How Portugal is supporting businesses in need of restructuring and insolvency
Nuno Gundar da Cruz and Catarina Martins Morão of Morais Leitão explain how Portugal’s PEVE act has set out to assist companies that face a difficult economic situation due to Covid-19
During the Covid-19 pandemic, the Portuguese parliament has regularly approved legislations in order to meet the challenges resulting from the crisis.
In particular, there have been laws regarding company recovery and insolvency instruments. Law 75/2020, of November 27, established, among other important measures, the new Extraordinary Company Viability Process (Processo Extraordinário de Viabilização de Empresas – PEVE), the first ‘extraordinary’ instrument ever created in this matter.
Although the measures provided for in PEVE are exceptional and temporary, it is presently valid until December 31 2021 and may be extended.
PEVE is intended for companies proven to be in a difficult economic situation or in a situation of imminent or current insolvency, but still deemed viable, following the consequences of the economic slowdown caused by Covid-19.
As an urgent and truly extraordinary mechanism, PEVE takes precedence over all other recovery and insolvency legal instruments and is a single-use process.
Subdivided into several different stages, PEVE is initiated by the filing of a request accompanied by a set number of documents, including (i) a written declaration signed by the company's management body attesting that its economic situation is due to the Covid-19 pandemic and that the company meets the necessary conditions for viability; (ii) a list of all creditors, signed and dated no more than 30 days prior; and (iii) the viability agreement, signed by the company and by a number of creditors representing at least the voting majorities provided for by law.
Upon receipt of the necessary documentation, the provisional judicial administrator is immediately appointed by the judge, being the company responsible for bearing its remuneration.
The appointment of the provisional judicial administrator has immediate procedural effects, namely it prevents the initiation of any lawsuits for collecting debts against the company, and it suspends, in relation to the company, lawsuits which are pending for the same purposes.
In addition to this, such appointment also prevents the company from carrying out particularly relevant acts, as defined by law, without prior written authorisation from the provisional judicial administrator.
On the other hand, as from the same appointment, and until the judicial homologation or non- homologation of the viability agreement, the provision of essential public services to the company in question cannot be suspended.
Following the judge’s appointment of the provisional judicial administrator, any creditor may, within 15 days from its publication, challenge the list of creditors presented by the company, and/or request the non-homologation of the viability agreement presented by the company.
Within the same period, the provisional judicial administrator shall issue an opinion on whether the agreement has reasonable prospects of ensuring the company's viability.
Subsequent to this, the judge must rule on any challenges presented, analyse the viability agreement (namely taking into account the opinion issued by the provisional judicial administrator), and, last but not least, homologate the agreement, which is subject to the following conditions: (i) the respect for the approval majorities provided for by law; (ii) the existence of reasonable prospects for ensuring the company's viability; and (iii) the absence of any circumstances which, under the law, impose the non-homologation of the agreement, such as the violation of the principle of equality among creditors.
The homologation of the viability agreement binds the company, the signatory creditors, the creditors on the list of creditors presented by the company, and any other creditors who decide, in due time and by mere statement, to join the agreement.
On the contrary, the non-homologation of the viability agreement entails the termination of this extraordinary process and, consequently, the extinction of all its effects.
Creditors, shareholders or any other persons especially related to the company who, within PEVE, finance its activity, providing the necessary capital for this purpose, are granted preferential standing, namely over employee’s credits.
Finally, the homologation of the viability agreement grants the subscribing parties certain tax benefits, provided it comprises the restructuring of claims corresponding, as a general rule, to at least 30% of the company’s total non-subordinated liabilities.
In conclusion, PEVE exceptionally and unprecedently grants a new recovery chance to companies already in current insolvency situation, which, for that very reason, cannot submit or resort to other special recovery instruments.
Nuno Gundar da Cruz
Senior lawyer, Morais Leitão
Catarina Martins Morão
Associate, Morais Leitão