Article 35 of the Portuguese Companies Code, entitled Loss of Half of the (Statutory) Capital, resulted from the implementation of Article 17 of the EU Directive on Coordination of Safeguards Regarding the Protection of Interests of Members and Others, which established that, in case of a serious loss of a company's subscribed statutory capital, a general meeting should be immediately convened to decide what should be done and to consider, among the various solutions, dissolution of the company.
Decree law 262/86 of September 2, which approved the Portuguese Companies Code, established the dispention of Article 35 and made approval of a new decree law a condition of its coming into force. This suspension lasted for 15 years, only coming to an end when Decree law 237/2001 of August 30 came into force.
In its first wording, Article 35 provided that, whenever a loss of half of the statutory capital was detected, the board of directors of the company should propose to the shareholders the dissolution of the company or the reduction of its statutory capital if at least two-thirds of the statutory capital was not covered within the 60 days after the resolution resulting from the proposal.
However, Article 35 was amended by Decree law 162/2002 of July 11, which established that the loss of half of the statutory capital by a company as soon as detected should be subject to several measures indicated by law, and if the loss persisted during two consecutive years the company would be considered immediately dissolved since the approval of the accounts of the previous year (the first accounts approval to take into consideration would be the 2004 accounts, approved in 2005).
This was a high penalty and a disproportional measure, considering that reduction of statutory capital is a feasible solution to the difference between statutory capital and net equity, especially if the intention of the law is taken into account, which is to protect creditors and investors.
After several rumours in 2004 regarding the amendment of Article 35, on January 18 2005 a new decree law entered into force with retroactive application from December 31 2004. It revokes the immediate dissolution of the company, but has maintained it as a possibility that may be resolved by the shareholders.
As what is intended is the avoidance of any misunderstanding regarding the real financial position of the company, this new decree law requires, however, that the company make reference to the fact that half of the statutory capital is lost in its external documents. The company is obliged to mention in its correspondence the amount of the statutory capital, the amount that is realized (only if it is different), the amount of the net equity according to the last balance sheet, every time the latter is equal or inferior to half of the statutory capital.
Sofia Gouveia Pereira and Margarida Lino Santos