Insolvency 2019 Second Edition

Last Updated November 20, 2019


Law and Practice


Sérvulo & Associados is a full-service Portuguese law firm with more than 100 lawyers, providing legal services in all relevant practice areas and sectors/industries. Sérvulo is the only Portuguese member of three international networks of law firms (Legalink, Cathay Associates and Roxin Alliance), which enables it to provide comprehensive legal advice to clients on a truly global scale. Sérvulo is also a founding member of the SÉRVULO LATITUDE⦵ multilateral network of partnerships, formed by leading law firms from the full range of Portuguese-speaking countries, spanning four continents (Africa, America, Asia and Europe). In the Restructuring and Insolvency field, Sérvulo has a multidisciplinary team comprising lawyers of the finance and governance, litigation and arbitration departments, which has advised clients on the most complex and high-profile cases in Portugal and Europe in this area (eg, the liquidation procedures of BES, BANIF and BPP).

There was a sharp increase in the number of new insolvency proceedings between 2008 and 2011, due to the financial crisis. Since 2014, with the recovery of the economy, the trend has been reversed. Restructuring proceedings (in-court and out-of-court) had a similar trajectory. Between 2011 and 2014, the restructurings were mainly explained by the banks’ effort to deleverage their balance sheets. More recently, banks have turned from restructuring proceedings to the sale of NPE (non-performing exposure) portfolios. In 2019, the most outstanding insolvency case concerned one of the biggest Portuguese construction firms, MSF; the liquidation proceedings for BES and BANIF are still pending. These trends are demonstrated by official statistics, which show that the number of new insolvency and restructuring proceedings in courts increased from 5,000 to more than 23,000 between 2008 and 2014. Between 2014 and the end of 2018, this number dropped by almost 40%, to less than 13,000.

The sale of NPE portfolios to non-banking entities made it more difficult to reach extrajudicial and judicial recovery agreements. These non-banking entities are less available to support the recovery of the debtors, as they are focused on debt collection and maintain no other commercial or banking relations with the debtors. 

Under Portuguese law, the most relevant laws and statutory regimes that apply to the financial restructurings, reorganisations, liquidations and insolvencies of business entities are the following:

  • Commercial Companies Code, approved by Decree-Law no. 262/86, of September 2nd (articles 141 to 165, 195, 196, 270, 464 and 473, on dissolution and liquidation of commercial companies);
  • Insolvency and Recovery Code, approved by Decree-Law no. 53/2004, of March 18th (as amended by several diplomas – “CIRE”), on recovery and insolvency judicial proceedings, including the Special Revitalisation Proceedings (Processo Especial de Revitalização – “PER”), created by Law no. 16/2012, of April 20th (which approved the introduction of articles 17-A to 17-I to the CIRE) and amended by Decree-Law no. 79/2017, of June 30th (which approved the introduction of article 17-J to the CIRE);
  • Extra-Judicial Regime for Corporate Recovery (“RERE”), approved by Law no. 8/2018, of March 2nd, providing a specific legal regime for out-of-court recovery agreements;
  • Regulation (EU) 2015/848 of the European Parliament and of the Council, of May 20th 2015, on insolvency proceedings;
  • Directive (EU) 2019/1023 of the European Parliament and of the Council, of June 20th 2019, on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt;
  • Decree-Law no. 199/2006, which governs the liquidation of credit institutions and financing companies with headquarters in Portugal and their subsidiaries incorporated in another State member;
  • Decree-Law no. 227/2012, of October 25th, which (i) foresees principles and rules to be observed by credit institutions when preventing and regularising situations of non-compliance with the credit agreements by the banking customers, and (ii) creates the extra-judicial network to support those customers in the regularisation of those situations; and
  • Law no. 147/2015, which sets out a specific regime applicable to the recovery of insurance and reinsurance companies.

The insolvency proceeding governed by the CIRE may be voluntary or involuntary, as it may be commenced on the debtor’s initiative or on any creditor’s initiative. The PER is a voluntary procedure, considering that only the debtor may submit the request to the court, pursuant to article 17-A of the CIRE. Said request must include a written statement of the debtor and at least one of its creditors, expressing the intention to engage in negotiations leading to its revitalisation through the approval of a recovery plan. The RERE is also a voluntary proceeding commenced by the debtor’s initiative.

As referred to in 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership, the debtor must file a request of insolvency within 30 days of the date on which it acknowledges the insolvency situation or should have become aware of the insolvency situation. If the debtor is a legal entity, the insolvency proceeding must be commenced by the corporate body in charge of administration or, if such body does not exist, by any of its directors. If directors fail to submit the insolvency request in time, there is a presumption (that may be refuted) of serious wilful misconduct by the legal or de facto directors, which can lead to the qualification of the insolvency as an aggravated/culpable insolvency.

The debtor is obliged to commence proceedings (insolvency proceedings) in the situations described in 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership. However, if the debtor is still solvent, it is possible to apply for an extra-judicial or judicial proceeding, notably the PER or the RERE.

Any creditor may file for an insolvency proceeding against a debtor in the circumstances foreseen in article 20 of the CIRE, even if they are a conditional creditor, and regardless of the nature of their credit; the Public Prosecutor Department may also do so (in representation of the entities whose interests it is legally obliged to protect – eg, tax and social security office). The entity/person requesting the commencement of the insolvency proceeding must (i) allege the fulfilment of the requirements set forth in article 20 of the CIRE, (ii) justify the origin, nature and value of the claim, (iii) file all the elements regarding the debtor’s assets and liabilities, and (iv) indicate means of evidence (including witnesses).

An insolvency proceeding is only triggered in the case of a debtor’s insolvency, which is generally defined as the inability of the debtor to fulfil its obligations as they fall due (cash flow test). Aside from these criteria, and in the case of legal entities, the debtor is also considered to be in an insolvency situation when, according to accounting criteria, the liabilities of the debtor clearly exceed its assets (balance sheet test). To facilitate the assessment of the insolvency situation, article 20 of the CIRE sets forth a list of facts that determine the existence of an insolvency situation.

The General Regime for Credit Institutions and Financial Companies (“RGIC”), enacted by Decree-Law no. 298/92 (and subsequently amended on several occasions), sets out a specific regime for recovery and resolution planning, early intervention and the resolution of credit institutions. Decree-Law no. 199/2006 (in its current version after several amendments) sets out a specific regime for the voluntary and compulsory liquidation of credit institutions, financial companies, payment institutions and e-money institutions. Law no. 147/2015 sets out a specific regime applicable to the recovery of insurance and reinsurance companies.¬

Creditors (particularly banks) and debtors favour extrajudicial restructuring proceedings over statutory proceedings because the latter are necessarily prejudicial to the company’s image, harming the regular continuation of the business; moreover, out-of-court proceedings secure greater value for creditors, and maximise the recovery of credits. Out-of-court restructurings may occur within pure informal and dejudicialised negotiations and agreements, or within a proceeding following an Extrajudicial Company’s Recovering Regime, set out in Law no. 8/2018 (“RERE”). If the debtor’s restructuring inevitably entails the reduction of a debt, then insolvency proceedings or the PER (statutory in-court recovery proceedings) are chosen over out-of-court proceedings, as they ensure that the restructuring agreement binds all creditors (including dissenting creditors) and entail a more favourable tax treatment.

The time and proceedings depend on the debtor’s size, the seriousness of the situation and the number of banks involved. The negotiations are informally carried out, with no appointment of committees, although each party appoints its representatives and attorneys. Simple restructurings are usually concluded within three to four months, and more complex restructurings in eight to 12 months. Creditors do not generally accept any compromise on the suspension or limitation of their rights (eg, enforcement rights), but, in practice, they refrain from exercising such rights while negotiations are ongoing. Banks generally require full disclosure during negotiations (typically regarding accounts, assets and the business of the debtor). In more complex restructurings, banks sometimes require an audit and a viability plan made by specialised entities. Restructuring agreements typically include solutions such as a restructuring of the payments schedule (periods of grace, extension of repayment dates, decrease of interest rates), datio in solutum, a sale of assets, a reduction in activity, and increased compromise by the owners.

Out-of-court restructuring proceedings may or may not permit new money to be made available by banks or owners. New money provided by banks is generally granted in proportion to their credits and secured by the debtor’s free assets or by assets already encumbered in favour of the same banks (second charge). New money provided by owners is not secured. Creditors and debtors cannot create a priority structure that differs from the one provided for in the law.

Aside from the general rule of good faith, there are no specific rules imposing duties on creditors in the context of out-of-court restructuring proceedings. However, Ministers’ Resolution 43/2011 defines a set of guiding principles for out-of-court restructuring proceedings which are not binding, except in the context of a PER or RERE.

Out-of-court restructuring agreements only bind the signatory parties – they cannot be imposed on non-parties, and cannot modify any rights of non-subscriber creditors or owners. Only PER or insolvency proceedings are binding for all stakeholders, including dissenting creditors and owners.¬

Creditors can take security over real estate and movable property subject to public registration (cars, boats and airplanes) through mortgages. Mortgages are created through public deeds, and are subject to public registration. Retention of title is also commonly used to take security over cars, because it can be registered in a public registry. Movable property that is not subject to public registration is commonly used as security through the creation of a pledge. Equity shares can also be pledged and, in special circumstances, shares, financial instruments, credits and cash in bank accounts can be used as the object of financial collateral arrangements. Intellectual property can be pledged.

Without prejudice to special rules applicable to the contest of a debtor’s transactions made prior to the opening of insolvency proceedings, secured creditors will, in principle, be able to enforce their liens/security in a restructuring/insolvency process, and will not be allowed to enforce such rights outside that process. As a rule, intercreditor covenants will not limit the enforceability or the discretion of secured creditors in restructuring or insolvency scenarios, even if the breach of such covenants can trigger bilateral claims between creditors. Any creditor can challenge a restructuring plan or an insolvency plan by claiming that the end-result will be less favourable for his interests when compared with the hypothetical scenario in the absence of such a plan. As a result, secured creditors can block restructuring and insolvency plans that do not give them a privileged distribution comparable to the one that would exist in the absence of such a plan. Secured creditors are subject to a general stay in formal restructuring proceedings, which is triggered by the judicial decision appointing a provisional officer for the debtor.

It is not possible to state the typical timelines for enforcing a secured claim and lien/security, as they depend on several circumstances (procedural and economic) – notably, the number of creditors and the complexity of the claims filed, the number of assets and rights of the insolvent estate, and the facility or agility in the liquidation of said assets and rights. There are no special procedures for enforcing secured credits collateralised by cash, shares or credits. However, Portugal has implemented the EU directives on financial collateral arrangements, thus providing special resistance for such arrangements in relation to the opening of insolvency proceedings.

Foreign secured creditors will be subject to the same rules governing the rights of national secured creditors.

Secured creditors will be treated in a special category for insolvency law purposes, to the extent that they hold a security in rem or a special statutory security. The secured creditors in this category are entitled to compensation for damages emerging from the delay in the sale of the assets subject to security, unless such delay is attributable to the secured creditors. Secured creditors will be paid immediately after the judicial sale of the assets subject to security (and after the deduction of an estimated amount for the general expenses of the insolvency estate). ¬

Secured creditors holding a security in rem will be paid in advance of other secured creditors, from the proceeds of the sale of the assets subject to the security. Other secured creditors (eg, creditors benefiting from a general statutory security) will be paid in advance of unsecured creditors, and pro-rata between other creditors of the same category. Unsecured creditors will be paid in advance of subordinated creditors. As a rule, contractual subordination will be respected in an insolvency scenario and therefore classes of unsecured creditors will be treated differently, to the extent set out in contractual arrangements accepted by the parties involved. As a rule, subordinated creditors are not entitled to vote in the Creditors’ Committee. Exceptionally and in very limited circumstances, they will be entitled to vote on an insolvency plan, but only if there are changes to their legal position, when the credits ranked below are not fully waived and the plan envisages distributions to shareholders.

The debtor can keep trade creditors whole during a restructuring process, at his discretion, to the extent that the goods and services provided are essential for the preservation of the economic activity or the assets of the debtor. Essential common services cannot be withheld from the debtor during restructuring procedures (water, electricity, electronic communications, etc); these costs will be qualified as credits over the insolvency estate if the debtor is declared insolvent within two years of the beginning of the negotiation period in the restructuring process.

Unsecured creditors have voting rights according to the amount of their credits, and therefore can influence the outcome of restructuring and insolvency procedures. Restructuring and insolvency plans are generally subject to a qualified majority vote, so the involvement of the greatest creditors – even if unsecured – will be crucial. As an illustration of this rule, creditors can replace the official liquidator in an insolvency context through a majority vote.

Solvency is a general condition for formal voluntary liquidation processes. Therefore, and as a rule, unsecured creditors maintain their rights and remedies in a liquidation process and are not entitled to special mechanisms that can disrupt such a procedure.

The insolvency court can take precautionary measures to avoid any detriment to the financial status of the debtor, until a decision on its solvency/insolvency is issued. In particular, the court can appoint a temporary Insolvency Administrator, with exclusive powers to manage the assets and liabilities of the debtor, or to assist the debtor in the management of its business. Precautionary measures can be issued before the debtor is notified, in case of urgency.

Please see 4.3 Typical Timelines. Pursuant to the information disclosed by the Directorate-General for Justice Policy, the average duration of insolvency proceedings, from commencement to the declaration of insolvency, was two months, and the duration from then until the termination of the insolvency proceedings was approximately 58 months.

A special provision is applicable to lease agreements where the debtor is the lessee. The declaration of insolvency of the lessee does not suspend the lease agreement, but the Insolvency Administrator can terminate the agreement within a 60-day period of notice (or a shorter period if set out in statute/lease agreement). If the dwelling of the debtor is the subject matter of the lease agreement, termination shall be replaced by the right of the Insolvency Administrator to declare that claims becoming due upon the expiry of the 60-day period may not be asserted in the insolvency proceedings. If the administrator terminates the lease agreement or submits a declaration in relation to a lease agreement over the dwelling of the debtor, the landlord may claim damages as a creditor of the insolvency proceedings.

As a rule, foreign creditors will be subject to the same rules governing the rights of national creditors. Foreign creditors of EU Member States will be notified by the court of the judicial decision declaring the insolvency through registered mail.

Claims over the insolvency estate will be paid in full prior to any claims over the insolvency proceedings. After claims over the insolvency estate are fully settled (including the segregation of funds to pay any future credits over the insolvency that may emerge before the end of the proceedings), distributions will be made to secured creditors holding a security in rem or a special statutory security. Subsequently, distributions will be made to creditors holding a general statutory security. Unsecured creditors will be next in the waterfall, and subordinated creditors after those.

Administration expenses and fees charged by the Insolvency Administrator are considered credits over the insolvency estate, and have priority over secured claims. Some tax claims benefit from statutory securities and will rank above unsecured credits (their exact position in the waterfall will depend on the special/general nature of the statutory security attached to the tax claim). In certain conditions, employees can also benefit from a statutory security. New money lent to the debtor in restructuring procedures will benefit from a general statutory security if the debtor is subsequently declared insolvent.

As noted above, the PER is a special revitalisation proceeding for companies facing a situation of imminent insolvency or economic distress, and is not to be used as a substitute for insolvency proceedings. The PER is initiated by a written request subscribed to by the debtor and creditors representing at least 10% of non-subordinated credits (or a lower percentage in certain limited cases), which includes the following:

  • a declaration by the company of its ability to recover;
  • a joint declaration of the debtor and the abovementioned percentage of creditors expressing the will to engage in negotiations;
  • a declaration by a certified accountant attesting that the company is not insolvent;
  • ancillary documents required in insolvency proceedings (eg, a list of creditors, pending lawsuits, shareholders, assets and employees; a description of the debtor’s activities; and annual accounts, management and audit reports and legal certification for the last three years – see 7 Statutory Insolvency and Liquidation Proceedings); and
  • a proposal of recovery plan, with a description of the company’s situation in terms of assets, financing and revenue cash flows.

Upon the receipt of said request, the judge appoints a provisory judicial administrator (“PA”). The court’s order is published, formally initiating the PER. Subsequently, within 20 days of said publication, the creditors make their credit claims to the PA. Within five days, the PA drafts a provisional creditors list, which is published and may be contested in court on the next five business days. Oppositions are decided by the court within the same term, and the definitive list is defined.

Once the definitive list is determined, negotiations between creditors and the debtor shall start and be concluded within a term of two months, which may be extended once for one month.

Being a dejudicialised proceeding, negotiations are organised and supervised by the PA. The court’s main role is to decide on the oppositions to the creditors list and to ratify (or refuse to ratify) the recovery plan approved by creditors. Non-ratification occurs if there is any infringement of non-neglectable procedural rules or infringement of material rules (notably, creditors shall be treated equally and creditors’ positions shall not, without their consent, be less favourable to the positions they would have in a non-approval scenario). The recovery plan approved by the creditors and ratified by the court is binding for all parties, including creditors that have not claimed credits and creditors that did not participate in the negotiations or voted against the plan.

The plan’s approval requires a vote of creditors representing at least 1/3 of the creditors list and a favourable vote of 2/3 of the issued votes, with more than ½ of such votes corresponding to non-subordinated credits; or a favourable vote of more than ½ of the issued votes, provided that more than ½ of said votes correspond to non-subordinated credits.

Alternatively, the PER may follow a shorter form, being initiated by the presentation of an extrajudicial recovery agreement (signed by the debtor and creditors representing the majority referred to above for the plan’s approval), with all ancillary documents. In such cases, following the PA’s appointment and the notification of non-subscriber creditors for oppositions to the provisional creditors list, the judge decides on the plan’s ratification in the same terms described above. These shorter proceedings may be concluded (upon the final ratification decision) within two to four months on average. Regular proceedings last around six to eight months.

Ratification (or non-ratification) of the recovery plan may be contested through a single appeal to an appeal court (whose decision is final), based on formal or material grounds. Upon the ratification of the recovery plan, the debtor and all creditors (including non-voting, unknown creditors, creditors that have not claimed or have contingent claims regarding facts that occurred on or prior to the PA’s appointment) are bound to its terms, which may include a cram-down of the credits, and/or the restructuring of repayment conditions, the provision of collateral and the transfer of assets to creditors.

If the recovery plan is not approved, the PA shall communicate the end of negotiations and give an opinion on whether the company is insolvent. If the company is deemed to be insolvent by the PA, the PER is extinguished and insolvency proceedings are initiated. If the company is not insolvent, the PER is extinguished and the debtor cannot initiate a new PER for the next two years.

These proceedings are not confidential, being available for consultation by interested parties. The main decisions regarding the proceedings are made public.

After the appointment of the PA, any pending enforcement proceedings filed against the debtor shall be suspended, and no further proceedings shall be filed after such date (automatic stay of claims). The company shall continue to operate its business, under the PA’s supervision. The PA’s prior written authorisation is required for “acts of special importance” (eg, the sale of the company or relevant assets, the acquisition of property, the signing of long-term agreements, the undertaking of liabilities and the provision of collateral); without the PA’s approval, said transactions have no effects. However, if there is a concern of bad management, the debtor’s management powers may be restricted even further, upon the court’s decision. The company may borrow money during recovery proceedings. Such credits benefit from a statutory right of lien over all the debtor’s movable assets. Additionally, collateral provided by the company to secure new money shall remain valid even if insolvency is declared in the next two years.

Creditors are classified in the same terms as provided for insolvency proceedings (see 7Statutory Insolvency and Liquidation Proceedings). No creditors’ committee is required under the PER but, according to Ministers’ Resolution 43/2011, creditors may create commissions or appoint one or more representatives to negotiate with the debtor. Creditors are provided with the same documents required for an insolvency proceeding, as well as any relevant information requested by the creditors or the PA from the debtor.

Claims of dissenting creditors may be modified (crammed-down) without their consent if the recovery plan is approved by the required majority and ratified by the court. Dissenting creditors may oppose such ratification by showing that creditors were not treated equally or were left in a position worse than they would have been in in an insolvency scenario.

The trading of credits during the PER is allowed. If the transfer occurs before the creditors list is defined, the transferee shall notify the PA to be included in the list. If it occurs after the creditors list is defined, the transfer shall also be notified to the PA so that the list can be updated. In any case, the PA may require additional information to ascertain the authenticity of the transfer.

Upon the request of the PA or by the court’s own motion, recovery proceedings (PERs) filed against companies in a control or group relationship may be joined. In such cases, the same PA may be appointed for all of them.

See 6.2 Position of the Company.

A sale of assets or business is executed by the company’s management, with the PA’s authorisation, unless otherwise determined by the court (see 6.2 Position of the Company). Liens and encumbrances over the assets remain effective, unless they are cancelled by the secured creditor. The risk of annulment of these sales, in later insolvency proceedings, is mitigated as they are authorised by the PA; however, such risk is not eliminated. Creditors may bid for assets being sold. Although the debtor and the PA are not bound to give preference to creditors, for the sake of prudence they may consult the creditors and check whether they wish to bid. Hence, the execution of the sale in market conditions is reassured, and the risk of later annulment becomes less likely to materialise. Sales and similar transactions pre-negotiated prior to the PER may be executed during proceedings, subject to the PA’s authorisation, in cases of special significance.

Creditor liens and security arrangements may be released or affected by explicit statement in the recovery plan, subject to the equal treatment of creditors, and provided no creditor is worse off.

New money required for the continuation of the business may be secured with liens/security. Both the agreements of new money and its liens shall be immune to annulment by the IA in the case of a subsequent insolvency declaration (see 7 Types of Voluntary/Involuntary Proceedings). These investments/loans may be secured by assets of the company, even if such assets are encumbered by pre-existing secured creditor liens/security. Moreover, the CIRE grants new money creditors a statutory right of lien over all the debtor’s current assets, ranked above the right of lien granted to employees.

The value of the claims of each creditor is determined by the list of creditors (see 6.1 Statutory Process for a Financial Restructuring/Reorganisation). The number of votes of each creditor is determined according to such list.

As referred to above, the recovery plan approved by the creditors can only be ratified by the court if it complies with the equal treatment of creditors, and provided no creditor is worse off. The plan may limit/reduce/affect credits, but shall not modify or terminate agreements without the consent of the counterparty.

The cram-down of credits provided for in the recovery plan does not release co-debtors or guarantors. Moreover, these co-debtors/guarantors (upon being subrogated in the original creditor’s position) may not demand a higher amount from the debtor than the amount resulting from the recovery plan.

During the PER, the exercise of set-off rights by creditors is a matter of controversy, especially whether such set-off rights are subject to general civil law rules or insolvency special provisions (more restrictive). Moreover, being admitted, the set-off right is subject to the prior authorisation of the PA if it qualifies as an act of special relevance.

A moratorium or waiver provided for in the recovery plan shall cease to be effective in the following circumstances:

  • regarding the corresponding credit, if the debtor is in default for more than 15 days as of written notice of the creditor; or
  • regarding all credits, if the creditor is declared insolvent in a new proceeding (the same rules apply to insolvency proceedings – see 7.3 Failure to Observe Terms of Agreed/Statutory Plan).

Existing equity owners are the first to suffer losses in the financial distress of the company. Nevertheless, if their equity interests have some economic value, they shall receive the corresponding value, provided they are not favoured in comparison to remaining creditors.

The main purpose of an insolvency proceeding is the satisfaction of creditors’ claims. However, such purpose may be achieved in different ways, either according to an insolvency plan addressing the recovery of the company integrated in the insolvency estate or, if such recovery is not possible, through the liquidation of the insolvency assets and the distribution of the proceeds amongst the creditors. Insolvency proceedings usually commence via the lodging of an application in court by the debtor or the entities set out under 2.4 Procedural Options.

In what pertains to the debtor, the application must be lodged if he is aware of the insolvent situation of the company or whenever such situation is imminent, according to the criteria set out under article 3 of the CIRE (ex vi article 18).

As for the creditors, or the Public Prosecutor Department, the application may be lodged whenever one of the scenarios set forth in article 20 of the CIRE is met (ie, general suspension of payment of overdue obligations).

The application must contain a series of mandatory elements and meet several requirements set out in article 23 the CIRE, which are in turn complemented by the Portuguese Civil Procedure Code (“CPC”).

As a result, the application lodged by a creditor must include information regarding the nature and amount of the credit, the identification of the debtor’s managers (both of fact and law) and its five biggest creditors (not including the applicant), and the debtor’s commercial registry certificate. If the applicant is the debtor, then it is important to indicate whether the company’s situation of insolvency is current or imminent, and to include the documents set out in article 24 of the CIRE, such as a list of all known creditors and a clear explanation of the company's activity over the last three years.

The judicial ruling which then declares the insolvency of the debtor grants creditors – as well as the Public Prosecutor Department – a fixed time limit (maximum 30 days) to claim their credits (including conditional credits) before the Insolvency Administrator (filed online), as per article 128 of the CIRE. According to this provision, creditors must lodge their claim accompanied by various documents and elements that legitimise and ground the claim, such as the origin of the credit and its legal classification (ie, guaranteed or privileged), and its due date, amount and accrued interest. Creditors who have had their credit acknowledged by a previous judicial decision are not exempt from the duty of claiming it in the insolvency proceeding if they wish to obtain payment within said insolvency proceeding. After said time limited has expired, the Insolvency Administrator will assess whether the credits are to be acknowledged.

Within 15 days of the termination of the time limit for credit claims, the Insolvency Administrator prepares a list of the credits that were acknowledged (which is published), coupled with the respective terms and conditions of each one (ie, the identification of the creditor, the nature of the credit, the amount and accrued interests, and the existence of personal or real guarantees, amongst others). In parallel, another list comprising the credits that were not acknowledged, and the respective grounds of justification, must also be drafted and published.

Within ten days of the deadline for the Insolvency Administrator to present these lists, any person with a legal interest can challenge the acknowledged creditors list through a request lodged before the court based on the unlawful inclusion or exclusion of credits or on the inaccuracy of the amount or classification of the acknowledged credits. The court will then issue a ruling, in which it decides on the existence and correct classification of the credits.

Despite this, a creditor may still have other claims acknowledged after this period, and may request the separation or restitution of assets, so as to be considered in the insolvency proceeding, by means of a judicial application against the insolvent estate, the creditors and the debtor. The request for the separation or restitution of assets can be filed at any time until the end of the insolvency proceeding. However, the claim for the acknowledgement of credits can only be filed within six months of the judgment declaring the insolvency becoming final (res judicata), or within three months of the constitution of the credit, if this deadline is terminated later. 

These credits may be traded amongst creditors and with third parties prior to, or even throughout, the insolvency proceedings, as the only impact that this action has on the claim is the identification of the creditor.

All pending judicial proceedings regarding the insolvency estate assets filed against the debtor or even third parties, which may determine variations in the value of the insolvency estate, and all judicial proceedings with exclusive patrimonial nature filed by the debtor are to be attached to the insolvency proceeding if the Insolvency Administrator so requests, on the grounds of convenience for the goals of the proceeding (article 85 of the CIRE). Enforcement proceedings or other measures requested by the insolvency creditors that affect the insolvency estate, as well as arbitration disputes, shall be suspended, according to articles 87 and 88 of the CIRE.

Furthermore, according to article 81 of the CIRE, one of the consequences of the declaration of insolvency is the immediate removal of the (debtor) managers’ powers of administration over the assets of the insolvency estate and their subsequent transfer to the Insolvency Administrator, who is authorised by law to carry out all transactions in the ordinary course of business of the debtor.

Occasionally, the court may rule that control over the company’s business may remain in the hands of its management bodies, although they are generally no longer paid for their functions, provided that (i) the debtor has requested to retain control of its business; (ii) the debtor presents an adequate restructuring plan; (iii) there is no expected disadvantage for the creditors or for the insolvency proceedings; and (iv) the person or legal entity who initiated the insolvency proceedings agrees with the debtor’s request (article 224 of the CIRE).

Concerning the performance of contracts, the rules regarding the effects of the declaration of insolvency over pending contracts are mandatory and parties cannot, therefore, establish clauses that contravene or revoke them.

As a rule of thumb, under article 102 of the CIRE, contracts that have been entered between the debtor and a creditor, and that have not yet been completely performed, are suspended until the Insolvency Administrator determines on their performance or non-performance. In these cases, the respective creditor is given the opportunity to set a reasonable date before which the Insolvency Administrator must issue a decision. If no decision is made by said date, then Portuguese law presumes that the Insolvency Administrator has decided not to perform the contract.

Some contracts are subject to special rules, such as the following:

  • indivisible obligations;
  • sale with ownership reservation and similar contracts;
  • sale without delivery;
  • promissory contracts;
  • forward transactions;
  • leases; and
  • mandates and management contracts.

Credits that emerge from the Insolvency Administrator’s decision to perform certain contracts are generally considered and accounted as debts over the insolvency estate, and rank above most other credits. 

Following the declaration of insolvency, the creditors may compensate/set-off their credits with debts of the insolvency estate if at least one of the following requirements is fulfilled:

  • the legal requisites of set-off must be verified prior to the date of the declaration of insolvency; and/or
  • the credit/claim on insolvency must fulfil the requirements laid down in article 847 of the Portuguese Civil Code, before the counterclaim on the insolvency estate. However, set-off is not legally acceptable in the following circumstances:
    1. if the debt to the insolvency estate has been constituted after the date of the declaration of insolvency, in particular as a result of the resolution of acts for the benefit of the insolvent estate;
    2. if the insolvency creditor has acquired his or her claim from another, after the date of the declaration of insolvency;
    3. if the insolvency estate is not responsible for the debts of the insolvent; and
    4. between the debts to the insolvency estate and the subordinate claims on the insolvency (article 99 of the CIRE).

Insolvency proceedings are dynamic and, as a result, there is a lot of information that is constantly being analysed and put forward to all parties involved – the creditors’ right to be provided with a report prepared by the Insolvency Administrator should be noted.

This report will be presented at the creditors’ general meeting, which will focus on discussing and deciding whether to close or maintain the activity of the establishments comprising the insolvency estate, and can empower the Insolvency Administrator to prepare an insolvency plan and determine the suspension of liquidation of the insolvency estate.

To a certain extent, the CIRE is flexible in allowing creditors to opt for the restructuring and maintenance of the company. If the creditors do not approve an insolvency plan or request the Insolvency Administrator to prepare a plan through which the company is to be maintained and the creditors paid, then the proceeding follows in the view of liquidation and the assets of the insolvency estate will be sold in this framework (“liquidation”).

Prior to the creditors being paid, the insolvency proceedings have their own costs and expenses that also need to be paid (commonly referred to as “debts of the insolvency estate”) – ie, court fees, the Insolvency Administrator’s fees, the costs and expenses of administration, and claims resulting from obligations incurred under contracts entered by the Insolvency Administrator after the judgment opening insolvency proceeding or that the administrator chooses to perform, amongst others.

Afterwards, the payment to creditors will be performed according to the credit ranking, with the guaranteed credits being paid first, followed by privileged credits, common credits and finally subordinated credits (article 47 of the CIRE).

Said payment only considers credits that are duly claimed and acknowledged in the final judicial decision. Only once the court has issued a final and definitive ruling on the ranking of claims and a payment map has been approved can the Insolvency Administrator make proportionate and pro rata payments to the creditors.

Once the judgment declaring the insolvency has become final and the creditors’ meeting for the assessment report has been held, the Insolvency Administrator promptly proceeds with the negotiation and sale of the assets (article 158 of the CIRE).

As a rule of thumb, the purchasers acquire the assets free and clear of claims and liabilities. However, the CIRE establishes a set of rights for guaranteed creditors:

  • the guaranteed creditor shall be heard regarding the sale's mode and shall also be informed about the initial base value or price of the proposed sale to a certain entity. However, the Insolvency Administrator is not bound to accept the secured creditor’s position;
  • the guaranteed creditor may propose to purchase the asset, either directly or through a third party, for a price higher than the projected sale price or the initial base value. If such proposal is not accepted by the Insolvency Administrator and the asset is sold at a lower price, the Insolvency Administrator is required to guarantee that the guaranteed creditor is in the situation he would be in if the asset had been sold at the proposed price; and
  • the proceeds of the sale of assets shall revert immediately to the guaranteed creditors, before any payment is made to any other creditor.

All the sales transactions are effectuated according to the rules established in article 102 and following articles of the CIRE and the decisions adopted by the Insolvency Administrator. Therefore, it is possible to execute pre-negotiated sales transactions after the commencement of insolvency proceeding, provided that such transactions are approved by the Insolvency Administrator.

The general framework that sets out the consequences of non-compliance with the approved recovery plan is laid out in article 218 of the CIRE. This statutory provision holds that, unless the insolvency plan states differently, the moratorium or forgiveness provided therein expires: (i) in respect of a claim in which the debtor is in arrears, if the instalment, together with the default interest, is not paid within 15 days of written notice by the creditor; or (ii) in respect of all claims, if the debtor is declared insolvent in a new proceeding before the execution of the insolvency plan.

During insolvency proceedings, management and disposal powers are transferred to the Insolvency Administrator, who shall ensure the continuing of the debtor’s business, if so decided. Credits emerging from the execution of agreements (including new money invested or loaned) after the insolvency declaration, which the IA enters or does not terminate, are classified as credits over the insolvency estate, ranking above all insolvency credits.

Under Portuguese law, there is no insolvency proceeding that can be used to liquidate a corporate group. The commercial companies in an insolvency situation shall be submitted to the legal regime established in the CIRE, even though they are in a group relationship with any other insolvent entities. However, in 2017, a new provision was added to the CIRE (by Decree-Law no. 79/2017, of June 30th), allowing that, when a debtor is a commercial company that, under the terms of the Portuguese Commercial Companies Code, is in a group relationship with another entity or other entities in respect of which an insolvency proceeding has been filed, the court can appoint the same Insolvency Administrator for all the companies. If that occurs, the court may appoint another Insolvency Administrator to assess the credits claimed between debtors within the same group of companies, as soon as it verifies the existence of these credits (article 52, par. 6 of the CIRE).

Prior to the first meeting of creditors, the court appoints a committee of creditors composed of three or five members (plus two substitutes), with the chair position preferably being attributed to the company's largest creditor. The choice of Creditors' Committee members shall ensure the adequate representation of the various classes of creditors, except for subordinate creditors. In addition to other duties specifically assigned to it, the Committee is responsible for overseeing the activity of the Insolvency Administrator, and for providing assistance to him or her. In carrying out its duties, the Committee may freely examine the debtor's accounts and request any information and documents it deems necessary from the insolvency administration. The members of the Creditors' Committee are not remunerated, but are reimbursed for any expenses that were strictly necessary for the performance of their duties.

The Insolvency Administrator may promote the early sale of estate assets that cannot or should not be retained due to deterioration or depreciation. Whenever this is done, it should be communicated to the debtor, to the Creditors' Committee, and to the Judge at least two business days in advance of the sale. In this scenario, the court may block the sale – on its own initiative or at the request of the debtor, the creditors or the Committee (article 158 of the CIRE). Despite this, the consent of the Creditors' Committee or, if this Committee does not exist, the consent of the assembly of creditors is needed to carry out certain legal acts that are of particular importance to the insolvency proceedings (notably, the sale of holdings in other companies designed to secure a lasting relationship with them or the disposal of assets necessary for the continued operation of the company, pursuant to article 161 of the CIRE).

The effects of restructuring or insolvency proceedings opened in an EU Member State (excluding Denmark) are automatically recognised in all other Member States, according to Regulation (EU) 2015/848. Proceedings opened in third countries are recognised in Portugal, after revision and confirmation proceedings by a Portuguese court, which shall verify that the foreign court/authority’s competence is based on the place where the debtor is domiciled or has its main interests or equivalent rule, and that the recognition will not bring about a result that goes against the basic principles of the Portuguese jurisdiction. Revision and confirmation proceedings shall apply to insolvency declarations and all related decisions.

As far as is known, no protocols or other arrangements have been entered into with foreign courts to co-ordinate cross-border proceedings.

Cross-border insolvency and recovery proceedings concerning debtors that have their main centre of interests in Portugal or another EU Member State (except for Denmark) are subject to the provisions of Regulation (EU) 2015/848 and, at a subsidiary level, of the CIRE. Cross-border insolvency and recovery proceedings regarding debtors of third countries shall be subject to the CIRE specific rules. Notwithstanding different legal provisions, proceedings and corresponding effects shall be governed by the law of the country where the proceedings have been initiated.

Under insolvency or restructuring proceedings, foreign creditors are dealt in the same way as Portuguese creditors, except for particular matters. The most relevant difference concerns the rules regarding creditors’ notification:

  • Portuguese creditors are notified through the Portuguese courts' electronic platform;
  • creditors from EU Member States are notified according to the terms established in Regulation (EU) 2015/848 (individual notice under a standardised form published in European e-Justice Portal); and
  • creditors from third countries are notified according to the rules provided for in international treaties or agreements, if such exist.

In the Portuguese jurisdiction, the statutory officer appointed for conducting recovery or insolvency proceedings is designated as the “Judicial Administrator” and its rights and duties are governed by Law no. 22/2013, of February 26th. The Judicial Administrator is designated as the “Provisory Judicial Administrator” in the PER, as the “Insolvency Administrator” in the insolvency proceeding, and as the “Fiduciary” in a natural person’s insolvency proceedings.

The Provisory Judicial Administrator is responsible for:

  • providing for the conservation and productivity of the debtor’s estate;
  • ensuring the continuation of the company’s operation;
  • avoiding, if possible, the deterioration of the economic situation of the company;
  • assisting the debtor in managing the debtor’s estate; and
  • specifying the actions that the debtor is still empowered to undertake.

The Insolvency Administrator’s scope of functions includes the following:

  • the liquidation of assets of the insolvent, and the preparation of the payment of the respective debts with the cash amounts of the insolvency estate;
  • maintaining and exploring the rights of the insolvent and maintaining the exploitation of the company business;
  • managing and disposing of the assets integrated in the insolvency estate;
  • representing the insolvent in all patrimonial-related subjects relevant to the insolvency;
  • replacing the insolvent in all judicial proceedings of a patrimonial nature filed by the insolvent against third parties and in judicial proceedings in which assets integrated in the insolvency estate were seized or apprehended;
  • deciding whether to fulfil or terminate the contracts that are not fully fulfilled on the date of the declaration of insolvency; and
  • revoking acts detrimental to the insolvency estate (“clawback actions”).

Both the Provisory Judicial Administrator and the Insolvency Administrator report to the Judge, and to the Creditors’ Committee, and are liable for the damages caused to the creditors of the insolvency and the creditors of the insolvency estate through negligent non-compliance with duties. Among other tasks, the Fiduciary is responsible for managing the debtor’s income, reimbursing the costs borne by the court, as well as the costs and expenses borne by himself and the Insolvency Administrator, distributing the remaining income among the creditors as determined in the insolvency process, and inspecting the fulfilment of the debtor’s obligations, if the creditor’s assembly so deliberates. The Fiduciary is liable for the omission of payment of owed amounts, and for any damages resulting from non-compliance with his duties.

The court appoints the Judicial Administrator (who must be registered in the Insolvency Administrators’ official list and fulfil certain requirements), but may take the name indicated in the insolvency request into account when making its decision. The Judicial Administrator appointed by the court may be substituted by another person/entity elected by the insolvent’s creditors. This replacement depends on the fulfilment of the requirements outlined in the CIRE.

Besides this replacement according to the creditors’ proposal, the Judicial Administrator can only be replaced in the following circumstances:

  • if the Judicial Administrator refuses to perform its functions;
  • if there is a dismissal with fair cause; or
  • if a subsequent legal cause of inability exists that prevents the Judicial Administrator from being able to perform its functions.

Whenever the administration of the insolvent estate is entrusted to the debtor, the Judicial Administrator carefully supervises the administration of the insolvency estate, authorising or rejecting certain actions by the debtor, which requires interaction with the corporate directors.

A creditor, creditor representative, owner, officer, director or any other individual appointed by the creditors may also be appointed as a Judicial Administrator in justified cases related to the dimension of the company, the specificity of the business or the complexity of the proceedings.

Attorneys are hampered from serving as Judicial Administrators, as provided for in article 82 (m) of the Statutes of the Portuguese Bar Association.

Accountants are not prevented from serving as Judicial Administrators, unless a conflict of interests would result in a lack of independence or impartiality (article 77 of the Statutes of the Certified Accountants Association).

The involvement of professional advisers in restructuring or insolvency proceedings varies according to the nature and size of the distressed or insolvent entity. In out-of-court restructurings of debts of natural persons, a financial adviser (which may also be a credit intermediary) may assist the debtor in the market research (eg, evaluating the prospects of loan consolidations with credit institutions), or the credit institutions themselves may target these prospective customers and assist them throughout the restructuring. If the restructuring concerns a corporate entity, the internal accountants and legal team may participate, although external advisers (attorneys, accountants, investment bankers or financial advisers) will also be enrolled in large restructurings or if the managers have concerns about the internal spillage of sensitive financial matters and its possible motivational impact in the workplace. In insolvency proceedings, attorneys will be employed for the judicial stage. Depending on the nature of the assets comprising the insolvency estate, expert asset appraisal service providers may also be brought on board.

The professionals indicated in 10.1 Typical Advisers Employed may be employed by the debtor prior to the declaration of insolvency, and are then paid by the company. Agreements still pending on the date of the declaration of insolvency will be affected by the general rules governing the effects of the declaration of insolvency on pending agreements. The declaration of insolvency transfers the authority to manage the affairs of the insolvent to the Insolvency Administrator, who then has the power to appoint technical staff and other assistants to aid them in the performance of their duties. Compensation for advisers appointed by the Insolvency Administrator is paid out of the insolvency estate.

In some cases, notably where there are concerns about the qualification of the insolvency, the directors of the insolvent entity may also feel the need to retain their own legal counsel. In the absence of a D&O insurance policy that covers legal defence costs, the costs of the advisers to the members of the board are borne individually by the members of the board.

The appointment of advisers by the insolvency administrator is subject to the prior consent of the creditors’ committee or, in the absence of such committee, the judge.

The scope and extent of the duties and responsibilities of these professional advisers are to be contractually defined between the parties; in general terms, the responsibilities and duties of the professional advisers are owed to the respective counterparties in the agreements and not to third parties. There is no insolvency-specific statutory provision determining which are the duties and responsibilities of the professional advisers hired by the debtors in insolvency or restructuring proceedings (there are, however, specific statutory duties governing certain professions, such as lawyers or chartered accountants). The law specifically provides that the professional advisers appointed by the Insolvency Administrator act under the responsibility of the Insolvency Administrator, who may be jointly liable with the appointed professional advisers (assuming therefore that the professional advisers may be directly liable – eg, if the requirements for extracontractual/torts liability are met).

Alternative dispute resolution methods are not commonly utilised in matters such as restructuring, liquidation or insolvency. In particular, due to the nature of the insolvency proceeding (a universal enforcement proceeding), it has been accepted that these matters are not subject to arbitration. Although some matters involving the insolvent are susceptible of being resolved through arbitration, the fact is that creditors who have their credits recognised by an arbitral award must file their credit claim within the insolvency proceeding if they intend to obtain payment.

Under Portuguese law, there is no mandatory arbitration or mediation in restructuring or insolvency proceedings.

According to article 87, par. 1 of the CIRE, notwithstanding the provisions set forth in international treaties, the declaration of insolvency suspends the effectiveness of arbitration agreements to which the insolvent is a party regarding disputes that can affect the value of the insolvency estate. Arbitration proceedings pending at the date of the declaration of insolvency shall continue their terms, but the Insolvency Administrator replaces the insolvent in such proceeding. Additionally, as noted in 11.1 Utilisation of Mediation/Arbitration, creditors who have their credits recognised by an arbitral award must file their credit claim within the insolvency proceeding if they intend to obtain payment.

Voluntary arbitration is governed by Law no. 63/2011, of December 14th (“LAV”), and mediation is governed by Law no. 29/2013, of April 19th. Institutionalised arbitration and mediation are also governed by the pertinent institutions' statutes and rules.

According to article 10 of Law no. 63/2011, of December 14th, the parties are free to appoint the arbitrator or arbitrators that shall form the arbitral tribunal in the arbitration agreement or in a later document signed by the parties, or to agree on a procedure for appointing them, namely by assigning the appointment of all or some of the arbitrators to a third party.

In an arbitration with a sole arbitrator, if the parties are unable to agree on the arbitrator’s appointment, such arbitrator shall be appointed, upon the request of any party, by the state court. In an arbitration with three or more arbitrators, each party shall appoint an equal number of arbitrators and the arbitrators thus appointed shall appoint a further arbitrator, who shall act as chairman of the arbitral tribunal.

Unless otherwise agreed, if a party is to appoint an arbitrator or arbitrators and fails to do so within 30 days of receiving the other party’s request to do so, or if the arbitrators appointed by the parties fail to agree on the choice of the chairman within 30 days of the appointment of the last arbitrator to be appointed, the appointment of the remaining arbitrator or arbitrators shall be made, upon the request of any party, by the competent state court.

According to article 9, pars. 1 and 3 of Law no. 63/2011, of December 14th, arbitrators must be natural persons and have full legal capacity, and must be independent and impartial towards any of the parties.

Under article 17, par. 1, of Law no. 29/2013, mediators are appointed by mutual consent of the parties. Mediators must be independent from and impartial towards any of the parties.

Directors of a distressed company must request the opening of insolvency proceedings within 30 days of becoming aware of the actual insolvency situation of the debtor (or after the date upon which the director would have known of the insolvency situation if he had been diligent). For limited liability companies, two insolvency tests are alternatively applied:

  • a cash flow test, according to which a company will be deemed insolvent if it is unable to meet its mature obligations to pay; and
  • a balance sheet test, according to which a company will be insolvent if its liabilities considerably exceed its assets.

Directors of the company must fully comply with all company law and insolvency law provisions aimed at protecting the creditors’ interests. A qualified standard of care applies to directors: the diligence of a careful and organised manager.

There are two different regimes for asserting directors’ liability in an insolvency context. According to the company law regime, directors are personally and jointly liable vis-à-vis creditors of the company when the company becomes insolvent as a consequence of the breach of provisions aimed at protecting creditors’ interests. Company law liability will apply to wilful or negligent acts or omissions.

Insolvency law liability will apply when the insolvency has been created or deepened as a consequence of wilful or grossly negligent acts or omissions carried out by directors (including shadow directors) in the three years preceding the opening of insolvency proceedings. Insolvency law liability can only be used by creditors that are not able to obtain full satisfaction for their credits in the insolvency (and to the extent of the unsatisfied credits).

Directors owe general duties of loyalty, information and protection to company affiliates and subsidiaries. Directors are liable vis-à-vis owners/shareholders for direct damages (ie, other than damages related to the deterioration of the company’s value) emerging from acts or omissions carried out while in office. The direct liability of directors vis-à-vis owners/shareholders is seldom applied.

As explained above, directors can be held liable in company law terms and in insolvency law terms towards creditors for damages emerging from breaches of provisions aimed at protecting creditors’ interests or for creating/deepening the insolvency of the company. Rules governing the duty to request the swift opening of insolvency proceedings will be qualified as relevant provisions for both purposes.

In insolvency proceedings, the conduct of the debtor’s directors (over the previous three years) will be assessed to determine whether they have wilfully or with gross negligence created or contributed to the insolvency or to its deepening. If such is the case, and among other civil sanctions, the directors can be prohibited from managing third party assets for a period ranging from two to ten years, and from engaging in commercial activities or holding positions in the boards of companies, associations, public companies, foundations or co-operatives, for a period ranging from two to ten years.

Criminal sanctions can also apply to directors that have created or deepened the insolvency of a company in special circumstances of gross negligence, wilful conduct or fraud.

Claims asserting the breach of duties owed by the directors to creditors (based on company law or insolvency law) must be launched exclusively by the Insolvency Administrator.

As a rule, Portuguese companies do not appoint chief restructuring officers or other restructuring professionals.

In general terms, shadow directors are subject to the same insolvency law liability regime as described above in relation to directors, for unsatisfied credits, where the insolvency was created or deepened by wilful/grossly negligent acts or omissions. Although the application of the shadow directors’ regime to creditors cannot be completely excluded, it is rarely discussed in the Portuguese doctrine or case law.

Owners/shareholders are only directly liable to creditors in very limited circumstances. Sole shareholders can be directly liable to creditors of its 100% subsidiaries. In other limited circumstances, a shareholder can be liable to the company and other shareholders, if specific conditions are met. Such shareholders include those entitled to autonomously appoint a director, upon a special provision in the company’s by-laws (for the damages attributable to the appointed director), and those able to appoint a director by the number of votes held, for culpa in eligendo of directors (for the damages attributable to the appointed director).

Transactions executed before the beginning of the insolvency proceedings may be annulled and the assets returned to the insolvent estate in the following circumstances:

  • if the transactions were carried out within two years prior to the commencement of the insolvency proceedings;
  • if the transactions diminish, hinder, obstruct, jeopardise or delay the satisfaction of insolvency creditors; and
  • if the other party acted in bad faith (ie, was aware of the insolvency or its imminence).

The third party’s bad faith is presumed in the case of transactions between related parties. In addition, certain specific transactions (eg, agreements with no consideration for the insolvent, the repayment of obligations not yet due, the encumbrance of assets to secure pre-existing obligations, the reimbursement of shareholders’ contributions in the year before the beginning of the insolvency proceedings) may be annulled, regardless of the third party’s bad faith, except for special situations where the law always requires the proof of bad faith or other conditions.

The look-back period is the two years before the onset of the insolvency proceedings.

The Insolvency Administrator carries out the annulment by sending a letter to the relevant third party, within six months of the acknowledgement of the detrimental transaction, but no later than two years after the insolvency declaration. The agreements not yet fulfilled may be annulled without time restrictions. These annulments may only be carried out in insolvency and not in restructuring proceedings. Any creditor may judicially contest detrimental transactions (in favour of his own interest) only if the Insolvency Administrator does not proceed with the annulment, and no later than five years after the transaction date.

Valuations have an important role in the restructuring and insolvency market in different stages. The valuation of the company (its activity, accounting and assets) entitles any stakeholder to assess the economic and financial situation of the company – notably, whether it is solvent or insolvent. Valuation also allows the stakeholders to assess the advantage of certain transactions, the relevance of investments or even the feasibility of certain deals that should be fulfilled in the framework of an extrajudicial procedure or in the context of recovery or insolvency proceedings. Finally, valuation also enables the assessment of the fairness of a recovery or insolvency plan and the compliance with the mandatory provisions outlined in the CIRE.

In the framework of the restructuring proceeding, the valuations (of a company or of any of its assets) tend to be carried out within the PER or insolvency proceeding in an effort to attain the successful recovery of the company. Valuations may be prompted by the debtor, the creditors, the Provisional Judicial Administrator (within the framework of the "PER") or the Insolvency Administrator. Considering the relevance that the valuation may have in the context of the negotiations for the presentation of a plan (either of recovery or insolvency), the greatest creditors (which may or may not be secured creditors) are usually those who request and/or submit the valuations, since they can influence the outcome of the proceedings. The valuation of the debtor's business activity or assets is not the subject of major litigation in the context of insolvency, and therefore the preferred case law in this regard is not too detailed. There are very few occasions where a valuation itself restricts the approval or rejection of an insolvency plan, which in turn justifies the lack of case law on the matter.

Generally, valuations are carried out by experts/appraisers, natural persons, or specialised companies operating in the market.

In accordance with the applicable framework, the court does not intervene or supervise the valuations that are carried out, as it only verifies whether the plan to which the valuation pertains complies with the applicable legal provisions – notably, whether it complies with the principle that no creditor is placed, in light of the approval of the plan, in a worse position than they would have been in in the event of the liquidation of the company.

The necessity and/or relevance of carrying out a valuation depends greatly on the nature of the company's business and the assets at stake.

In any event, carrying out a valuation allows a better knowledge of the transactions that are set to be carried out – for instance, that the transactions are done at fair value, in light of the established criteria and depending on the type of asset at stake.

As a result, it allows for a stronger supervision of the conduct of the company's directors and/or the Provisional Judicial Administrator or Insolvency Administrator, thus avoiding the agreements entered into or to be entered into being jeopardised – namely through actions of annulment, through actions of “impugnação pauliana”, or through the resolution of acts in favour of the insolvent estate (claw-back actions), depending on the scenario at hand.

In some circumstances, depending on the type of operations that are intended to be carried out (depending on their complexity and value), the valuation is carried out in the context of an M&A operation (distressed M&A) as part of a special revitalisation proceeding or an insolvency proceeding, in which a recovery plan for the debtor is presented.

The valuation method depends on the nature of the asset being appraised, but the most commonly used methods are discounted cash-flow valuations, price-to-book value, average price on the market and, sometimes in cases where risk is low, desktop valuation.

The liquidation values are not the relevant sole value comparator to determine whether any decision or transaction grounded in that valuation places the creditors in a worse position than in the event of the liquidation of the company.

As mentioned in 14.2 Initiating a Valuation, the valuation of the debtor's business activity or assets is not the subject of major litigation in the context of insolvency; therefore, there is no relevant case law regarding this matter.

Sérvulo & Associados

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Sérvulo & Associados is a full-service Portuguese law firm with more than 100 lawyers, providing legal services in all relevant practice areas and sectors/industries. Sérvulo is the only Portuguese member of three international networks of law firms (Legalink, Cathay Associates and Roxin Alliance), which enables it to provide comprehensive legal advice to clients on a truly global scale. Sérvulo is also a founding member of the SÉRVULO LATITUDE⦵ multilateral network of partnerships, formed by leading law firms from the full range of Portuguese-speaking countries, spanning four continents (Africa, America, Asia and Europe). In the Restructuring and Insolvency field, Sérvulo has a multidisciplinary team comprising lawyers of the finance and governance, litigation and arbitration departments, which has advised clients on the most complex and high-profile cases in Portugal and Europe in this area (eg, the liquidation procedures of BES, BANIF and BPP).

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