Insolvency Law at Portugal
Portugal's insolvency and corporate restructuring framework is primarily governed by the Código da Insolvência e da Recuperação de Empresas (CIRE), complemented by the Regime Extrajudicial de Recuperação de Empresas (RERE) and the Programa Especial de Revitalização (PER). These laws provide mechanisms for both judicial and extrajudicial procedures aimed at rescuing distressed companies and ensuring equitable treatment of creditors. (Insolvency 2023 - Portugal | Global Practice Guides | Chambers and Partners)
🏛️ Legal Framework
CIRE (Decree-Law No. 53/2004): The principal legislation governing insolvency and recovery of companies in Portugal.
RERE (Law No. 8/2018): Establishes an extrajudicial regime for corporate recovery, allowing companies to negotiate restructuring agreements with creditors outside the court system. (Portugal collection profile)
PER (Law No. 16/2012): Introduces a special revitalization program aimed at facilitating the recovery of companies in financial distress through court-supervised negotiations.
⚖️ Insolvency Procedures
1. Insolvency Declaration
Insolvency proceedings can be initiated by:
The debtor company itself (Restructuring and insolvency law in Portugal | CMS Expert Guides)
Creditors
The Public Prosecutor (Portugal collection profile)
Individuals legally responsible for the company's debts
A company is considered insolvent when it is unable to meet its obligations, particularly the payment of debts to creditors. The insolvency declaration transfers the management of the company's assets to a court-appointed insolvency administrator. The administrator assesses whether the company can be restructured or if liquidation is necessary. (Insolvency and recovery of companies in Portugal - gov.pt, Restructuring and insolvency law in Portugal | CMS Expert Guides)
🔄 Restructuring Mechanisms
1. Extrajudicial Regime for Corporate Recovery (RERE)
RERE is an out-of-court mechanism that allows a debtor to negotiate a restructuring agreement with creditors. It is applicable to companies in financial difficulty or imminent insolvency. The process is initiated by the debtor and requires the participation of creditors representing at least 15% of the total non-subordinated credits. A certified accountant or statutory auditor verifies the creditor participation. The negotiation period is limited to three months. If an agreement is reached, it must be deposited with the Commercial Registry to produce legal effects. (Restructuring and insolvency law in Portugal | CMS Expert Guides, Portugal collection profile)
2. Special Revitalization Program (PER)
PER is a court-supervised procedure aimed at facilitating the recovery of companies in financial distress. It is initiated by the debtor and at least one creditor representing 10% of non-subordinated credits. A provisional judicial administrator is appointed to oversee the process. The negotiation period is four months, extendable by one month. During this period, enforcement actions are suspended. Creditors vote on the proposed recovery plan, which requires approval by more than two-thirds of votes cast, with at least half of the votes corresponding to non-subordinated credits. If approved, the plan is binding on all creditors. (Portugal collection profile, Restructuring and insolvency law in Portugal | CMS Expert Guides, New insolvency, company restructuring rules to take effect in April in Portugal – Euractiv)
📊 Creditor Hierarchy
Insolvency proceedings follow a strict order of priority for creditor claims: (Restructuring and insolvency law in Portugal | CMS Expert Guides)
Specific Preferential Credits: Claims secured by specific assets.
Secured Credits: Claims backed by collateral.
General Preferential Credits: Claims with statutory preference, such as certain tax and social security obligations. (Restructuring and insolvency law in Portugal | CMS Expert Guides)
Common Credits: Unsecured claims.
Subordinated Credits: Claims that are paid last, often including shareholder loans.
This hierarchy ensures that creditors are paid in accordance with the legal priority of their claims.
🧑⚖️ Directors' Duties and Liabilities
Directors have a legal obligation to file for insolvency within 30 days after becoming aware, or should have become aware, of the company's insolvency. Failure to do so may result in the insolvency being classified as "culpable," leading to potential sanctions such as disqualification from managing third-party assets or exercising commercial activities. Additionally, directors may be liable for damages caused to creditors through negligent non-compliance with their duties. (Restructuring and insolvency law in Portugal | CMS Expert Guides, Insolvency 2023 - Portugal | Global Practice Guides | Chambers and Partners)
🌍 Cross-Border Insolvency
Portugal adheres to Regulation (EU) 2015/848 on insolvency proceedings, which establishes coordination mechanisms and rules on conflicts of law for cross-border transactions within the European Union. This regulation facilitates the recognition and enforcement of insolvency proceedings across EU member states. (Insolvency 2023 - Portugal | Global Practice Guides | Chambers and Partners)
🧭 Conclusion
Portugal's insolvency and restructuring framework offers a range of tools to address corporate financial distress, balancing the interests of creditors and debtors. The combination of judicial and extrajudicial procedures provides flexibility in managing insolvency situations. However, the effectiveness of these mechanisms depends on timely initiation and proper adherence to legal requirements. Companies facing financial difficulties should seek professional advice to navigate the complexities of the insolvency and restructuring processes.
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