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We look at the reforms to the insolvency law of Portugal prompted by the coronavirus (COVID-19) pandemic. Written by Alberto Núñez-Lagos, member of INSOL Europe, David Sequeira Dinis, partner at Uria Menedez—Proença de Carvalho, member of INSOL Europe and Maria de Almeida Teixeira, associate at Uria Menedez—Proença de Carvalho.
On 18 March 2020, the state of emergency was declared by Decree of the President of the Republic n.º 14-A/2020, which granted the Portuguese Government the power to implement measures to prevent and contain the spread of the outbreak of coronavirus, and on 20 March 2020, the exceptional measures to be implemented during the term of the state of emergency were approved by the Portuguese Government, under the terms of Decree of the Council of Ministers No 2-A/2020. As the declaration of the state of emergency could only be in force for 15 days, through Decree No 17-A/2020 of 2 April 2020, the President of the Republic extended the state of emergency and granted the Government new powers to introduce exceptional measures. Following this, by means of Decree No 2-B/2020 of 2 April 2020, the Government approved exceptional measures to be implemented during the extension of the state of emergency (thus revoking Decree n.º 2-A/2020). On 17 April 2020, the state of emergency was again extended until 2 of May 2020, through Decree of the President of the Republic n.º 20-A/2020 of 16 April 2020, following which the Portuguese Government approved exceptional measures to be implemented, through Decree n.º 2-C/2020 of 17 April 2020 (thus revoking Decree n.º 2-B/2020).
To date, the legislative framework adopted to deal with coronavirus only includes one measure regarding insolvency law. Therefore, the rest of current legislation remains in force. Some other exceptional measures with potential impact in insolvency / restructuring proceedings were approved by the Portuguese Government.
Under Article 7(6)(a) of Law 1-A/2020 of 19 March 2020, as amended by Law 4-A/2020 of 6 April 2020, the duty of a debtor to file for insolvency within 30 days of the date on which the debtor became or should have become aware of its insolvency, set forth in Article 18 of the Insolvency and Company Recovery Code (Código da Insolvência e Recuperação de Empresas), is suspended. The suspension took effect on 9 March 2020 and will cease on a date that is to be set through a decree-law.
Moreover, the aforesaid suspension does not prevent the debtor from voluntarily filing for insolvency. Furthermore, the creditors can also file for the debtor’s insolvency, provided that the legal requirements are met.
Originally, Law 1-A/2020 of 19 March 2020 established a general suspension of deadlines in urgent proceedings, allowing procedural acts to be carried out through means of remote communication (eg teleconference or video calls) and in-person hearings in which fundamental rights were at stake to take place.
By contrast, in the wording introduced by Law 4-A/2020 of 6 April 2020, urgent proceedings shall continue to be processed normally, although with some restrictions in respect of acts that require the physical presence of the parties. In this case, the deadline for these proceedings will also be suspended if it is not possible that such acts are carried out through means of remote communication and the physical presence of the parties entails relevant risks to life, physical integrity, mental health, freedom and immediate subsistence.
In light of the above, according to our best understanding (although we cannot exclude alternative interpretations), deadlines in insolvency proceedings, special revitalisation proceedings (PER) and special payment-agreement proceedings (PEAP) were suspended between 9 March and 7 April 2020. Furthermore, it is foreseeable that, despite the non-suspension of the proceedings from 7 April 2020 on, there will be a considerable slowdown in the courts’ processing of insolvency proceedings, PERs and PEAPs, with a tendency towards mainly performing steps of particular urgency, such as those necessary for the survival of companies, the payment of salaries or the livelihood of debtors.
Decree-Law n.º 10-J/2020 of March 26 2020 approved a set of measures aimed at ensuring the continued financing of families and businesses in order to prevent events of default and includes a statutory moratorium until 30 September 2020 (‘Moratorium’).
The Moratorium is applicable, with a few exceptions, to credit transactions granted by:
(ii) branches of credit and financial institutions operating in Portugal
The Moratorium does not apply to:
(iii) credit granted to companies by means of credit cards for personal use for managers, employees and other collaborators
The following types of debtors may benefit from the Moratorium, provided that all cumulative legal requirements are met:
The beneficiary must apply to the creditor for the Moratorium and include documentation proving that it has no tax or social security debts. If the beneficiary meets the requirements, the creditor must implement the Moratorium within a maximum of five working days from the date of the submission of the relevant application. Otherwise, the creditor has up to three working days to inform the beneficiary that it does not meet the requirements. Those who apply for and benefit from the Moratorium without fulfilling the legal requirements, as well as persons that sign the required documentation (eg the application for the Moratorium), are liable for any damage caused due to false declarations and for the costs incurred in relation to the Moratorium, notwithstanding any criminal liability that may arise. The Bank of Portugal supervises and monitors the access to and the use of the Moratorium. The creditors’ breach of their obligations under the Moratorium constitutes an administrative offence.
The Moratorium has, inter alia, the following effects:
The extension of the deadline for payment of the principal, rent, interest, fees and other charges, under the measures referred to in points (ii) and (iii) above does not:
Furthermore, the extension of guarantees under the Moratorium does not require any other formality and is fully effective and enforceable against third parties. In addition, interest shall continue to accrue during the extension period and will be capitalised with reference to the time at which they are due at the contractual rate in force.
Finally, in the event of insolvency, PER or RERE (Regime Extrajudicial de Recuperação de Empresas) of the beneficiary, the Moratorium does not prevent creditor institutions from exercising all their rights.
At the time of writing, the Portuguese legislator is working on the transposition of the EU Directive on restructuring and insolvency (see Practice Note: Harmonising insolvencies and restructurings across Europe). Although the Portuguese insolvency system already provides a pre-insolvency framework and promotes a rescue culture, some of the features of the EU Directive could help prevent insolvency and liquidation due to the current coronavirus outbreak, namely by prioritising the restructuring/recovery, when possible, and increasing the efficiency of the proceedings.
We look at various countries worldwide which are expediting reforms to their restructuring and insolvency laws, temporarily suspending onerous insolvency law provisions, increasing limits for statutory demands, suspending enforcement powers and introducing other measures to deal with the coronavirus crisis. As the situation is rapidly evolving with more countries adding new measures daily, you should contact local lawyers in the relevant jurisdiction to check the current measures in force.
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