Corporate Insolvency & Restructuring Report 2020: Covid-19 Special Focus: Portugal
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Corporate Insolvency & Restructuring Report 2020: Covid-19 Special Focus: Portugal

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Filipa Cotta, Catarina Carvalho Cunha and Roberto Ornelas Monteiro, VdA


Portugal's insolvency and restructuring practice has shifted significantly over the past decade to meet the Portuguese legislature's strong desire to restructure companies while they are still solvent. A big impetus behind this shift was the severe economic and financial crisis in 2011, which saw several Portuguese companies enter restructuring or insolvency proceedings. While restructuring and insolvency practitioners are still constantly engaged by clients in insolvency-related matters, the core work has turned to assisting clients in restructuring their businesses to stay afloat. The result is that nowadays, companies are much more aware of the mechanisms available to them to avoid insolvency.

Having said this, since no company could have prepared for the complete paralysis over several weeks or months caused by Covid-19, we expect that alongside a significant increase in out-of-court and in-court restructurings, many companies will plunge into insolvency. To date, publicly available numbers suggest an increase in insolvency proceedings, with insolvencies up 8.4% in the first seven months of 2020 and 32.3% in July 2020 alone, compared with the same periods in 2019 respectively.

As a means to avert a wave of insolvencies, in this environment companies are currently not obliged to file for insolvency within the typical deadline from the date they become insolvent and rather, benefit from a stay on this deadline. This measure is expected to last while the exceptional and temporary measures in response to Covid-19 remain in force

In July 2020, the Council of Ministers also approved a draft law to establish an extraordinary procedure (Processo Extraordinário de Viabilização de Empresa –PEVE) to enable companies to respond to the pandemic. The PEVE is expected to remain in place until the end of 2021 and aims to provide a simpler and faster restructuring procedure.

In general, all stakeholders are focusing on saving affected companies. Until now, the market has mostly responded with solidarity and we have seen creditors and debtors agreeing on "possible" solutions that are better for both sides. Agreements between debtors and creditors are highly encouraged by the legal steps that the government has been taking since the beginning of the lock down, namely in relation to payment moratoria and credit lines.

Basic framework

The corporate restructuring and insolvency regime in Portugal is framed under the following legal statutes:

  • Insolvency and Recovery Code: enacted by Decree-Law no. 53/2004, dated March 18 (as amended over time), on recovery and insolvency judicial proceedings, which encompasses the Special Recovery Proceedings (Processo Especial de Revitalização – PER), established by Law no. 16/2012, dated April 20, 2012;

  • Extra-Judicial Regime for Corporate Recovery (RERE): enacted by Law no. 8/2018, dated March 2, 2018, providing a specific legal regime for out-of-court recovery agreements;

  • Regulation (EU) 2015/848 of the European Parliament and of the Council, dated May 20, 2015, on insolvency proceedings;

  • Decree-Law no. 199/2006 of October 25 (as amended over time): governs the liquidation of credit institutions and financing companies with headquarters in Portugal and their subsidiaries incorporated in another State member;

  • Decree-Law no. 227/2012 of October 25: (i) foresees principles and rules to be observed by credit institutions when preventing and regularising situations of non-compliance with the credit agreements by the banking customers, and (ii) creates the extra-judicial network to support those customers in the regularisation of those situations;

  • Law no. 147/2015 of September 9 (as amended over time): sets out a specific regime applicable to the recovery of insurance and reinsurance companies; and

  • Commercial Companies Code: enacted by Decree-Law no. 262/86, dated September 2, 1986.

Recently, we have seen an inclination on the part of Portuguese courts to dismiss restructuring plans that imply significant losses to some classes of creditors in detriment of others, for example plans that seek to repay secured creditors in full while leaving common creditors with 90% haircuts. This, of course, will bear weight on how secured creditors act from now onwards.

Under Portuguese law, there is only one type of insolvency proceeding (processo de insolvência), under which a company can either be: (i) liquidated, in accordance with the statutory/legal regime or through an insolvency plan; or (ii) rescued, pursuant to an insolvency plan. Insolvency is defined as a debtor's inability to pay its debts as they fall due. If the debtor is a company, it will also be deemed insolvent when the aggregate value of its liabilities is higher than the value of its assets, as determined on a fair assessment.

Companies that are not yet legally insolvent but face financial distress may either resort to the RERE, which is not a procedure but rather an extrajudicial legal regime or a PER, an urgent judicial procedure aimed at allowing debtors to negotiate a recovery with their creditors.

Groups of companies do not receive special treatment, albeit parties may request that the relevant proceedings be conjoined.

Directors' duties

The debtor's management bodies are under a general duty to file for insolvency within 30 days of the date they acknowledge (or could not ignore) that the company is legally insolvent. For legal entities, there is a presumption that this knowledge exists when an entity has failed to meet certain types of the obligations (tax obligations, rents etc) for three months. As mentioned above, this deadline is currently suspended as a result of the pandemic.

Non-fulfilment of the duty to file for insolvency within the legal deadline may lead the insolvency to be qualified as "culpable". This in turn, may generate civil liability to the relevant debtor's managers and directors and/or specific inhibitions that may be prolonged in time.

Formal filing

The impact on creditors of a formal filing depend on whether the debtor files for recovery or is otherwise adjudicated as insolvent. Should the debtor apply for a PER, then typically, while negotiations ensue, no new proceedings aimed at collecting debt may be launched against the debtor. Pre-existing proceedings of the sort shall be suspended (and terminated as soon as the recovery deal is approved and sanctioned by the court, unless otherwise expressly foreseen in said plan). In a RERE, on the other hand, only proceedings launched against the debtor by the creditors taking part in the procedure will be suspended.

Things differ in an insolvency scenario. To begin with, the insolvency adjudication renders all debtor obligations immediately payable, and creditors are bound to claim their rights within the insolvency proceedings. Regarding contracts which are still ongoing, the rule is that, unless expressly foreseen otherwise, they are suspended with the insolvency adjudication until the receiver takes a stand on them. As to contractual termination rights, under Portuguese law, provisions establishing insolvency as an event of default are, as a rule, deemed null and void.

Priority, dissenters and asset sales

Under Portuguese insolvency law, creditors are grouped into the following categories:

  • Secured credits: which are credits secured by in rem guarantees (garantias reais), including special statutory liens (privilégios creditórios especiais). Examples of such guaranteed credits include real estate special statutory liens (such as state credits related with real estate property tax IMI); third-party credits secured by mortgages; income assignments; and pledges and movable assets special statutory liens (such as credits resulting of justice expenses incurred in the interest of the creditors);

  • Privileged credits: which are credits secured by general statutory liens (privilégios creditórios gerais) over assets integrated in the insolvent estate up to the amount corresponding to the value of the assets granted in guarantee or the general statutory liens. Examples of such privileged credits include labour, tax and social security debts as well as real estate general statutory liens;

  • Common credits: which are all credits not included in any other category; and

  • Subordinated credits: which are classified as such by virtue of the underlying credit agreement or pursuant to the law. Examples of subordinated credits include credits held by parties in special relationships with the debtor, such as, in the case of an individual, credits held by his/her relatives; in the case of a legal entity, credits held by the administrators, group of companies and controlling shareholders or shareholders in a group relationship. Subordinated creditors have very limited chances of collection, as a result of the ranking established by law.

In the context of restructurings, creditors can be crammed down.

There is no specific process for facilitating the sale of a distressed debtor's assets or business. From the moment the judgment adjudicating the debtor insolvent becomes final and binding and the creditors' assembly convened to discuss the receiver's report is held, the receiver proceeds with the negotiation and sale of the debtor's assets under the rules provided for in the Insolvency Code. As a rule, the purchasers acquire the assets clear of claims and liabilities.

Acts performed or omitted within the two years leading up to the beginning of the insolvency proceedings may be subject to clawback

Upon a debtors insolvency, adjudication acts performed or omitted within the two years leading up to the beginning of the insolvency proceedings may be subject to clawback if they are: (i) found to be detrimental to the insolvency estate (namely, actions that reduce, frustrate, obstruct, jeopardize or delay the payment to the debtor's creditors); and (ii) have been carried out in bad faith. The receiver has six months to challenge these actions from the moment he/she becomes aware of them, but may, as a rule, never do so after a two-year period has elapsed from the declaration of insolvency. Bad faith for these purposes is defined as the knowledge, as of the date of the transaction in question, that the debtor was already insolvent, that insolvency proceedings had already been initiated against the debtor or that the transaction in question would be detrimental to the debtor's creditors and the debtor was in an imminent insolvency situation. There is a refutable presumption of "bad faith" if the transaction is carried out in the two years prior to the commencement of insolvency proceedings and is made with certain related parties, even if no relationship existed between them at the time.

There are certain specific actions or transactions, expressly foreseen in the law, that are automatically (iuris et de iuri) considered as hindering the insolvency estate and may be cancelled irrespective of other requirements, subject only to the exceptional legal rules that require the existence of bad faith or other mandatory requirements.

It should be noted that credit institutions, financing companies, insurance and reinsurance companies have specific regimes concerning insolvency and restructuring. Furthermore, under Portuguese law, tax and social security credits cannot be affected / altered by way of a restructuring plan. This is so because there is an overriding principle of unavailability of these credits linked with a concern with the State's financial stability. It follows that a plan that foresees anything different that payment of the existing credit in instalments as allowed for in specific tax law, should be dismissed by the relevant judge.


Portuguese courts have jurisdiction over restructuring and insolvency proceedings of companies with headquarters registered in Portugal. This means that as a rule, restructuring and insolvency proceedings of foreign debtors will not be lodged with or handled by Portuguese courts. An exception to this rule is of course the secondary proceedings under Regulation (EU) 2015/848 which may be launched in view of protecting the interests the foreign debtor may have in Portugal.

Key considerations for a foreign debtor would depend on whether the foreign debtor is EU based or not. The effects of restructuring or insolvency proceedings instituted in an EU member state (excluding Denmark) are automatically recognised in all other member states, according to Regulation (EU) 2015/848. Proceedings instituted in other foreign countries will have to be reviewed and recognised in Portugal, through recognition proceedings filed with a Portuguese court. Only after the relevant judgment has been successfully subject to this court's review, will the effects flowing therefrom be binding in Portugal.


Other than the measures outlined in the introduction, regulators have moved to support businesses on several echelons by adopting the following measures:

  • Simplified lay-off: allows companies to choose between reducing normal working periods and/or suspending employment contracts. The simplified lay-off has a duration of one month and can be extended monthly, in most cases, up to a maximum of three months. This measure is already being phased out and is only in force until September 30, 2020. After that, companies may still resort to other incentives such as (i) the Extraordinary Incentive to the Normalization of Business Activity (a financial support) or (ii) the Extraordinary Support for the Progressive Restart of Activity (a new simplified lay-off, but restricted to normal working period reductions only), both foreseen in the Economic and Social Stabilization Program (Programa de Estabilização Económica e Social – PEES) which was recently approved.

  • Moratoriums: prohibits the revocation of credit lines and loans contracted from March 27 2020; extends credits with the payment of principal at the end of the contract (together with all its associated elements, namely, interests); and suspends the payment of principal, rents and interests in relation to credits with partial instalments or other cash amounts payable. These measures were initially adopted until September 30, 2020 but have been extended until March 31, 2021.

  • Credit lines: four credit lines were made available under the Covid-19 Economic Support Line targeted at micro, small and medium enterprises (MSMEs). In addition, specific measures to support start-ups were adopted, such as the mezzanine funding, a loan convertible into share capital (shareholder loans); and the launch of Portugal Ventures Call for investments in start-ups, financed by several public entities.

  • Leases: (i) suspending the effects of termination, lapses due to the course of time, revocation, opposition of renewal and the six-month period to reinstate the lease property after the end of the lease term, of residential and non-residential lease agreements until September 30, 2020. (ii) Commercial tenants may defer the payments of rents due either (a) during the months the state of emergency was in force, (b) during the months in which they were subject to legal or administrative order demanding closure or suspension of the tenants' activity or (c) in the three months following the end of the legal or administrative order demanding for the closure of the leased premises or the suspension of the tenants' activity. In any case, the moratorium may only be applied to rents due up until December 31, 2020, being those deferred rents paid in the form of 24 monthly instalments from January 1, 2021 to December 31, 2022. (iii) In cases of shop use agreements regarding retail and services stores located in shopping centres, no minimum rental amounts are due until December 31, 2020, being only due to the turnover rent, calculated on the sales made by the shopkeeper, and the service charge.

Other than working on the abovementioned draft law, Portugal is committed to transposing EU Directive 2019/1023 of the European Parliament and Council of June 20, 2019 on restructuring and insolvency by July 17 2021. This transposition, and the need to adopt adequate mechanisms to allow companies to swiftly react to situations of significant financial distress, have become the top priorities for ensuring a sound economy.

The economic crises caused by Covid-19 that we are already facing, and which will likely surge up over the coming months, shall certainly present new and challenging hurdles to companies that are already struggling to keep afloat. We expect a significant increase in insolvency and debt restructuring procedures. At the same time, important adjustments to the legal framework (as above) are being put into place – their main goal is to provide companies with tools to react quickly to situations of significant distress. Given this backdrop, it is crucial that companies and economic groups as a whole, fully understand the legal tools at their disposal and the importance of sound restructuring.

Legal advisers are of course vital in this process, providing high quality legal counselling and adding value within the underlying operations. We believe the legal assistance to clients provided in the context of restructuring and insolvency proceedings can be the key to success and will certainly help identify and implement the appropriate legal tools for a successful rehabilitation.

Looking ahead

"Hibernation" or "winter sleep" might be a complete and effective solution to this crisis, especially for MSMEs. Inspired by the principle of "no income, no expenses", this would mean that companies could disappear during a period and return later, when the market is operating under normal or more favourable conditions.

This measure could be implemented through a global moratorium, covering a stay of individual enforcement actions and a suspension of companies' payment obligations, including tax obligations and other legal duties. Directive 2019/1023 of the European Parliament and Council that Portugal is committed to transpose by July 17 2021 foresees a set of measures (articles 6 and 7 of the Directive) that could help to put such a solution into place.

Another possible development could be an amendment to the existing regime, specifically in relation to payments resulting from the liquidation of an insolvent estate's assets as a means to speeding up the access, by creditors, of the available funds. This is the lengthiest part of the insolvency procedure and naturally, all creditors are severally affected by such delay. The PEES actually anticipates mandatory partial payments when the product of the liquidation is equivalent or exceeds €10,000 and we would expect to see this change implemented in the near future.

Additionally, and in what regards restructuring procedures, namely the PER, for years creditors/investors have been claiming that the security that is legally foreseen in the relevant legislation is not enough to attract investors to take the risk of supporting a company that is under restructuring. It follows that a stronger legal security package should increase the investors desire to invest in such distressed companies.

We expect that the PEVE will be implemented in Portugal shortly. This extraordinary and temporary (it has been devised to be in force only until December 31 2021) company viability procedure has been created to allow companies which are facing financial distress or are on the verge of insolvency as a consequence of Covid-19 to restructure themselves, so long as (i) they are not undergoing a PER at the same time and (ii) they are able to show that they are still viable. This procedure enables the court to approve agreements reached out of court between a company and its creditors is classified as urgent (inclusively assuming priority over other urgent proceedings such as PER and insolvency ones) and has a shorter deadline (namely, there is not a phase for the creditors' claims). Should this be successfully implemented we predict that it will be a procedure many companies will turn to.

It is also expected and desirable that more incentives to invest in distressed companies are developed. In this scenario, there are several possible options that can range from tax incentives/reductions to other governmental support or even by just, as referred above, increasing security given to investors in restructuring procedures.

In what regards clients' needs, the trend is a significant increase for daily advice, especially due to the constant legislative changes. On the other hand, we expect to see many companies file for insolvency, especially in the tourism sector, which has taken a huge blow in the past months. We also expect a wave of filings for a second PER, since the pandemic has strongly affected their capacity of complying with the approved plan.


Filipa Cotta

Partner, VdA

Lisbon, Portugal

T: +351 213 11 3400



Filipa Cotta is VdA's head of the restructuring & insolvency practice. She has over 20 years' experience and a recognised track record in this area, including in transnational cases in Switzerland, Luxembourg and Brazil, to name a few. She has been involved in some of the most high-profile and recent corporate restructuring and insolvency cases in Portugal.


Catarina Carvalho Cunha

Managing associate, VdA

Lisbon, Portugal

T: +351 213 11 3400



Catarina Carvalho Cunha is a managing associate with the firm's litigation & arbitration and restructuring & insolvency practices. She is actively involved in insolvency and restructuring matters (as well as civil and commercial litigation and arbitration) in a wide range of sectors, notably telecommunications, banking & finance, energy, oil and gas and the automobile one. She regularly advises clients on such matters in Portugal, Angola, Mozambique, Guinea-Bissau, São Tomé and Príncipe, Cape Verde and East Timor.


Roberto Ornelas Monteiro

Trainee, VdA

Lisbon, Portugal

T: +351 213 11 3400



Roberto Ornelas Monteiro is a trainee with the firm's restructuring & insolvency practice where he is actively involved in working and advising clients on insolvency and restructuring related matters. He is also involved in civil and commercial litigation.

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