The new equity loans legal framework

Equity loans legal framework

On the 12th of January Decree-Law no. 11/2022 was published approving the legal framework for equity loans.

The new regime introduces the equity loans in the Portuguese legal framework, as in several other countries, setting out a new loan agreement with a remuneration set, partially, on a participation in the results of the borrower and with the possibility to convert the debt claims into equity.

The purpose of these loans is established in the agreement to be entered into between the parties or in the terms of issue of debt securities, which may consist of:

    a) Investment financing;
    b) Reinforcement of working capital
    c) Repayment of previous debt
    d) Any other purpose agreed by the parties, compatible with the corporate or investment policy of the lender and the borrower, where applicable, and other applicable law.

These loans can be granted by credit institutions and financial companies, specialized alternative investment undertakings for credit, venture capital and social entrepreneurship, securities investment companies for the promotion of the economy, the resilience and capitalisation fund and other entities that are authorised to grant credit professionally.

An equity loan contract shall be made in writing and when securities representing the debt are issued it shall comply with the rules on the issuance of securities. Additionally, before entering in a participating loan contract, the general assembly of the company shall approve the operation.

This new legal framework tries to meet the need to promote the capitalisation of companies by introducing an instrument of almost-capital which can be accounted, in whole or in part, as equity.

This legislation enters into force on 13 of January 2022.

To access to the entire wording of Decree-law no. 11/2022, of 12 january please click here (in Portuguese).

For more information on this subject, please contact:
Joana Pereira Dias
M&A and Capital Markets

Miguel Silva Cordeiro
Banking and Finance

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