I. INTRODUCTION – KEY ASPECTS OF PORTUGUESE LAW – DEFINITION OF INSOLVENCY AND LEGAL FRAMEWORK

Insolvency proceedings consist of a universal enforcement process, with the objective of satisfying creditors in the best possible way in an bankruptcy scenario, either by an insolvency plan based on the recovery of the company via the insolvency assets, or, when this is not possible, by liquidating the debtor’s assets and sharing its result among the creditors.

Insolvency proceedings in Portugal are only triggered in the case of a debtor’s insolvency, which is defined, in general, as the inability of the debtor to fulfill its obligations as they fall due (cash flow criteria). Aside from this, and in the case of legal entities, the debtor is also considered to be in an insolvency situation when, according to accounting criteria, the liabilities of the debtor clearly exceed its assets (balance sheet criteria).

Under Portuguese Law, the most relevant laws and statutory regimes that apply to the financial restructuring, reorganizations, liquidations, and insolvencies are the following:

• Insolvency and Recovery Code (“Código da Insolvência e da Recuperação de Empresas” – hereinafter “CIRE”), approved by the DecreeLaw No. 53/2004, dated 18.03.2004 and last amended at 11.09.2022 by the Law No. 9/2022, on recovery and insolvency judicial proceedings, including the Special Revitalization Proceedings (“Processo Especial de Revitalização – hereinafter “PER”;  

• Civil Code (“Código Civil”) approved by the Decree-Law No. 47344, dated 25.11.1966 and last amended on 03.09.2019; 

• Commercial Companies Code (“Código das Sociedades Comerciais“), approved by the Decree-Law No. 262/86, dated 02.09.1986 and last amended on 14.08.2018, on dissolution and liquidation of commercial companies; 
  
• Extra-Judicial Regime for Corporate Recovery (“RERE”), approved by Law no. 8/2018, of March 2nd, providing a specific legal regime for out-of-court recovery agreements;
  
• Statute of the Insolvency Administrator (“Estatuto do Administrador de Insolvência“), approved by the Law No. 22/2013, dated on 26.02.2013 and last amended at 11.01.2022 by the Law No. 9/2022; 
  
• Law of the Companies of Insolvency Administrators (“Regime Jurídico das Sociedades de Administradores da Insolvência“), approved by the Decree-Law No. 54/2004, dated 18.03.2004; 

• Directive (EU) 2019/1023 of the European Parliament and of the Council, of June 20th, 2019, on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency, and discharge of debt;

• Law No. 9/2022 was published on 11 January 2022. This new law establishes measures to support and speed up corporate restructuring processes and payment agreements. It is the result of the incorporation into Portuguese law of Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 (“Directive (EU) 2019/1023”). Furthermore, it amends the Insolvency and Corporate Recovery Code (“CIRE”), the Companies Code (“CSC”), the Commercial Registration Code, and other related legislation.

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

The insolvency proceeding governed by the CIRE may be voluntary or involuntary, as it may be commenced on the debtor’s initiative or on any creditor’s initiative. In addition to the insolvency procedure itself, CIRE also provides for two special procedures. The first one is the PER (a voluntary procedure which only applies to companies), considering that only the debtor may submit the request to the court, pursuant to article 17-A of the CIRE. Such request must include a written statement of the debtor and at least one of its creditors, expressing the intention to engage in negotiations leading to its revitalization through the approval of a recovery plan. The second special procedure is the special payment agreement procedure (which may apply to any debtor other than a company). The RERE is also a voluntary proceeding commenced by the debtor’s initiative.     

II. 1. STATUTORY INSOLVENCY AND LIQUIDATION PROCEEDING

A debtor must request a declaration of insolvency within 30 days after the date of becoming aware of such insolvency, or on the date when he should have been aware thereof. The application must contain a series of mandatory elements and meet several requirements. 

Natural persons who are not owners of a company on the date of insolvency are exempted from the duty to declare insolvency.

When the debtor is the owner of a company, Portuguese law presumes that awareness of the insolvency occurs three months after the

general failure to meet debts regarding taxes and social security payment and contributions; debts arising from an employment contract or from the breach or termination of such contract; or rentals for any type of hire, including financial leases; or instalments of the purchase price or loan repayments secured by a mortgage on the debtor’s business premises, head office or residence.

Moreover, the declaration of insolvency of a debtor may be requested by the person legally responsible for the debts, by any creditor, even if conditional and whatever the nature of the claim, or by the Public Prosecutor’s Office, representing the entities whose interests are legally entrusted to it, when any of the following occur:

1. General suspension of payment of due obligations;
2. Non-compliance with one or more obligations which, due to the sum involved or the circumstances of the noncompliance, demonstrate the debtor’s incapacity to promptly satisfy most of its obligations;
3. Abscondment of the owner of the company or the debtor’s directors or desertion of the company’s registered office or place of main business, related to the debtor’s lack of creditworthiness and in the absence of the appointment of a substitute of good standing;
4. Dispersal, abandonment, hurried or destructive liquidation of assets andfictitious constitution of credits;
5. Insufficiency of seizable assets to pay the respective claim in enforcement proceedings brought against the debtor;
6. Non-compliance with obligations set out in an insolvency or payment plan;
7. General non-compliance, in the previous six months, with debts of any of the following types: i) tax; ii) social security contributions and dues; iii) debts arising from an employment contract, or breach or termination of such contract; iv) payments for any type of lease, including financial leases, payments of the purchase price or of a loan guaranteed by a mortgage, with respect to the place where the debtor carries out his activity or has his registered office or residence;
8. 8. Should the debtor be a legal person, where it has greater liabilities than assets as shown on the last approved balance sheet or is behind by more than nine months in the approval and filing of accounts, if legally required to do so.

The application submitted by a creditor must include information regarding the nature and amount of the credit, the identification of the debtor’s managers (both of fact and law) and its five biggest creditors (not including the applicant), and the debtor’s commercial registry certificate. If the applicant is the debtor, then it is important to indicate whether the company’s situation of insolvency is current or imminent, and to include  documents, such as a list of all known creditors and a clear explanation of the company’s activity over the last three years and is also required to include with the initial petition for insolvency, a document identifying the companies with which it is in a control or group relationship under the terms of the CSC or which are considered associated companies, and, if applicable, identifying the processes in which its insolvency is requested or has been declared.

must lodge their claim accompanied by various documents and elements that legitimize and ground the claim, such as the origin of the credit and its legal classification (e.g., guaranteed, or privileged), and its due date, amount, and accrued interest.

Creditors who have had their credit acknowledged by a previous judicial decision are not exempt from the duty of claiming it in the insolvency proceeding if they wish to obtain payment within said insolvency proceeding. After said time limited has expired, the Insolvency Administrator will assess whether the credits are to be acknowledged.

The declaration of insolvency is registered in the land, commercial and vehicle register in respect of the assets or rights forming part of the insolvent estate.

Within 15 days of the termination of the time limit for credit claims, the Insolvency

Administrator prepares a list of the credits that were legally acknowledged (which is published), as well as the respective terms and conditions of each one (e.g., the identification of the creditor, the nature of the credit, the amount and accrued interests, and the existence of personal or real guarantees, amongst others). In parallel, another list comprising the credits that were not acknowledged, and the respective grounds of justification, must also be drafted and published.

Within ten days of the deadline for the Insolvency Administrator to present these lists, any person with a legal interest can challenge the acknowledged creditors list. The court will then issue a ruling, in which it decides on the existence and correct classification of the credits. The credits whose verification or graduation requires the production of further evidence will now be provisionally verified and graduated in provisional order, instead of relegating the graduation of all credits to the

The judicial ruling which then declares the insolvency of the debtor grants creditors – as well as the Public Prosecutor Department – a fixed time limit (maximum 30 days) to claim their credits (including conditional credits) before the Insolvency Administrator (filed online). Creditors

final judgment when the verification of some of them requires evidentiary steps. The aim is thus to simplify the conduct of the phase of verification of liabilities and graduation of claims.

Despite this, a creditor may still have other claims acknowledged after this period, and may request the separation or restitution of assets, to be considered in the insolvency proceeding, by means of a judicial application against the insolvent estate. The request for the separation or restitution of assets can be filed at any time until the end of the insolvency proceeding. However, the claim for the acknowledgement of credits can only be filed within six months of the judgment declaring the insolvency becoming final.

These credits may be traded amongst creditors and with third parties prior to, or even throughout, the insolvency proceedings, as the only impact that this action has on the claim is the identification of the creditor.

All pending judicial proceedings regarding the insolvency estate assets filed against the debtor or even third parties, which may determine variations in the value of the insolvency estate, and all judicial proceedings with exclusive patrimonial nature filed by the debtor are to be attached to the insolvency proceeding if the Insolvency Administrator so requests. Enforcement proceedings or other measures requested by the insolvency creditors that affect the insolvency estate, as well as arbitration disputes, shall be suspended. Furthermore, one of the consequences of the declaration of insolvency is the immediate removal of the (debtor) managers’ powers of administration over the assets of the insolvency estate and their subsequent transfer to the Insolvency Administrator, who is authorized by law to carry out all transactions in the ordinary course of business of the debtor.

As a rule of thumb, under article 102 of the CIRE, contracts that have been entered between the debtor and a creditor, and that have not yet been completely performed, are suspended until the Insolvency Administrator determines on their performance or non-performance. In these cases, the respective creditor is given the opportunity to set a reasonable date before which the Insolvency Administrator must issue a decision. If no decision is made by said date, then Portuguese law presumes that the Insolvency Administrator has decided not to perform the contract.