Project Finance 2021

Last Updated November 04, 2021


Law and Practice


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

Construction and operating companies used to be the typical sponsors of project finance transactions. However, there has been a substantial change with respect to sponsors in these transactions in the last few years, mainly due to the crisis that led to the break-up of a significant portion of Portuguese construction companies, with former sponsors' shareholdings being acquired by infrastructure funds, which are clearly more active in the Portuguese market.

Although there is no general restriction on foreign investments in project companies, certain specific authorisations need to be obtained within regulated sectors.

As further detailed in 4.1 Restrictions on Foreign Lenders Granting Loans, the granting of loans or financing on a professional basis is a regulated activity in Portugal. As such, only credit institutions or financial companies that are duly authorised by the regulator or that benefit from the EU passport established in the Banking Directive and are registered with the Bank of Portugal to carry out the credit activity under the freedom to provide services (ie, on a cross-border basis without any local presence in Portugal) may act as lenders, as well as alternative investment funds specialising in loans (the Loan Funds) (subject to several restrictions). In this context, most project finance transactions in Portugal are financed by duly authorised credit institutions.

Nevertheless, in recent years, particularly due to the banking crisis, investment funds have become active in this type of transaction, namely through alternative funding structures, as is the case for bond issuances (see 1.3 Structuring the Deal and 4.1 Restrictions on Foreign Lenders Granting Loans).

The public-private partnership (PPP) legal framework is contained within the PCC and Decree-Law 111/2012, of 23 May (the PPP Legislation), which sets forth the regime for the preparation, launch and implementation of, and changes to, PPPs in Portugal.

PPP projects are typically project finance structures with a build-operate-transfer (BOT) model, where the concession agreement and its annexes regulate the major contractual issues – namely, the terms on which the project company will construct the project and operate it, and the remuneration of the PPP.

The process usually starts with the issue of the environmental impact declaration and urban planning licences, as well as any environmental licence that may be required for the respective project.

Under the PPP Legislation, the risks of the project shall be clearly and contractually identified, and its allocation shall be made in accordance with each partner's ability to manage such risks, despite the fact that the partnership should imply a significant and effective transfer of risk to the private partner, particularly the financing risk, which shall always be on the private partner’s side.

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

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

As mentioned in 1.1 Sponsors and Lenders, besides Loan Funds, only credit institutions and financial companies that have been previously registered with the Bank of Portugal can engage in activity related to credit operations on a professional basis, including the granting of guarantees and other commitments, financial leasing and factoring.

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

In addition, the registration/authorisation with the Bank of Portugal will not be required if, in respect of a concrete transaction, the Portuguese-domiciled client contacts the non-EU-domiciled banking entity and requests a determined banking service on its own initiative without any prior solicitation and marketing of such a service by the banking entity (ie, the reverse-solicitation principle).

Loan Funds were introduced in the Portuguese legal order by means of Decree-Law 144/2019, of 23 September, and further regulated by Regulation of the Portuguese Securities Market Commission No 3/2015, as amended by Regulation 5/2020, with a view to boosting capital markets and providing a greater variety of funding sources. However, the legal framework provides for several limitations pertaining to, inter alia, the scope of credit operations and the entities being financed.

A good alternative method to raise financing (other than by means of a loan) is by way of the issuance and subscription of bonds integrated in a Portuguese clearing system, given that this activity is not qualified as a credit activity. This structure also presents certain tax advantages.

The EU Commission approval of the Recovery and Resilience Facility is expected to boost some sectors and may offset the lower spending in the national budget in recent years. In this context and considering the recent trends, sectors associated with innovation, greener production energies, digital tools and skills should be the major beneficiaries of the expected public investment and, as such, be more active in the coming years.

Nevertheless, the recovery plan also envisages relevant investment projects in health, social housing and infrastructure.

The typical Portuguese collateral package includes:

  • pledges over the shares of the project company;
  • pledges over fixed movable assets (ie, stock, equipment or inventory);
  • pledges over the project bank accounts;
  • pledges over intercompany receivables;
  • assignments of receivables; and
  • assignments or pledges over insurance policies and, in some cases (although less frequent), intellectual property rights (ie, patents, trade marks).

In respect of real estate assets, security is less frequent and is only relevant if the real estate is the only asset to be encumbered, or when it is a relevant asset of the guarantor or financed company. If the legal requirements are met, lenders may use the financial collateral regime to the extent it can be applicable to the security and the assets over which said security is being granted, such as financial pledges over bank accounts’ balance or over securities.

It is quite common for public project documents to contain restrictions regarding the granting of security over project assets, which need to be fully considered when granting financing.


The applicable formalities vary depending on the type of security that is being taken. In terms of documentation, mortgages over real estate require a public deed or a document authenticated by a notary, while bank account pledges and share pledges only require a simple private document. Public deeds or notarial terms of authentication are usually recommended for certain types of security as they can be used afterwards as judicial enforcement titles.

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

Registration Requirements

The registration requirements also vary depending on the type of security at stake. Pledges over bank accounts require a registration with the bank with which the account is held. Conversely, pledges over shares are subject to registration with the issuer (registration in the share register book and inscription of the pledge in the share certificate), or to registration with the relevant depositary bank in the case of deposited shares, or with the relevant financial intermediary with which the shares are registered in the case of dematerialised shares (whether they are integrated in a centralised clearing system or not).

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

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

Portuguese law does not allow for the granting of floating charges or any other universal or similar security interest over all present and future assets of a company; security is granted over specific assets that need to be identified. Security over future assets can be granted to the extent that they are identifiable, although there are further limitations depending on the type of security. However, some authors argue the admissibility of floating charges, even if in a limited way, and it is becoming more common to include them in security arrangements, although always subject to legal qualifications.

Notarial costs are not material and vary from notary to notary. Stamp duty may be a relevant cost (see 8.2 Other Taxes, Duties, Charges).

By way of example, the registration of a mortgage costs EUR250 and the registration of pledges over quotas costs EUR100.

Under Portuguese law, any guarantee or security must guarantee or secure another obligation to which it is ancillary, and that obligation as well as the asset being granted as security needs to be identified in the guarantee or security agreement. Accordingly, the guarantee or security will always follow the underlying secured obligation, as a result of which the invalidity of the underlying obligation entails the invalidity of the guarantee or security, and termination of the underlying obligation entails termination of the guarantee or security.

Under the Portuguese Companies Code, approved by Decree-Law 262/86, of 2 September, as amended, Portuguese companies can only grant guarantees or security for third parties’ obligations if the company has a justified corporate interest, or if the company is in a controlling or group relationship with the legal entity or person whose obligations are being secured pursuant to the guarantees or security.

"Controlling relationship" is defined in the Portuguese Companies Code as the relationship between Portuguese companies where one has a dominant influence over the other, directly or indirectly. The Portuguese Companies Code contains a legal presumption that such dominant influence exists when one of the companies holds, directly or indirectly, the majority of the capital or voting rights in the other company or the right to appoint the majority of the members of the board of directors or supervisory board of the company. The same code defines "group relationships" as the relationships between Portuguese companies where one of the companies holds, directly or indirectly, 100% of the other, or where the companies have entered into a group or a subordination agreement whereby one of them is subject to the instructions or management of the other.

If there is no group or controlling relationship, the guarantee will only be valid if there is a justified corporate interest, without which it can be challenged and considered null and void. However, Portuguese jurisprudence has been very flexible in the analysis of this requirement, considering in the majority of the cases that it is enough for the company to allege having a justified corporate interest.

The Portuguese Companies Code also includes a prohibition relating to financial assistance. The guarantees or security granted by a Portuguese company cannot guarantee any obligations related to financing incurred for the acquisition of the shares representing either the share capital of such company or the share capital of its direct or indirect parent company. Such guarantees or security would constitute unlawful financial assistance, and thus would be considered null and void. Breach of the financial assistance prohibition can trigger the liability of the directors of the target company.

In order to limit the impact of stamp duty that needs to be paid in respect of the granting of such guarantees or security, it is advisable for the secured obligations to be limited to an agreed maximum amount, usually related – in the case of security – to the value of the asset being encumbered, or to the intrinsic value of the Portuguese target or subsidiary company in the case of a guarantee. As a result, Portuguese companies limit their liability to that maximum amount and will not have a direct obligation to repay any amounts that exceed the agreed threshold.

Aside from this tax issue, if the assets of the Portuguese companies are covered by legal immunities (namely public domain assets of the Portuguese Republic – domínio público do Estado) or are allocated to any public service purposes, such companies can claim immunity from suit, attachment or other legal processes in respect of this.

Apart from assets that are subject to registration requirements, as is the case for mortgages over real estate or registrable movable assets (such as aircrafts, vessels or vehicles), or pledges over quotas, which are subject to registration with the competent registry office (real estate, commercial or other) and whose registry is public, with respect to which any existing liens may be verified, there is no further central registry where liens may be searchable. Providing notice to the relevant debtors with respect to the assignment of receivables is also a mechanism through which to protect creditors, as the relevant debtor becomes aware of the assignment and may only be discharged upon payment to the notified creditor.

As referred to in2.4 Granting a Valid Security Interest, under Portuguese law, guarantees and security are ancillary to the guaranteed or secured obligation, so the repayment, satisfaction or cancellation in full of such obligations automatically determines the release of the guarantees or security.

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

Security interests are usually enforced either by the secured parties directly (if no rule of majority applies to enforcement and the lenders hold the security directly and retain the right to enforce) or by the security agent upon the occurrence of an enforcement event following an instruction of the majority of lenders, in accordance with the provisions of the intercreditor agreement.

Although early termination clauses based exclusively on the declaration of insolvency are legally deemed null and void, it is generally accepted that they can be allowed in credit agreements granted to corporate entities, on the basis of customary practice. In addition, the default that triggers enforcement needs to be material (such as payment obligations or relevant cross-defaults), or the early termination of the loan may be considered abusive.

The procedures for enforcement vary significantly, depending on the type of security.

The enforcement of mortgages is subject to a judicial enforcement proceeding, and no private or extrajudicial enforcement is allowed. As a general rule, appropriation by the creditor is not allowed, so enforcement requires a court sale or an extrajudicial sale. There is an exception to these rules for financial pledges over shares and bank accounts, and other financial collateral arrangements that allow for an appropriation of the asset and for an extrajudicial sale, provided that the agreement sets forth rules for the evaluation of the asset (which in the case of bank accounts is obvious), and for a disposal establishing the underlying asset even before enforcement. In addition, Decree-Law 75/2017, of 26 June, allows for the appropriation of an asset pledged under a certain type of commercial pledge. However, the pledgee is under the obligation to repay the pledgor the difference between the value of the appropriated asset and the secured amount owed. Finally, the assignment of receivables only requires a notification to the debtor/client of the borrower or guarantor to make payments directly to the secured parties.

As a final observation, borrowers or guarantors usually grant a power of attorney in favour of the security agent in order for the latter to have the necessary powers to create additional security over the new asset or to enforce security and sell the assets upon the occurrence of an event of default.

The choice of a foreign law is valid, recognised and enforceable under Portuguese law, unless there is a mandatory provision that determines the competence of Portuguese law in accordance with Regulation (EC) No 593/2008, of 17 June 2008, on the law applicable to contractual obligations (Rome I).

The submission to a foreign EU jurisdiction is also valid, recognised and enforceable under Portuguese law, provided that the exclusive jurisdiction provisions set forth in Council Regulation (EC) No 1215/2012, of 12 December 2012, are complied with.

Submission to the jurisdiction of the English courts will be legal, valid, binding and enforceable in Portugal and judgments rendered by English courts will be recognised and enforced in Portugal pursuant to the terms of the Convention on Choice of Court Agreements, concluded on 30 June 2005, in The Hague (the Hague Convention), to which the United Kingdom has acceded and is subject in its own right, as of 1 January 2021, following the deposit of the respective instrument of accession on 28 September 2020. Such recognition and enforcement will not imply a re-examination of the merits of the case, provided the requirements established in the Hague Convention are met. In any case, this might be affected in the future as a result of Brexit and any negotiations between the European Union and the United Kingdom, and/or any further international law conventions or treaties to be executed or to which the latter may accede or any national law enacted after the date hereof, particularly regarding contractual clauses on the choice of jurisdiction and the recognition and enforcement of judgments.

In addition, the applicability of the provisions of the Hague Convention to a contract might be challenged by Portuguese courts on the grounds that said contract does not set forth an “exclusive jurisdiction” clause as provided for therein, due to providing for elements that are contrary to those foreseen in the scope of the Hague Convention, which might be deemed to occur, amongst others, when such contract provides for asymmetric and/or unilateral clauses on the choice of jurisdiction and the recognition and enforcement of judgments, in which case the rules on conflict of laws set forth in the Portuguese Civil Code should apply, as approved by Decree-Law 47/344, of 25 November 1966, as amended (in the absence of any other international law conventions or treaties applicable); see 3.3 Judgments of Foreign Courts.

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

As mentioned in 3.2 Foreign Law, Regulation (EC) No 1215/2012, of 12 December 2012, is applicable in Portugal, so judgments rendered by EU member state courts are enforceable in Portugal in accordance with the terms of that regulation.

Assuming that there is no bilateral treaty, judgments rendered by foreign courts outside the EU will be recognised and enforced in Portugal according to the procedures set out in the Portuguese Code of Civil Procedure, approved by Law 41/2013, of 26 June, as amended, for the recognition of foreign judgments, provided that they meet the following requirements:

  • the judgment must be final, translated into Portuguese and apostilled without any doubts as to the authenticity of the document and the contents of the judgment;
  • the judgment shall not be contrary to Portuguese public policy, and the obligation that the petitioner is attempting to execute has to be lawful in Portugal;
  • there shall be no proceeding pending between the same parties and in relation to the same issues in Portugal;
  • there shall be no judgment rendered between the same parties and for the same cause of action in Portugal or in another country;
  • the matters under discussion shall not be related to matters in which the Portuguese courts consider themselves exclusively competent, and the competency of such foreign courts shall not have been obtained by unlawfully circumventing applicable rules; and
  • the defendant's rights of defence should have been protected when rendering the foreign judgment (princípio do contraditório), including but not limited to a proper service of process carried out with sufficient time for the defendant to prepare its defence and appear before the courts and notification (citação), and with respect for the principle of equal treatment of the parties.

The request for the recognition of a judgment rendered by a court of a competent foreign jurisdiction may be challenged if the party against whom the judgment was rendered is a Portuguese citizen or a Portuguese company and the result of the judgment would be more favourable to that party if the foreign court had applied Portuguese law (assuming that the Portuguese law would be applicable according to the Portuguese rules of conflict of laws).

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

There are no further matters that might affect a foreign lender’s ability to enforce its rights under a loan or security agreement, except that all the documents are required to be translated into Portuguese, including any enforcement titles.

Under the Legal Regime of Credit Institutions and Financial Companies approved by Decree-Law 298/92, of 31 December, as amended (the LRCIFC), the granting of loans or financing – including factoring, financial leasing and the granting of guarantees – on a professional basis is a regulated activity. In principle, non-banks are not authorised to provide financing to a company that is organised in Portugal, unless they are incorporated as one of the credit institutions, financial companies or, under certain circumstances, Loan Funds that is duly authorised by the relevant regulator to exercise such activity.

EU-domiciled banks, however, may benefit from the EU passport established in the Banking Directive and be registered with the Bank of Portugal to carry out credit activity, enjoying the freedom to provide services on a cross-border basis without any local presence in Portugal. This registration is made by means of the credit institution or financial company making a notification in its home country indicating the activities that it wants to render in Portugal, which is then sent by that entity to the Bank of Portugal to make the respective registration. After such a notification, the credit institution or financial company may start providing its services in Portugal under the EU passport.

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

The granting of security or guarantees is not restricted in terms of credit activity. However, as a result of generic corporate law rules, as referred to in 2.5 Restrictions on the Grant of Security or Guarantees, there are relevant limitations on the granting of guarantees or security, regardless of whether the lenders are foreign or domestic.

Other than Regulation (EU) 2019/452 of the European Parliament and of the Council, of 19 March 2019, which established a framework for the screening of foreign direct investments in the EU (the FDI Screening Regulation), applicable from 11 October 2020, there are no general restrictions or controls regarding foreign investment in Portugal as compared to the investments of Portuguese entities.

However, Decree-Law 138/2014, of 15 September, establishes a safeguard regime regarding key strategic assets to ensure the security of national defence and safety and the provision of fundamental services in the national interest in the areas of energy, transport and communications, and sets out specific restrictions on foreign investment by overseas entities (outside the EU and the European Economic Area).

Such restrictions are considered on a case-by-case basis, through the verification of certain criteria, following which the Portuguese Council of Ministers may oppose the completion of the relevant transaction over such key strategic asset.

Although lacking a hard law value, on 26 March 2020 the European Commission, in connection with the COVID-19 crisis, provided guidance to the member states concerning, inter alia, foreign direct investment, aimed at protecting Europe’s strategic assets such as healthcare capacities or related industries ahead of the application of the FDI Screening Regulation.

In a broad manner, there are no restrictions on the expatriation of dividends or investments abroad. There are reporting obligations to the Bank of Portugal in respect of certain finance transactions (namely, the transfer of certain amounts of funds), and there are also the standard general rules on money laundering.

However, following the COVID-19 crisis, Portuguese financing supervising authorities have recommended that the corresponding supervised entities should seriously and cautiously consider the payment of dividends or, in some cases, temporarily refraining from dividend distributions.

There are no restrictions regarding the maintenance of offshore foreign currency accounts by a project company, although project finance agreements usually contain certain contractual limitations with respect to the opening of accounts other than the project accounts.

There is no registry or filing requirement regarding the validity and enforceability of project financing agreements, except for security creation formalities. It is advisable for the financing agreement to be authenticated by a notary or other competent authority in order to grant an enforceable nature (título executivo) to the acknowledgment of payment.

Except for public domain assets, which are not capable of being appropriated by private entities, the ownership of land or natural resources does not require a licence, nor does the undertaking of a business of ownership or the operation of such assets. However, in some cases, the exercise of a specific economic activity, by either domestic or foreign entities, may require a licence or a right of use.

Contrary to other jurisdictions, Portuguese law does not recognise the concept of parallel debt or trusteeship, except for a very specific regime in the Madeira Free Trade Zone. Therefore, the beneficiary of the security needs to have a valid underlying obligation duly secured by the security and, accordingly, if the lenders want to be able to enforce security directly they will need to appear and be registered as holders of the security with the competent registration department.

Typically, the security agreement and/or the indenture, as well as the intercreditor agreement, provides that only the security agent has the right to enforce the security documents in its capacity as agent (mandatário com representação), and also as a joint and several creditor (credor solidário), and will thus be the only entity registered as a beneficiary of the security and the only entity legally entitled to enforce it.

Accordingly, the guarantee or security is usually enforced by the security agent after the occurrence of an event of default and following instructions from the lenders in accordance with the provisions of the intercreditor agreement or the relevant security agreement (or the indenture, as the case may be).

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

Under Portuguese law, the priority of competing security interests is determined by the date of registration of the security interest if the security is subject to registration, such as in the cases of mortgages over real estate, vessels, aircrafts, factory and car mortgages, pledges over quotas, pledges over bank accounts and pledges over deposited and dematerialised shares. Conversely, if no registration is required and there only needs to be an act of transfer of possession, priority is determined by the date on which the relevant perfection requirements of the security are completed – namely, the act of possession by the creditor or similar (eg, notification to debtors in the assignment of receivables).

Contractual subordination is allowed under Portuguese law: creditors are able to qualify their debt as subordinated and have it treated as such in an insolvency proceeding. However, contractual subordination is only recognised if it is made before all creditors (eg, deeply subordinated debt) and not just before certain creditors (eg, mezzanine debt). This is because insolvency law has general categories of creditors, such as secured creditors, common creditors and subordinated creditors. Therefore, the waterfall provisions of intercreditor agreements are not recognised in an insolvency proceeding and, as such, distributions need to be corrected amongst creditors after the proceeds have been received in an insolvency proceeding based on the payment provisions of the intercreditor agreement.

Structural subordination with financing made to holding companies or legal subordination that results from law is also permitted under Portuguese law.

As a general rule, there is no restriction on project companies being incorporated in other jurisdictions, but the concessionaire must be incorporated as a Portuguese company for public concession projects, usually as a share limited liability company (sociedade anónima).

There are currently three main rescue or reorganisation procedures outside of insolvency proceedings:

  • RERE – Regime Extrajudicial de Recuperação de Empresas (Out-of-Court Recovery Proceeding);
  • PEVE – Processo Extraordinário de Viabilização de Empresas (Extraordinary Viability Process for Companies); and
  • PER – Processo Especial de Revitalização (Special Revitalisation Proceeding).

The RERE is an extrajudicial voluntary mechanism that aims to allow a company in financial difficulties or imminent insolvency to achieve recovery through negotiations with (one or more) creditors in order to reach an agreement (as a general rule, a confidential agreement) leading to its revitalisation. If the negotiations produce the effects provided for in the RERE, the company and the creditors, representing at least 15% of the company’s liabilities (non-subordinated), must sign a negotiation protocol and promote its deposit at the commercial registry office. Should the legal requirements be met, the agreement reached will have the same effects as if it was approved in the context of a Special Revitalisation Proceeding. The company may benefit from the intervention of a corporate recovery mediator.

Conversely, at a time prior to insolvency, the PER aims to allow a debtor that is in financial difficulties or imminent insolvency, but whose recovery is still feasible, to enter into negotiations with creditors in order to reach an agreement with them, leading to its revitalisation. The PER basically allows for the debtor to have a moratorium from creditors whilst trying to agree a recovery plan with them. The approval of the recovery plan requires a vote to be held among creditors whose claims represent at least one-third of the total voting-related credits contained in the list of credits, which results in a favourable vote of more than two-thirds of the votes cast and more than half of the votes cast corresponding to non-subordinated claims; alternatively, it is necessary to obtain a favourable vote of creditors whose claims represent more than half of the total voting rights and more than half of these votes corresponding to non-subordinated claims. Sometimes this plan may be agreed beforehand with the necessary majority of the creditors for the revitalisation plan to be approved, which facilitates the revitalisation process considerably.

Furthermore, the Legal Framework for Conversion of Debt into Equity, approved by Law 7/2018, of 2 March, aims to allow companies that are in a negative equity position to restructure their balance sheet and strengthen their equity, assuming that a majority of creditors proposes a conversion of debt into equity. This framework is reserved for situations that are objectively justified by an independent professional and require the proposing creditors to hold claims of an amount which, in other conditions, would allow them to approve a recovery plan in insolvency proceedings.

Due to the economic effect of the COVID-19 pandemic on companies, at the end of 2020 the Portuguese government approved a legislative initiative pertaining to a new and exceptional reorganisation procedure: the PEVEis intended to serve as a temporary judicial proceeding (up to the end of 2021, although it may be renewed) to which companies in financial difficulties or in an insolvency situation (either actual or imminent) may recur, provided such difficulties or insolvency are caused by the pandemic. Throughout this procedure, the legal effects arising therefrom are similar to those of the PER and, upon its conclusion and subject to the legal requirements, the agreement reached by the debtor and its creditors regarding the reorganisation of the former shall be judicially certified.

Finally, the transposition of Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019, on preventative restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, is to introduce several amendments to the company reorganisation procedures legal framework, which will depend largely on the national legislative options.

If contractually foreseen, the declaration of insolvency triggers, in principle, the automatic acceleration of the liabilities of the insolvent entity and, as such, an automatic acceleration of the loan.

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

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

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

In addition, any enforcement of guarantees and security will need to be lodged within the insolvency proceeding of the guarantor, except for certain types of security, such as financial collateral arrangements. Therefore, all future enforcement proceedings are no longer allowed and the ones currently pending will be suspended, and the creditors will need to lodge their claims in the insolvency proceeding and wait for the liquidation of the assets and payment to creditors within that proceeding.

The Portuguese Insolvency Code, approved by Decree-Law 53/2004, of 18 August, as amended, outlines the following categories and ranking of credits.

  • Credits over the insolvency estate, which are credits acquired by the debtor after the insolvency declaration as well as the necessary amounts to pay the expenses related to the insolvency proceedings (eg, judicial costs).
  • Guaranteed credits, which are credits benefiting from guarantees in rem, including special creditor’s privilege (privilégios creditórios especiais), paid out of the proceeds of the sale of the secured asset once the sale expenses and any amount allocated to credits over the estate are deducted. If the secured assets are insufficient to pay all debts owed to guaranteed creditors, any remaining debt is treated and paid as common credits (eg, state credits related to real estate property tax – IMI).
  • Privileged credits, which are credits benefiting from general creditor’s privilege (privilégios creditórios gerais) over assets comprising the insolvent estate, up to the amount corresponding to the value of the assets that are the object of the guarantees or of the general privileges (eg, employment credits), and real estate general statutory liens.
  • Common credits, which are all credits not included in other categories.
  • Subordinated credits, which are interests and credits held by persons with special relations with the debtor (eg, controlling shareholder, the directors and members of the supervisory board).

Aside from the risks regarding claw-back actions and automatic acceleration, all security over the assets of the insolvent entity (except for financial collateral arrangements) will need to be enforced in the respective insolvency proceeding and, accordingly, the creditors will need to wait for the liquidation of the assets and respective payment to creditors. Furthermore, any pending judicial enforcement proceedings will be suspended, and the creditors will need to lodge their claims in the insolvency proceeding and wait for the liquidation of the assets and payment to creditors in such proceeding.

In addition, and from a practical perspective, it should also be noted that the insolvency proceeding can jeopardise the day-to-day functioning of the company (debtor; guarantor or other) and, as such, the value of the company and recoveries of the lender. Also, the special recovery processes referred to above depend on the will of the debtor, which makes it more difficult to initiate a recovery proceeding based on an agreement exclusively between creditors.

As a general rule, bankruptcy proceedings will apply to any person or legal entity, except the Portuguese Republic and public entities. Insurance companies, credit institutions and financial companies, amongst others, are also excluded from these types of proceedings, to the extent their submission to a bankruptcy proceeding is not compatible with the relevant legal frameworks. The LRCIFC specifically governs the insolvency of credit institutions.

It is not common to have restrictions, controls, fees and/or taxes on insurance policies over project assets provided or guaranteed by insurance companies. Nevertheless, third party liability insurance policies receivables, for instance, are not assignable. Additionally, it is common for public project agreements to contain restrictions regarding the assignment of receivables that may be required for the repair of the subject of the concession if repairable.

The assignment of insurance receivables is part of the typical Portuguese collateral package so there are no specific restrictions with respect to the payment of insurance policies over project assets to foreign creditors or Portuguese creditors, apart from the ones referred to in 7.1 Restrictions, Controls, Fees and/or Taxes on Insurance Policies. In any case, a review of the respective insurance policy is always advisable.

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

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

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

Non-residents may also benefit from a withholding tax exemption on interest derived from listed bonds, pursuant to the regime set forth in Decree-Law 193/2005, of 7 November, as amended (this regime also provides for a capital gains exemption upon disposal of the bonds). Please see 8.2 Other Taxes, Duties, Charges regarding the treatment of funding obtained through the issue of bonds.

In summary, and to the extent that the necessary requirements regarding the beneficiaries (ie, holders of the bonds) are met, no withholding tax applies over the interest, to the extent that:

  • all the necessary formalities are duly fulfilled – namely, proof is provided of the non-residence status of the beneficiaries and the required data regarding the debt securities and the beneficiaries; and
  • the bonds are integrated in a centralised system for securities managed by an entity resident in Portugal for tax purposes (ie, Interbolsa), or an international clearing system managing entity established in another EU member state (ie, Euroclear and Clearstream Luxembourg) or in an EEA member state, provided it is bound by an administrative co-operation in tax matters similar to the one established within the EU or integrated in other centralised systems as long as, in this last case, the competent government member authorises the application of the special tax regime.

Finally, it should be noted that the Court of Justice of the European Union found that the Portuguese domestic CIT rules imposing withholding tax over interest obtained by non-residents are in breach of EU Law, considering that the withholding is imposed on the gross amount of the interest, whereas resident financial institutions are (only) taxed on their net income (decision of 13 July 2016 on Brisal – Auto Estradas do Litoral SA, KBC Finance Ireland v Fazenda Publica – Case C-18/15). This decision was expected to raise amendments to the Portuguese tax rules, but this has not yet occurred.

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

Value Added Tax (VAT)

As a rule, financial operations are exempt from VAT under domestic VAT law. This exemption notably covers the granting and negotiation of credit, the respective administration and management by the entity granting the credit, the negotiation and granting of security and guarantees, and operations, including negotiation, related to deposits of funds, current accounts, payments, transfers, collections and cheques.

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

Other commissions or fees charged by the banks – eg, for consultancy, certain structuring and settlement services – are, in principle, outside the scope of the exemption, so are liable to VAT taxation. If these fees are charged by non-resident banks to Portuguese VAT taxpayers, Portuguese VAT will apply by means of the reverse charge mechanism.

Financial operations that are subject to but exempt from VAT are liable to stamp duty, as referred to below.

Stamp Duty

Portuguese stamp duty is due on a list of specified taxable events, when deemed as occurring in Portugal, including a number of operations, contracts, acts and documents, as outlined in the Stamp Duty Chart, including financial operations.

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

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

The extension of the term of the contract is considered as a new granting of credit, and so raises additional taxation. Stamp duty is borne by the borrower.

No stamp duty applies to funding obtained through the issue of bonds over the principal or interest (see comments below regarding the taxation of interest).

The granting of security is also subject to stamp duty in the following circumstances:

  • if it is granted in the Portuguese territory;
  • if it is for the benefit of a Portuguese-resident entity; or
  • if it is presented to produce legal effects, with exceptions made if it is a material accessory to a taxable stamp duty event, and granted simultaneously with it.

Stamp duty is borne by the entity required to present the guarantee (ie, the debtor).

Accordingly, where security is granted within the context of a loan agreement, it tends not to be subject to stamp duty as the use of credit under the loan agreement will be by itself subject to taxation (provided that the above conditions are met), such as in the case where a Portuguese company borrows funds from a non-resident bank. In funding through the issue of bonds, the security granted for the benefit of the relevant bondholders may trigger Portuguese stamp duty.

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

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

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

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

Notwithstanding the above, an exemption applies to interest and commissions charged, security granted, and the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and object correspond to those of credit institutions, financial companies or financial institutions foreseen in EU law, domiciled either in EU member states or in other states, with the exception of jurisdictions with a more favourable tax regime, as defined by Order No 150/2004, of 13 February, of the Ministry of Finance (as amended by Order No 291/2011, of 8 November, of the Ministry of Finance).

Although Portuguese law includes several provisions regarding the amount of interest that may be charged in Portugal, such provisions are mainly applicable to credit relations with consumers, and are therefore not applicable to project finance agreements entered into with Portuguese companies, with respect to which few provisions shall be applicable, namely regarding default surplus interest rate, which is subject to a maximum amount of 3% over the agreement interest rate.

Portuguese law is mandatorily applicable to concession agreements and other project documents related thereto entered into with public entities. With respect to agreements entered into with private entities, parties are free to choose the governing law, pursuant to Regulation (EC) No 593/2008 of the European Parliament and of the Council, of 17 June 2008, on the law applicable to contractual obligations (Rome I). Portuguese courts will uphold the applicability of the law specified as governing such agreements, unless such applicability would be illegal or would contravene Portuguese public policy principles, or unless it relates to foreclosure procedures occurring in Portugal, in which case Portuguese law shall apply, regardless of the foreign law contractually designated.

Parties are free to choose the governing law of the financing agreements, although there has been a growing trend to impose Portuguese law as the governing law within tender documents with respect to public projects. However, and regardless of Brexit, the choice of English law continues to be quite common, particularly regarding projects involving international lending syndicates or projects financed by Portuguese banks to favour future syndication.

Regardless of the law governing the financing or project agreement, Portuguese conflict of law rules determine that the creation of security interests over assets located in Portugal shall be governed by Portuguese law.


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Trends and Developments


PLMJ is a law firm based in Portugal that combines a full service with bespoke legal craftsmanship. For more than 50 years, the firm has taken an innovative and creative approach to producing tailor-made solutions to effectively defend clients' interests. The firm supports its clients in all areas of the law, often with multidisciplinary teams, and always acting as a business partner in the most strategic decision-making processes. With the aim of being close to its clients, the firm created PLMJ Colab, its collaborative network of law firms spread across Portugal and other countries with which it has cultural and strategic ties. PLMJ Colab makes the best use of resources and provides a concerted response to the international challenges of its clients, wherever they are. International collaboration is ensured through firms specialising in the legal systems and local cultures of Angola, China/Macau, Guinea-Bissau, Mozambique, São Tome and Príncipe and Timor-Leste.

The Portuguese Economy at a Glance

The COVID-19 pandemic hit economies across the world, and the Portuguese economy was no exception, with GDP decreasing by 7.6% in 2020.

Nonetheless, the Portuguese Public Finance Council anticipates a recovery in the real growth of the Portuguese economy to 4.7% in 2021 and 5.1% in 2022.

This outlook assumes that the COVID-19 pandemic will have a less severe economic impact in 2021 and 2022, based on the positive developments of the vaccination campaign in Portugal (which has one of the highest vaccination rates in the world), the decrease in infection rates and the ongoing reduction of restrictive measures on economic activity. It is also based on the initial effects of the implementation of the approved Recovery and Resilience Plan (RRP), which is expected to have an annual implementation close to EUR3 billion by the end of 2026.

The current scenario anticipates that private consumption growth will recover to 4.5% in 2021. This is principally a reflection of the increase in consumption (which was subdued during the pandemic crisis) and the inherent decrease in savings – as a result of the vaccination campaign against COVID-19 and the lifting of containment measures – and favourable prospects in the labour market. In 2022, private consumption is expected to resume to pre-pandemic levels, with growth of approximately 4.1%.

The above estimates foresee the recovery of the Portuguese economy to the pre-pandemic GDP level by early 2022. The gradual recovery of economic activity in 2021 and 2022 should translate into an improvement in labour market indicators, with an increase in employment of approximately 1.5% and 1.3%, respectively. The unemployment rate should increase to 7.3% in 2021 but will face a downward trajectory as soon as 2022. In the following years, the pace of employment growth should gradually decelerate to 0.3% in 2025, allowing a stabilisation of the unemployment rate at around 6.4%.

Nonetheless, Portugal’s significant public and private debt continues to be one of the main macroeconomic risks to be monitored and tackled. A delay in the economy’s recovery may increase the risk of insolvencies in the business sector and consequently lead to an increase in unemployment and a decrease in household income. Added to their historically high indebtedness, this increases the risk of non-performing loans, particularly when the loan moratorium granted in the first half of 2020 comes to an end (this is expected to occur in the fourth quarter of 2021). The high level of indebtedness of companies, households and the government may affect the current favourable financing conditions of the Portuguese economy.

The Portuguese Project Finance Ecosystem

In Portugal, project finance is typically put in place for the construction and operation of long-term financing for capital-intensive projects, either public (public-private partnerships – PPPs) or private (private finance initiatives – PFIs).

The following projects are usually covered by these types of arrangement:

  • infrastructure – eg, roads, rail, ports and airports;
  • energy – eg, renewables;
  • social – eg, health and universities;
  • water and sanitation; and
  • technology – eg, data centres, 5G and surveillance.

There are no specific rules governing PFIs, other than the general rule of law. However, aside from any regulatory framework that needs to be complied with, general public partnerships are governed by Decree-Law 111/2012 of 23 May, setting out the rules applicable to the intervention of the State, the definition, design and preparation, tender procedures, supervision and amendments to the partnerships.

The PPP Technical Support Unit (Unidade Técnica de Acompanhamento de Projetos – UTAP) is the public body responsible for supervising PPPs in five sectors of activity: roads, rail, airports, health and safety.

According to UTAP, the road sector (ie, road infrastructure concessions) contains the most partnerships (21 out of 33), accumulated investment (91%) and net charges (67%). This demonstrates the political appetite in the PPP model to leverage the expansion of the National Road Network (RRN), particularly the National Highway Network (RNA) in the 1990s and 2000s (as no new road PPPs have been launched since 2009).

Most road concession and sub-concession contracts awarded are valid for 30 years, ending between 2028 and 2040.

Apart from the road sector, the last 20 years have seen an increase in new foreign PFIs, particularly in the renewable energy sector (solar and wind projects). The promotion of energy transition by supporting renewable energy has been a strategic goal of Portugal, particularly in electricity. Portugal currently has the fifth highest level of incorporation of renewables in electricity in the EU. Most wind projects developed in Portugal were operated under the feed-in tariff regime, which allowed banks to make the necessary credit risk assessment and provide project financing to those projects (based on the wind forecast).

The Portuguese project finance ecosystem has also witnessed the following:

  • the renegotiation of the terms and conditions of project finance transactions (such as the PPP Litoral Centro road concession and the PPP Beira Interior road concession);
  • M&A transactions regarding ongoing projects, with sponsors selling their stakes in project companies that own fully operational facilities (mainly in the renewable energy sector, but there is also a growing trend in the motorway concession sector); and
  • a shift in the original lenders’ positions, with banks reducing their exposure to these projects and investment funds taking over ongoing projects (especially if non-performing).

COVID-19 Temporary Measures: Impact on Project Finance Transactions

The COVID-19 pandemic also had an impact on project finance transactions in Portugal, particularly in the road sector, where the extraordinary measures adopted by the public authorities (notably, curfews and lockdowns) led to a 23% reduction in average daily traffic (ADT) between January and September 2020 compared with the same period in the previous year. The sharpest reduction occurred between March and June (-43%), with April registering the largest drop (-67%).

Therefore, it was no surprise to see a decline in new deals and an increase in the number of contractors declaring force majeure events, particularly PPPs in the road sector.

The Portuguese government adopted several measures in response to the COVID-19 pandemic, with the following being regarded as having impacted ongoing projects.

  • Loan moratorium: a legal moratorium was approved and covered all types of lending transactions (including project finance transactions) entered into between regulated entities in Portugal and borrowers domiciled in Portugal. The moratorium could be applicable to principal and interest or just to principal payments, at the option of the borrower. It allowed borrowers to benefit, for a certain period of time, from:
    1. a suspension of payment obligations for principal;
    2. a prohibition on total or partial termination; and
    3. an automatic extension of any security associated with loans subject to a moratorium. Interest would continue to accrue and would be capitalised.
  • Financial rebalance: under a PPP, the private partner is granted the right – by operation of law or contract – to demand from the public party the financial rebalancing of the concession, under certain conditions. However, the Portuguese government enacted a special temporary legal framework pursuant to which the private parties:
    1. were not entitled to financial rebalancing of the concession for the period between April and May 2020;
    2. would only be granted an extension of the concession term for events after 3 May 2020 (obviously, provided that other financial rebalancing conditions were met); and
    3. could not assert any non-contractual liability against the Portuguese state.

Project Finance Prospects

The European Union has already identified the need for suitable planning to address infrastructure bottlenecks in the coming years. In Portugal, the investment focus would be on port services and port connections to the interior by rail (and/or inland waterways), and on rail corridors and rail freight transport. However, those investments would not be the only ones.

The digital transition leveraged by the COVID-19 pandemic and the greater awareness among investors of Environmental, Social and Governance (ESG) matters will open up new opportunities not only in the technology sector, but also in the energy sector (solar, wind and hydrogen), sustainable mobility and public transportation.

Considering that Portugal has made a commitment to being carbon neutral by 2050, the RRP also highlighted the need for energy transition through supporting renewable energies, particularly hydrogen and other renewable gases, with investments amounting to EUR185 million.

By way of example, early this year, an investment of up to EUR3.5 billion was announced to create one of the largest data processing centres in Europe, with a usable capacity of 450 MW. The capacity to generate renewable energy at competitive costs in Portugal, and specifically in Sines, was a decisive factor in the choice of the site by the sponsors of the project, as 100% sustainable energy supply is an absolute requirement for success in this type of project.

More recently, another project was granted a licence to build a pilot wave energy project in Porto and connect it to the grid, with a limit of 1 MW.

Lastly, there are great expectations in respect of several hydrogen projects that have been announced or are expected to start being developed in the next few years.

In summary, even though project finance in Portugal may be facing some challenges, the fact is that its outlook is bright, as we identify a set of different activities that will be able to be developed or implemented through this financing scheme.


Av. Fontes Pereira de Melo, 43

+351 213 197 300

+351 213 197 400
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Law and Practice


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

Trends and Development


PLMJ is a law firm based in Portugal that combines a full service with bespoke legal craftsmanship. For more than 50 years, the firm has taken an innovative and creative approach to producing tailor-made solutions to effectively defend clients' interests. The firm supports its clients in all areas of the law, often with multidisciplinary teams, and always acting as a business partner in the most strategic decision-making processes. With the aim of being close to its clients, the firm created PLMJ Colab, its collaborative network of law firms spread across Portugal and other countries with which it has cultural and strategic ties. PLMJ Colab makes the best use of resources and provides a concerted response to the international challenges of its clients, wherever they are. International collaboration is ensured through firms specialising in the legal systems and local cultures of Angola, China/Macau, Guinea-Bissau, Mozambique, São Tome and Príncipe and Timor-Leste.

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