structures are also used when there is international financing involved or there is the participation of funds that, for regulatory reasons, cannot grant loans. Monoline structures are less common but they were successfully used in the past. The loan structures can have different types of facilities for working capital, letters of credit or banking guarantees, liquidity, VAT or long-term loans, and they can be granted by one or two banks, or they can be club deals, depending on the size of the financing. In certain projects, there can also be a credit agreement with the European Investment Bank (EIB).

There is typically a full security package which, however, limits the recourse to the project, project assets and project documents (such as the construction contract and operation contract) and, apart from the pledge of shares of the SPV, is not available to shareholders of the project company, which usually have their liability limited to certain amounts in relation to their respective participation in the share capital of the project company.

The laws relevant to the project depend on the project at stake. In the energy sector, the energy legal framework is of utmost importance and the lenders usually try, for example, to obtain certain protection on the reduction of feed-in tariffs. In the transportation and infrastructure sector, the concession agreement is usually the main legal document to consider.

There are no relevant limitations on foreign investment, except for energy and certain other sectors.

Export credit agency financing is not that common in Portugal, although it has increased in the last few years. It is common to have financing coming from both commercial banks and the EIB, which requires the structure to be duly modelled to ensure a higher ranking for EIB debt and, usually, guarantees from the commercial banks of the bank financing. As for project bonds, they are not commonly used but they were successfully implemented in certain project finance deals. The use of monoline structures was previously common, particularly in the railway and subway financing contracts, but nowadays is a less commonly used structure.

The use of performance bonds is quite standard and are delivered by the contractor, as well as by the O&M contractor and the constructor in concession projects; they usually consist of bank guarantees and are intended to assure the performance of the obligations of the contractors.

The ownership of hidden mineral resources is vested in the state. Any entity that is interested in searching for or exploiting such resources needs to obtain an adequate licensing title. The type of licence that is required can vary, depending on the type of resource sought and also on the type of activity. Usually, mere exploration requires a simple licence, while exploitation will necessarily imply a concession.

Mining rights can be acquired by direct negotiations with the licensing authority, which can be either the DGEG or, in the case of oil and gas, also the National Entity for the Fuel Market (ENMC). However, in the case of oil and gas rights, there has been an indication that future rights will only be awarded as part of competitive bidding procedures.

The exploration and exploitation operations require prior adequate environmental assessment, subject to public discussion. Any protective or remedial actions that are identified as necessary are exclusively the responsibility of the licensee.

The licensee is entitled to take and dispose of the production resulting from his or her activity, except for any quantities that may be due to the state as royalties that the state decides to take in kind. Export is not subject to any specific duty or tax, and is free, other than as may otherwise be regulated under sanctions adopted by the UN or the EU or other competent international organisations.

Projects may be subject to environmental impact assessment, to environmental incidence assessment, and sometimes to environmental licensing.

The main environmental legislation applying to projects are:

  • Law No 19/2014, enacting the Environmental Bases Policy;
  • Decree Law No 151-B/2013, as amended, which sets forth the legal regime for the Environmental Impact Assessment;
  • Decree Law No 127/2013, together with Decree Law No 75/2015, regulating administrative proceedings related to the grant of pollution and emissions licences for several activities.

The regulatory body that oversees the Environmental Law is the Portuguese Environment Association, which is an independent administrative entity under the supervision of the Environment Ministry.

Decree Law No 273/2003 established the prerequisites regarding health and safety in projects that entail construction. It requires the existence of a health and safety plan and of a safety co-ordinator for the project drafting and afterwards for the project execution.

The Authority for Work Conditions is responsible for the control of the aforementioned requirements.

In order to obtain and maintain a permit to perform public or private works, an insurance for work accidents is required, the existence of which is supervised by the IMPIC (Instituto dos Mercados Públicos, do Imobiliário e da Construção). In turn-key or concession contracts, additional rules regarding health and safety can be included.


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