Legal alert no. 57 | CTSU | Communications has been added to your bookmarks.
Legal alert no. 57
On March 2nd 2018, Law no. 8/2018 was published in the Portuguese Official Gazette, establishing the Extrajudicial Regime of Company’s Recovery (hereinafter referred to as RERE) and, consequently, replacing the Extrajudicial System of Company’s Recovery (hereinafter referred to as SIREVE).
RERE’s objective scope consists of the negotiations and restructuring agreements entered into between the debtor and one or more creditors, being the restructuring agreement defined as an agreement aiming at modifying the structure or conditions of the debtor’s assets or liabilities, as well as any other part of its capital structure.
Pursuant to no. 1 of article 2 of the referred Law, in order to enter into negotiations or restructuring agreements, it is necessary that the participants express, unanimously, their agreement to submit such negotiations or restructuring agreements to RERE.
In parallel, RERE’s subjective scope includes the debtors that may be considered as taxable persons of the insolvency’s declaration, in accordance with no. 1 of article 2 of the Portuguese Insolvency and Corporate Recovery Code (hereinafter referred to as CIRE) – excluding individuals who aren’t shareholders of companies – and that, cumulatively, find themselves on a difficult economic situation or on a situation of imminent insolvency.
Although the subjective scope of RERE is focus on the debtor/creditor relationship, the holders of guarantees on the debtor’s assets, even if they are not creditors, may take part in the RERE, as well as the shareholders’ debtors, in accordance with nos. 5 and 6 of article 3 of the Law now approved.
The negotiation of the restructuring agreement is voluntary, according to article 4 of the referred Law, granting to the debtor the possibility to convene all or only part of its creditors, depending on what he considers more appropriate in order to achieve the restructuring agreement, without prejudice to the possibility of any creditor to freely join the negotiation (cf. nos. 5 and 6 of article 7 of the referred Law).
It should also be noted that the negotiation procedure is, as a rule, confidential, without prejudice to the possibility of the parties unanimously agree on its publicity, in accordance with article 8 of the Law now approved.
Therefore, the negotiation procedure should start with the drafting of the negotiation protocol, whose content, although established freely between the parties, shall contain the following elements:
- Full identification of the debtor, the participating creditors and the representatives of the debtor and of the creditors;
- Maximum period agreed for the negotiation procedure, which, in any case, cannot exceed the maximum period of three months from the date on which the deposit of the protocol at the Commercial Registry was requested;
- Total liabilities of the debtor;
- Responsibility for the costs related to the negotiation procedure, including the cost of technical, financial and legal consulting and the manner of distribution thereof;
- Agreement on the non-establishment, by the parties, of judicial law-suits of executive nature against the debtor during the period agreed for the negotiations; and
- Date and recognized signatures.
Once the negotiations have been completed, the negotiation protocol must be deposited at the Commercial Registry, thus producing its effects in relation to the debtor and to the creditors.
Simultaneously, the debtor is obliged to maintain the normal course of his business and to not perform acts of special relevance, as defined in nos. 2 and 3 of article 162 of CIRE, unless such acts are foreseen in the referred protocol or if they were previously authorized by all creditors, directly or through the creditors’ committee.
In relation to the creditors, we highlight that it is foreseen the obligation to not dissociate themselves of commitments undertaken in the negotiation protocol, without having elapsed the maximum period foreseen for the negotiations.
In the event that the debtor and/or the creditors consider that there are no conditions to continue with the negotiation procedure, they must communicate this decision to all who have subscribed and joined the negotiation protocol and require the deposit of said decision at the Commercial Registry.
Additionally to the effects described above, the deposit of the negotiation protocol results in the immediate suspension of insolvency proceedings (in case the insolvency has not been declared yet), as well the executives lawsuits aiming at paying a fixed amount, as well as lawsuits aiming at demanding the compliance with pecuniary obligations.
Once the negotiation protocol has been deposited, the parties must draft the restructuring agreement, whose content is freely established by them and it may include the terms of the debtor’s economic activity and it may also focus on all or only part of the credits held by the participating creditors.
The restructuring agreement should also be accompanied by a declaration issued by a statutory auditor attesting that, at the date, the company is not insolvent, as well as by a list of pending lawsuits initiated against the debtor.
The negotiations of the restructuring agreement end, notably, when the restructuring agreement is deposited at the Commercial Registry, date from which such agreement takes effect, being such effects subdivided in three categories - (i) effects on guarantees, (ii) procedural effects and (iii) tax effects.
In relation to the effects on guarantees, article 24 of the Law now approved provides that, if the restructuring agreement affects preexisting guarantees, the respective beneficiaries must give their consent, which shall be attached to the to the restructuring agreement. On the other hand, if there are new guarantees, the proper legal formalities shall be observed and all supporting documents must be attached to the restructuring agreement.
In relation to the procedural effects, they consist on the immediate extinction of the declarative, executive or restraining lawsuits related to the credits included in the restructuring agreement and in the insolvency lawsuit – provided that the insolvency of the debtor has not yet been declared.
Additionally, tax effects consist of granting the parties the benefits foreseen in articles 268 to 270 of CIRE, provided that the restructuring agreement allows the restructuring of credits that correspond, at least, to 30% of the debtor’s un-subordinated liabilities.
Finally, it should also be noted that, in accordance with subparagraph a) of no. 2 of article 30, the breach of the restructuring agreement by any of the parties, in the lack of foresight of the respective consequences, grants to the non-faulty party the right to terminate such agreement, although such termination does not have retroactive effect.
The present Law entered into force on march 3rd, 2018.
To access the full text of Law no. 8/2018, please click here.