Legal alert no. 93
Change to the Legal Framework of Credit Institutions and Financial Companies (“RGICSF”)
Law no. 23/2019, March 13th.
On March 13th 2019, Law no. 23/2019, which transposes Directive (EU) 2017/2399, of the Parliament and the Council, of December 12th 2017, proceeding to alter Decree-Law no. 199/2006, October 25th, the forty-ninth change to the Legal Framework of Credit Institutions and Financial Companies (“RGICSF”), and the seventh change to Decree-Law no. 345/98, November 9th, was published in the Official Gazette of the Republic of Portugal.
Decree-Law 199/2006, regulating the liquidation of credit institutions and financial companies based in Portugal and their respective branches created in a different Member State, saw article 8-A added, establishing an exception to the par conditio creditorium principle, regarding common credits emerging from debt instruments.
For what concerns Decree-Law 199/2006, debt instruments are bonds, other securities representing debt as well as any instruments creating or recognizing a right to credit.
For such instruments, it is established that once certain conditions regarding nature, maturity, contractual provisions on payment of credits and issuer are met, the ranking of such common credits emerging from debt instruments shall be carried out after the remaining common credits’, and before the payment of the subordinated credits.
This credit ranking is applicable to debt instruments issued or negotiated by:
· Credit institutions;
· Investment companies negotiating on their own behalf or underwriting financial instruments, and placing on a firm commitment basis of the financial instruments foreseen on section C, of annex I of Directive 2014/65/EU of the European Parliament and the Council, of May 15th 2014;
· Financial institutions which are subsidiaries of a credit institution, of an investment company exercising the activities foreseen in the previous paragraph, or of any entity mentioned in the following paragraphs, as long as they are covered by the supervision on a consolidated basis which their holder is subject to;
· Financial companies, mixed financial companies and mixed companies; or
· Holder financial companies in Portugal and holder mixed financial companies in Portugal.
The cumulative conditions to be fulfilled by credits emerging from debt instruments for the referred credit ranking to be applicable are the following:
· The initial maturity is equal to or greater than 1 year;
· The debt instruments are not and do not contain any derivatives;
· The contractual provisions applicable to the debt instruments and, if applicable, the respective prospectus, expressly refer that, in case of insolvency, the ranking of credits emerging from debt instruments is the abovementioned.
In relation to RGICSF, numbers 5 and 6 are added to article 166-A. It is stated that deposit credits covered by the Deposits Guarantee Fund (“Fundo de Garantia de Depósitos”) not regulated by numbers 1 to 4 of the same article are entitled to a general privilege on the movable property of the credit institution and a special privilege on the its estate, prevailing over all other privileges, albeit subordinated in relation to deposited credits regulated by numbers 1 to 4. It is further established that said credit privileges, when owned by the State, local authorities and social security institutions, are not extinguished by the insolvency declaration, even if they date back further than the 12 months preceding the beginning of the insolvency procedures, overruling the provisions a) and b) of article 97 (1) of the Portuguese Insolvency Code (“Código da Insolvência e Recuperação de Empresas”).
Lastly, article 14-A of Decree-Law 345/98, regulating the Mutual Agricultural Credit Guarantee Fund, is altered in the same terms as RGICSF’s article 166-A.
This legal diploma shall take effect from March 14th, 2019.
To access the full text of Law no. 23/2019, March 13th, please click here.