PUBLICATIONS

The relevant Portuguese legislation with regard to insolvencies is Decree-law 53/2004 of 18 March 2004, as amended by Decree-law 200/2004 of 18 August 2004 (the "Insolvency Code").

The Insolvency Code was enacted as a consequence of the 2001 recession which led to an increase in the number of insolvencyies in particular among small businesses.

Prior to the enactment of the Insolvency Code in 2004, Portuguese insolvency procedures were regulated by Decree-law 132/93 of 23 April 1993. Originally, the old bankruptcy and restructuring code was exclusively applied to business organisations. The former insolvency laws had the puropose of facilitating the reorganisation of the insolvent's business. However, this attempt proved unsuccessful, for several reasons, as the insolvent company normally regarded legal protection as a last resort and the judicial process was slow.

One of the main novelties introduced by the Insolvency Code is the merger of the former restructuring and bankruptcy proceedings into a single proceeding, named "insolvency proceeding", which will lead to either the liquidation or the restructuring of the insolvent company.

Another important aspect is the recognition of contractual subordination. The Insolvency Code sets out a list of the credits that are subordinated by operation of law, including among others (i) shareholder loans, (ii) the debts to persons or companies which are controlled or related to the insolvent company and (iii) the company's obligations towards its directors created during the two years prior to the insolvency order.

Unlike the former bankruptcy laws, the administrator may now void any security given by the debtor securing existing obligations or new security replacing existing security during the year before the initiation of the insolvency proceedings and any security given to secure obligations undertaken in the sixty days prior to the initiation of the insolvency proceedings.

Lastly, the Insolvency Code has expanded the powers given to both the insolvency administrator and the creditors so that now creditors have the power to decide whether the company will be liquidated or restructured.

Although the Insolvency Code has improved substantially the legal proceedings and increased the powers of creditors as to the running of the insolvent's business, creditors still regard the insolvency proceeding as a mean to liquidate companies rather than a form of protecting businesses and allow all parties to agree on the restructruing measures, when possible, or, if not, to liquidate the assets in an orderly fashion so that losses can be mititgated.

The purpose of this briefing is to give an overview of insolvency proceedings for Portuguese corporations so that creditors and other stakeholders may understand some of the legal issues surrounding Portuguese insolvencies and be able to act in the proceedings in a manner that best serves their interest.