COVID-19: New extraordinary and temporary measures adopted in Portugal within the area of the recovery of companies suffering financial hardship or insolvency
Restructuring & Insolvency Alert Portugal
Law nº 75/2020, published in the Official Gazette in November 27, 2020, and in force from November 28, 2020 to December 31, 2021, has established the following:
a) An exceptional temporary regime for extending the period for concluding the negotiations undertaken with a view to the approval of the recovery plan or payment agreement, and granting an adjustment period for the insolvency plan proposal, within the scope of the COVID -19 pandemic.
On the justified requested of the company and the temporary court-appointed receiver, the judge may grant a further extension of the period, only once and for one month, for concluding the negotiations undertaken with a view to the approval of a recovery plan within the scope of the PER.
b) Extending the right established under article 17-H-2 of the Business Recovery and Insolvency Code (Código da Insolvência e da Recuperação de Empresas) (CIRE) to the members, shareholders or any other persons specially related to the company that finance its activity during the PER.
The general chattel right (privilégio creditório mobiliário geral) granted to those creditors who, during the PER, finance the activity of the debtor by providing it with capital for its revitalization is also extended to those members, shareholders or any other persons specially related to the debtor that finance its activity during the PER.
This measure aims to promote the self-financing of companies over their financing by third parties.
c) Establishing the application of the Extraordinary Business Recovery Regime (Regime Extraordinário de Recuperação de Empresas) (RERE), approved by Law nº 8/2018, dated March 2, to companies that are currently in a position of insolvency due to the COVID -19 pandemic.
This measure aims to eliminate, albeit temporarily, the restriction on access to the RERE by companies currently in a position of insolvency, and, apart from companies undergoing financial hardship or imminent insolvency, to also allow companies currently in a position of insolvency due to the COVID-19 pandemic, but which are still subject to being viable, to be able to bring about their recovery through a non-judicial process, provided (i) they show that, as at December 31, 2019, they had more assets than liabilities, or (ii) if they did not have more assets than liabilities at December 31, 2019, they have been able to adjust their situation within 18 months and have submitted their restructuring agreement in due time.
d) Creating an extraordinary viability process for companies affected by the financial crisis arising from the COVID-19 pandemic.
A new extraordinary business viability process (procedimento extraordinário de viabilização de empresas) (PEVE) has been created, which is both exceptional and temporary and can be used by any company which, when not having any special revitalization, insolvency or payment agreement process pending, is in a position of financial hardship or imminent or current insolvency, arising from the financial crisis caused by the COVID-19 pandemic, provided that, in particular, (i) the company shows that it is still subject to being viable and that, according to applicable accounting regulations, it shows that, as at December 31, 2019, it had more assets than liabilities, or (ii) if it did not have more assets than liabilities at December 31, 2019, it has been able to adjust their situation within 18 months and has submitted its restructuring agreement in due time.
The PEVE is characterized above all by a rapid processing through the removal of the credit claim stage and the attributing of priority in the processing of this extraordinary process over any other judicial processes that are also urgent (insolvency proceedings, PER and special payment agreement processes – Pocesso Especial para Acordo de Pagamento/PEAP).
Once the PEVE has been submitted, the Court appoints a Temporary Court-appointed Receiver (“TCR”) responsible for issuing an opinion, within a period of 15 days, on the viability of the agreement reached between the debtor and its creditors. After the appointment of the TCR, the Court publishes on the Citius portal the list of creditors submitted by the debtor and the viability agreement reached, with the creditors having 15 days in which to oppose the list of creditors or request the non-approval of the viability agreement.
Decision on oppositions and approval of the agreement
Once these periods have elapsed, the Court has 10 days in which to decide on any possible oppositions and to approve the viability agreement if (i) it includes the participation of creditors holding claims representing the majorities established for the approval of the PER and (ii) it reasonably foresees the viability of the company.
The approval of the viability agreement is not only binding on those creditors signing the agreement, but also all those creditors appearing on the list of creditors, even if they have not participated in the non-judicial negotiation.
The validity period until December 31, 2021 of the regime of the extraordinary business viability process may be extended by a decree-law.
e) Establishing the obligatory nature of partial apportionments in all pending insolvency proceedings with a deposited liquidation proceeds above €10,000.
Assuming as a premise that it is essential for the State, that has in its possession important sums of money within judicial insolvency proceedings, to allow these to be distributed to the creditors in the shortest time possible, injecting liquidity into the economy, the obligatory nature of partial apportionments (rateios parciais) is established in all pending insolvency proceedings with liquidation proceeds equal to or greater than €10,000, the ownership of which is not disputed.
f) Attributing priority in the processing of requests for the release of deposits or security provided within insolvency proceedings, special revitalization processes or special payment agreement processes.
Any requests for the release of deposits or security provided within insolvency proceedings, special revitalization processes or special payment agreement processes, submitted in new proceedings and those pending at the date of entry into force of this law, assume priority over all other requests made within the scope of these proceedings.