Portugal changes insolvency path with recovery plan


Since March 2020, the Covid-19 pandemic has led to the taking of several political decisions which, although necessary to combat the transmission of the virus, have resulted in a general slowdown in economic activity with adverse economic and social consequences in the world.

Due to the severe impacts of the pandemic, a strategic community instrument has been created to promote economic convergence and the resilience of EU economies, thereby mitigating the economic and social impacts of the crisis. The temporary stimulus instrument designed by the European Council is the “Next Generation EU”, which has contributed to the development of the Portuguese Recovery and Resilience Plan (PRR).

The Portuguese Recovery and Resilience Plan

The PRR is a program with an execution period until 2026 which aims to implement a set of reforms and investments that should allow Portugal to resume sustained economic growth, strengthening the objective of convergence with the Europe throughout the next decade.

One of the components of the PRR – component C18 – which concerns the area of ​​economic justice and the business environment, focuses on tackling the difficulties caused by the pandemic and its resulting recession, such as the ‘potential increase in lawsuits or debt collection proceedings. This aims to ensure effective protection for both creditors and debtors in order to mitigate the entropies that may be felt within the judicial system, in particular in terms of the length of legal proceedings, particularly in the areas of enforcement and collective proceedings.

Given the constraints identified, it was considered by the Portuguese government of vital importance to speed up and redefine the insolvency procedure, in order to contribute to a more efficient and resilient judicial system for the benefit of micro, small and medium national companies and investors.

Implementation of measures

The Portuguese bill n ° 115 / XIV / 3, which has not yet been approved by the Portuguese parliament, embodies the above-mentioned objectives by providing a normative body to a set of guidelines provided for in component C18 of the PRR.

The following innovations introduced by Portuguese Bill 115 / XIV / 3 are worth mentioning here:

Reduction of the restrictions imposed on the exercise of the function of judicial administrator by removing the compulsory fixing of a defined number of internship candidates in each recruitment procedure;

  • Simplification of the procedure for the verification of debts and classification of debts incident in bankruptcy proceedings, by assigning to the receiver the responsibility of submitting, with the list of recognized debts, a classification proposal, allowing to the judge, in the event of agreement and in the absence of oppositions, to simply approve the two documents, thus allowing a more agile procedure;
  • Entrust the insolvency administrator with the task of establishing a liquidation plan, with milestones defined in time, to sell the assets making up the insolvent mass; and
  • Introduce compulsory partial payments to creditors when the insolvent mass includes proceeds from the liquidation of assets of a value equal to or greater than € 10,000 (approximately $ 11,572), the destination of which is not disputed within the framework of the procedure collective.

The Portuguese bill n ° 115 / XIV / 3 also includes other relevant legislative developments, such as the reinforcement of the transparency of the procedures to be adopted by the court administrators in matters of recovery of the insolvent mass, the attribution to the first the obligation to present a proposal for the final distribution of payments to creditors, which already corresponds to judicial practice, or the possibility of submitting accounts within 10 days of the closing date of the liquidation.

In addition to this, it is also relevant to note that the Portuguese bill n ° 115 / XIV / 3 regulates the case law and the academic debate around the exhaustive nature of the catalog of subordinated claims and the catalog of specially related persons.

Finally, the bill is also responsible for:

  • For the transformation of compensatory claims resulting from the termination of employment contracts by the insolvency administrator after the declaration of insolvency of the debtor into insolvency claims,
  • For the relaxation of the majority conditions necessary for the approval of the insolvency plan; and
  • For the lowering of the deposit amount that secured creditors have to pay in order to submit a proposal to acquire the secured property.

In conclusion, the PRR has defined general guidelines for streamlining the insolvency proceedings which are now about to be implemented through concrete measures contained in the Portuguese bill n ° 115 / XIV / 3.

Nuno Gundar da Cruz

Senior lawyer, Morais Leitão

Catarina Martins Morão

Partner, Morais Leitão

Luis Possolo

Intern, Morais Leitão

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