The insolvency regime in Macau follows the conventional differentiation between bankruptcy and insolvency. Entrepreneurs engaged in commercial activities, such as commercial companies, individuals or entities acting on their own behalf or through third parties, are considered bankrupt if they fail to pay their debts promptly. Debtors who are not commercial entrepreneurs, such as freelance professionals, may be deemed insolvent if their liabilities exceed their assets.

The provisions of the bankruptcy regime apply to the insolvency regime, unless they do not relate to the commercial enterprise, without prejudice to specific provisions on insolvency and other regulations. Macau bankruptcy rules are dependent on the principle of territoriality.

Within the Macau jurisdiction, the most relevant laws and statutory regimes governing financial restructurings, reorganisations, liquidations and insolvencies of business entities are the following:

• the Macau Commercial Code, approved by Decree-Law 40/99/M of 3 August 1999;
• the Macau Civil Code, approved by Decree-Law 39/99/M of 3 August 1999; and
• the Macau Civil Procedure Code, approved by Decree-Law 55/99/M of 8 October 1999.

Insolvency proceedings may be voluntary, if initiated by the debtor, or involuntary, if commenced through the intervention of creditors or the Public Prosecutor’s Department, regardless of the debtor’s initiative.

Under Macau law, the statutory officer appointed in bankruptcy proceedings is designated as the “bankruptcy administrator” and the administrator’s rights and duties are governed by the Macau Civil Procedure Code.

Mortgage Creditors

Mortgage creditors have a higher priority compared to other secured and unsecured creditors. They are entitled to be paid from the proceeds of the sale of the mortgaged property before other creditors.

Pledge Creditors

Pledge creditors have a right to be paid from the proceeds of the sale of the pledged property before unsecured creditors. However, they have a lower priority than mortgage creditors.

Lien Creditors

The holder of a lien on real property has a right to be paid before the debtor’s other creditors, including mortgage creditors. This right of payment takes precedent over that of other creditors, including the mortgagee, unless the property retained is delivered. 

General Unsecured Creditors

General unsecured creditors do not hold any specific security interest in the debtor’s assets. They have a lower priority compared to secured creditors and are paid after the secured creditors have been satisfied.

Priority Unsecured Creditors

Certain creditors, such as employees, have preferred status and are given priority over general unsecured creditors. They are entitled to be paid out of the debtor’s assets before general unsecured creditors.

Subordinated Creditors

Subordinated creditors have a lower priority compared to general unsecured creditors. They are paid only after the claims of the general unsecured creditors have been satisfied.

In Macau insolvency proceedings, there are certain preferential claims that take precedence over other claims. Some of these priority claims are outlined below.

Government Claims

Priority will be given to claims by the Macau government for indirect or direct taxes due. These claims are considered to be of public interest and are given priority to ensure the government’s ability to collect taxes.

Administrative Expenses

Priority is given to expenses incurred in the administration of the bankruptcy proceedings, such as the fees and expenses of the bankruptcy administrator or liquidator. These expenses are necessary for the proper administration of the proceedings and are paid before other claims.

Employee and Pension Claims

Claims of employees for unpaid wages, salaries and other employment-related benefits and claims of pension funds for unpaid contributions are given priority. These claims are considered to be of high importance for the protection of the rights and interests of employees and pensioners.

Official Fees

Priority is given to the fees and expenses incurred by the bankruptcy administrator or liquidator for their services in the administration of the insolvency proceedings. These fees are usually paid before other claims in order to ensure the proper administration of the proceedings.

In the Macau SAR, secured creditors usually take the following liens/securities.

Mortgages and Pledges

Creditors can secure real estate and movable property that requires registration (cars, boats, aeroplanes) by means of mortgages created by public deeds, which are subject to public registration.

Items of movable property such as intellectual property, shares, bank accounts and financial instruments, which do not require public registration, are commonly secured through the creation of pledges.

Mortgages and pledges bestow upon creditors the right to be paid before ordinary creditors up to the amount of the secured asset.

Lien

Retention of title is primarily a practice used by trade creditors and suppliers to retain title to goods supplied until the debt has been paid in full. This practice is also commonly employed to secure vehicles, as it can be registered.

Financial Collateral

Financial instruments and funds held in bank accounts may be offered by a borrower to a lender through a financial collateral agreement that benefits from preferential treatment in the event of the debtor’s bankruptcy.

General Unsecured Creditors

General unsecured creditors do not have any specific security interest in the debtor’s assets. They have a lower priority compared to secured creditors and are paid after the secured creditors have been satisfied.

Priority Unsecured Creditors

Certain creditors, such as employees, have preferred status and are given priority over general unsecured creditors. They are entitled to be paid out of the debtor’s assets before general unsecured creditors.

Subordinated Creditors

Subordinated creditors have a lower priority compared to general unsecured creditors. They are paid only after the claims of the general unsecured creditors have been satisfied.

Under Macau law, there is no alternative to bankruptcy proceedings. However, under this process and in the early stage of the insolvency, it is possible to have an agreement between the creditors or for the bankrupt party to request that the court reduce the credit (concordata), which, if accepted by the court, will be proposed to the creditors, who may vote on such a request.

A concordata is a proposal that a debtor or one or more creditors can offer to other creditors to avoid the debtor being declared bankrupt. This proposal includes a condition that the debtor will pay off a certain amount of their debts within a specific timeframe. A concordata can also serve as a short-term suspension of regular loans.

The debtor must submit the application at least five days before the first creditors’ meeting, at which the credits will be verified. At the end of the meeting, any person to whom money is owed can propose a concordata. To pass the concordata, most creditors must vote in favour of it, with their votes representing at least 75% of the confirmed debts.

A concordata can be reached when 75% of the creditors vote in favour. Creditors who do not accept the settlement may, either individually or jointly, contest within ten days after its acceptance. With the court’s approval, the concordata is compulsory for all unsecured creditors, regardless of whether they accept the settlement, as long as these debts existed before the submission of the concordata to the court.

At least ten days prior to the meeting for creditors, the debtor can propose a “concordata”. This involves reducing or changing some or all of the owed debts, which may only be a temporary suspension.

If there is no concordata, the creditors can enter into a creditors’ agreement, in which they create a limited liability company to carry on the debtor’s business activity.

In cases where these preventative bankruptcy measures cannot be reached, the court will declare the bankruptcy.

Regarding the concordata, creditors are also able to propose modifications to the presented bases or the concordata, whether or not initiated by the debtor. To be accepted, the agreement must be approved by most of the voters holding credits, amounting to at least 75% of the credits. The court will have to endorse this agreement according to Article 1061 of the Macau Civil Procedure Code.

Creditors who do not accept the settlement may, either individually or jointly, contest within ten days after acceptance of the concordata. With the court’s approval, the concordata is compulsory for all unsecured creditors, regardless of whether they accept the settlement, as long as these debts existed before the submission of concordata to the court. Therefore, the claims of dissenting creditors can be modified without their consent when the court approves a concordata.

With regards to the creditors’ agreement, it is only possible if 75% of the creditors vote in favour. The clauses of the future deed of incorporation must be submitted to the court within the time limit set by the judge. The terms are outlined below.

• Creditors who sign the agreement and other individuals can join the company.
• Creditors’ shares correspond to their credits and may be represented partially or entirely, while remaining liabilities for those who do not sign the agreement will be deducted.
• The company will hold onto the assets of the commercial entrepreneur for the amount that goes beyond the payment of the preferred credits. However, if any of the creditors involved in the agreement wish to retain assets that are under any real right of guarantee, they must pay the respective credit or guarantee the full payment at the due date.
• The company must also pay non-accepting creditors from the agreement within three years. The percentage agreed upon will be applicable as per the provisions of Article 1061, paragraph 2.

However, it may be contested within ten days of the deadline by either:

• the debtor (if he/she has not given his/her consent);
• the creditors, who have not been included in such an agreement;
• the public prosecutor; or
• if the debtor is a company, the creditors of the shareholders with unlimited liability.

Pending the court’s decision on whether to approve the agreement, new admissions to the agreement are possible and the accepting creditors may propose an increase in the percentage offered to the non-accepting creditors. If the agreement is approved by the court, the bankruptcy proceedings are terminated and the administrator’s functions cease.

If there is neither a concordata nor a creditors’ agreement, or if they are rejected by the court, the debtor is immediately declared bankrupt.

If the debtor fails to comply with any of the obligations outlined in the concordata, creditors with claims predating the concordata’s approval may request that the debtor be declared bankrupt. If the debtor is declared bankrupt before the concordata has been fully complied with, the creditors can only contest the bankruptcy for the amount they have not yet received of the agreed percentage. However, the guarantees for the payment of this percentage remain in force.

During this initial stage of the bankruptcy proceeding, debtors will be involved in the management of their assets and that of the company, being only supervised by the bankruptcy administrator and the designated creditors. However, debtors are prohibited from taking any action that may reduce their assets or alter the situation of the creditors.

Once the bankruptcy proceedings have been filed, the court appoints the bankruptcy administrator, who helps and supervises the debtor both in running the business as well as managing the debtor’s other assets. Bankruptcy administrators can propose to the court any measures they think fit to prevent any act that might turn out to be detrimental to creditors’ interests, mainly to prevent asset stripping.

The creditors are actively involved in all preventative measures, by participating in negotiations on the concordata with the debtor or by submitting concordata or creditors’ agreement to the court. The value of each claim is determined in the list of creditors prepared by the bankruptcy administrator, which may be challenged by the creditors.

In Macau, a creditor may exercise the right of set-off, offset or netting if the following conditions are met.

• Reciprocal debts: There must be a mutual and reciprocal debt relationship between the creditor and the debtor. This means that the creditor must have a claim against the debtor that is of the same nature as the creditor’s claim against the debtor.
• Pre-existing debts: The debts subject to set-off, deduction or netting must have existed prior to the opening of the insolvency proceedings. As a general rule, debts arising after the opening of the proceedings cannot be set off.
• Notice requirement: The creditor must give notice to the insolvency administrator or liquidator of its intention to exercise the right of set-off, offset or netting. This notice should include details of the claims and the basis for the set-off.
• Generally, the right of set-off may be exercised during the insolvency proceedings, provided that the creditor has given the required notice to the insolvency administrator or liquidator. It is important to note that the right of set-off, offset or netting may be temporarily suspended or terminated in certain situations. For example, set-off rights may be suspended or terminated if the debtor has obtained a court order for a moratorium or has committed fraudulent acts to avoid payment. In addition, if the set-off would result in unfair treatment of other creditors or is contrary to public policy, the court may limit or deny the set-off.

The debtor has the duty to present themself to the court within 15 days of failing to pay one or more debts that, considering the amount due and the circumstances in which default took place, evidence their incapacity to pay their debts as they fall due.

Under Macau law, creditors and the Public Prosecutor’s Department, which represents the interests it is bound to protect, have the right to legitimately file a petition with the court for the declaration of a merchant’s bankruptcy.

The applicant must submit a plea to the court, detailing the following:

• the grounds for the application;
• the source, type and value of their credits;
• an assessment of whether filing for bankruptcy would be appropriate before hearing from the debtor; and
• all pertinent evidence and any extra proof needed to bolster their plea.

Bankruptcy proceedings usually commence by the filing of an application in court presented by the debtor, the creditors or the public prosecutor, together with the documents evidencing the bankruptcy situation.

The application filed by a creditor must include information regarding the origin, nature and amount of the credit, the convenience, if applicable, of having the bankruptcy declaration without hearing the debtor, as well as names and addresses of all shareholders with unlimited liability, where the debtor is a company.

• If the applicant is the debtor, then it is important to do the following:
1. set out the causes of the state of the bankruptcy, offering evidence, submitting a list of documents included in Article 1048 of the Civil Procedure Code, such as a detailed list of all creditors, including their locations, claims, due dates and any distinctive guarantees they have received;

1. list and identify all ongoing legal actions and executions against the applicant;
2. provide a detailed list of assets and their corresponding values if the applicant does not have organised accounts; and
3. provide a copy of the resolution approving the bankruptcy application, if the debtor is a legal person.

Creditors who have not been indicated by the debtor during the bankruptcy application may submit a claim listing the details of their debts, including where and why they arose. This must be completed no later than 15 days before the scheduled first creditors’ meeting.

The bankruptcy administrator, with the assistance of the designated creditors, should present to the creditors’ meeting the list of creditors, duly organised in the following order:

• creditors listed by the debtor whose credits are undisputed;
• creditors whose credits have been challenged by the debtor in terms of their type or amount;
• creditors listed by the debtor but whose credits were challenged in terms of their type and amount;
• creditors listed by the debtor but whose claims were fully disputed; and
• creditors who were not listed by the debtor but filed a claim.

The bankruptcy administrator, appointed by the court from among candidates deemed suitable and potentially nominated by the bankruptcy petitioner, will present a list of creditors for discussion and voting at the creditors’ meeting. Uncontested claims will be recognised, and claims supported by a majority vote of the creditors present – representing the majority of the credit’s value – will also be recognised. In the event of a dispute concerning the credit value of a claim, the administrator’s indicated credit value shall prevail.

All pending judicial proceedings in which the interests of the bankrupt’s estate are at stake are attached to the bankruptcy proceedings, with the exception of proceedings in which the bankrupt is the plaintiff, proceedings concerning the status and capacity of persons, and proceedings in which other defendants are named in addition to the bankrupt.

Initially, debtors may retain the authority to manage their assets and run their company, under the guidance and supervision of the bankruptcy administrator and designated creditors. However, they are prohibited from performing any action that would result in a reduction of the estate or a modification of the standing of creditors. Upon the declaration of bankruptcy, the debtor/bankrupt is not allowed to handle or sell their current and future possessions, which then become part of the bankruptcy estate. The bankruptcy administrator assumes responsibility for representing the bankrupt in all financial matters related to the estate.

The declaration of bankruptcy entails:

• closing the bankrupt’s current accounts;
• the immediate maturity of all debts;
• the discontinuation of interest or other charges on the bankrupt’s obligations; and
• the cessation of discounting on obligations subject to discounting.

Creditors are repaid from the proceeds of the sale of assets within the bankruptcy estate. Initially, these proceeds are used to cover debts of the insolvency estate, primarily liquidation expenses, with any remaining funds then allocated to creditors according to the amounts and priority established in the court-approved list of recognised creditors. Given that the proceeds are typically insufficient to fully cover all recognised debts, creditors receive payment on a pro rata basis within each class.

Interim payments become available once a final decision on the ranking and value of credits has been reached and are, in certain circumstances, currently mandatory.

Once the bankruptcy proceedings begin, and prior to the first creditors’ meeting, the court appoints one or more creditors from the debtor’s list of known creditors to assist the bankruptcy administrator in carrying out duties that fall within the scope of the bankruptcy administrator’s competency.

Creditors’ meetings serve as general assemblies for all creditors, providing a forum to discuss measures aimed at preventing bankruptcy. These may involve agreements to waive part of the debt or to extend its maturity, or a combination of both.

At the initial creditors’ meeting, the bankruptcy administrator and the designated creditors present a report assessing the related or claimed credits, the accuracy of the balance sheet, the state of the business, the possibility of continuing the business and the causes behind the bankruptcy status. Additionally, a list of duly classified creditors is provided.

Creditors have the right to attend the meeting, which is chaired and convened by the judge, with the attendance of the public prosecutor. Only creditors whose claims have not been fully contested by the bankruptcy administrator are entitled to vote. However, they are prohibited from voting on their own claims.

As per the information available, there are no international rules, standards, guidelines or best practices applicable in Macau for the restructuring and insolvency regime.

The courts of Macau shall have jurisdiction to hear an action for the declaration of bankruptcy provided that the domicile or the principal administrative organ of the commercial entrepreneur is in Macau, or that neither of the above is in Macau, but that the action arises from a debt incurred in Macau or due to be performed in Macau, and the commercial entrepreneur maintains a branch, agency, sub-office, sub-sub-agency, agent or representative office in Macau. However, the liquidation is limited to property located in Macau.

Macau bankruptcy rules are subject to the principle of territoriality – ie, foreign bankruptcy/insolvency proceedings will not have effect in Macau unless the foreign insolvency is recognised under the relevant provision of the Macau Civil Procedure Code.

Macau courts may recognise foreign insolvency proceedings if certain conditions are met.

• Reciprocity: The foreign country must have a reciprocal arrangement with Macau for the recognition of insolvency proceedings. This means that Macau will only recognise and provide assistance to foreign proceedings if the foreign country also recognises and provides assistance to Macau insolvency proceedings.
• Jurisdiction: The foreign insolvency proceedings must have been commenced in a country where the debtor has its centre of main interests, which is generally the place where the debtor conducts its main business activities or where its main assets are located. Please note that if the company has its registered office located in Macau, the Macau courts consider themselves to have exclusive jurisdiction over bankruptcy and insolvency proceedings.
• Public policy: The recognition and assistance must not be contrary to Macau’s public policy. Macau courts may refuse to recognise or provide assistance if the foreign proceedings are deemed to be inconsistent with Macau’s fundamental principles of justice or public order.

Foreign insolvency judgements are only enforceable in Macau through a special procedure for the recognition and revision of foreign judgments. It should be noted, however, that the Macau courts have exclusive jurisdiction over bankruptcy and insolvency proceedings involving companies incorporated in Macau. Otherwise, judgments will be revised and confirmed by the Macau Intermediate Court, provided that:

• the judgment is intelligible, final and conclusive;
• there was no fraud in the course of the relevant proceedings, and it is not a matter of the exclusive competence of the courts of Macau, such as proceedings relating to real estate rights of properties located in Macau and matters of insolvency and bankruptcy;
• the matter of the judgment is not the subject of a case pending in the court of Macau or a case that is res judicata according to the laws of Macau, except in cases where the action commenced in the foreign court or arbitral tribunal before action was instituted in the court of Macau;
• the defendant was regularly summoned to the proceedings of the foreign court or tribunal and the adversary system and principle of equal standing of the parties were observed in the proceedings; and
• the enforcement of the judgment would not result in a clear violation of public policy in Macau.

As per the information available, no protocols or other arrangements have been entered into with foreign courts to co-ordinate proceedings.

Creditors in Macau will be paid first in proportion to the debtor’s assets (representation) in Macau. This is guaranteed by provisions in both banking law and the commercial code.

Under Macau law, directors are responsible for running the company and acting in its best interests. They must be careful and act like good managers.

Directors must also file for bankruptcy if necessary. Directors can be held responsible to creditors if the company does not have enough money to pay them, and the directors have acted contrary to the law or articles of association, which are designed to protect creditors.

Directors have a legal duty to compensate the company for any loss caused by their breach of duty imposed by law or the articles of association. They can only avoid liability only if they can prove that they acted without fault.

Directors are also liable to the company’s creditors if, in breach of a provision of the law or of the articles of association aimed at their protection, the company’s assets become insufficient to meet the creditors’ claims.

Therefore, if the directors have acted to the detriment of the company’s assets or creditors, the company may, within three months of the resolution, bring an action against the administration of the company. This action is subject to a resolution of the shareholders, passed by a simple majority, resulting in the dismissal of the directors concerned.

If the company or its shareholders have not already done so, the company’s creditors may exercise the right of indemnification to which the company is entitled. This is subject to the condition that there is a serious risk of a substantial reduction in the patrimonial guarantee.

After the declaration of bankruptcy, claims alleging breach of duties owed by directors to creditors are exclusively brought by the bankruptcy administrator.

The bankruptcy administrator’s duties include the following.

• Initially, these duties are to assist and supervise the debtor’s actions in the management of the company and the administration of its assets, issuing circulars to the creditors informing them of the meeting of creditors, drafting the report to be submitted to the meeting of creditors and proposing to the court the measures deemed appropriate to safeguard the interests of the creditors in the event of a risk of loss or dissipation of the assets.
• Once the bankruptcy has been declared, the bankruptcy administrator may carry out all ordinary administrative acts in respect of the bankrupt’s assets; the exercise of any special powers is subject to the express authorisation of the public prosecutor.
• In the interests of both the bankrupt and the creditors, the bankruptcy administrator should execute whatever is suitable for safeguarding and enabling the bankrupt’s rights.
• Additionally, the bankruptcy administrator must probe into the bankrupt’s estate, the circumstances under which business was conducted, and the triggers for the insolvency, to forestall further impoverishment of the bankrupt’s financial circumstances.

The sale of assets belonging to the bankrupt estate is carried out by the bankruptcy administrator under the supervision of the public prosecutor. Once the bankruptcy declaration is final, there will be a sale of all assets listed for the bankruptcy estate, which should be completed within six months (the judge may extend it for a period not exceeding six months, at the request of the bankruptcy administrator and upon hearing the public prosecutor).

Directors can be held responsible for any harm caused to the company by their breach of duties under the law or the company’s articles of association. They can only escape liability if they can prove that they acted responsibly. Directors can be held directly liable to the shareholders for damage caused by their actions in the course of their duties.

In some cases of gross negligence, wilful misconduct or fraud, criminal charges may apply.

Transactions concluded before the bankruptcy declaration order may be annulled and/or terminated and the assets returned to the bankruptcy estate, provided that the counterparty acted in bad faith. The following are examples:

• non-onerous or gratuitous transactions (ie, transactions intended to provide a pecuniary or other benefit to one of the parties) entered into up to two years before the declaration of bankruptcy, which have resulted in asset dissipation;
• asset distributions made in the year before the declaration of bankruptcy, where the portion allocated to the bankruptcy estate comprised assets that could easily be concealed, while the remaining interested parties received allocations of real estate or registered assets; and
• onerous transactions (ie, transactions intended to provide an advantage to both parties) executed in the six months before the declaration of bankruptcy with:
1. an entity controlled (direct or indirectly) by the bankrupt;
2. an entity who controls (direct or indirectly) the share capital of the bankrupt; or
3. an entity’s administrators or directors.

Furthermore, the following acts or transactions are presumed to have been concluded in bad faith for the purpose of defending against a claim of fraud: 

• payments or set-off agreements involving unusually large amounts made up to one year before the declaration of the bankruptcy, for the settlement of either outstanding or not outstanding debts;
• collateral security given after the constitution of the liability secured, within one year before the declaration of the bankruptcy;
• collateral security executed simultaneously with the constitution of the liability secured, within 90 days before the declaration of the bankruptcy;
• transactions entered into up to two years before the declaration of bankruptcy that are onerous in nature, in that the obligations and liabilities assumed by the bankrupt are unreasonably higher than those assumed by the counterparty; and
• execution of guarantees or letters of credit for transactions without any real advantage to the bankrupt, concluded up to two years before the declaration of the bankruptcy.

The period within which transactions may be challenged or reversed is as follows:

• six months for any detrimental action taken by the bankrupt in relation to a company or civil partnership which they control (either directly or indirectly) or, if the bankrupt is a legal person, in relation to a company or civil partnership which controls the bankrupt’s capital or is controlled by the bankrupt, or in relation to the administrators, managers or directors of these entities; and
• two years for all other transactions.

Claims to set aside or annul transactions can be brought by either the bankruptcy administrator (subject to authorisation given by the public prosecutor) or the bankrupt’s creditors.