New insolvency, company restructuring rules to take effect in April

New rules on insolvency and restructuring of companies in Portugal come into force in mid-April, under a law published in the state gazette on Tuesday that reduces the period of personal insolvency to three years from the current five.

At present, people who file for insolvency are limited in their financial life for five years, after which the period of assignment of disposable income ends, freeing them from the remaining debts. That interim period is now to be reduced to three years.

“If the debtor is an individual, he may be granted exoneration of insolvency claims that are not paid in full during the insolvency process or within three years of its closure,” reads the law now published in the country’s Official Gazette.

In addition to this reduction in the time limit, it will now be possible to seize or sell assets at the end of the liquidation of the debtor’s assets and after the insolvency process has been closed, with a view to delivering the value of the assets to creditors.

Another change concerns companies resorting to the Special Revitalisation Process (PER), which as of April is to last four months, with the possibility of an extension for one further month, to negotiate a plan with creditors under which debt enforcement is be suspended.

At the reasoned request of the company, a creditor or the provisional judicial administrator, provided this is lodged within the negotiation period, the judge may immediately extend the suspension period for one month, if there has been significant progress in the negotiations of the restructuring plan, if it is essential to ensure the recovery of the company’s activity or if the continuation of the suspension of enforcement measures does not unfairly prejudice the rights or interests of the affected parties.

The law published on Tuesday comes into force 90 days after publication, that is in mid-April, and applies not only to new cases but also to pending proceedings, albeit with a transitional regime allowing some changes to apply only to PERs brought after the law comes into force.

As for insolvency proceedings of individuals pending on the date of entry into force of the law, in which the request for discharge of the remaining liabilities has been granted on a preliminary basis and whose period of assignment of available income in progress has already completed three years on the date of entry into force of the new law, “the said period is considered to have ended with the entry into force of this law.”

The provisions of the new law, according to this transitional regime, “does not affect the processing and judgement, in the first instance or on appeal, of any pending issues regarding the incident of exemption of the remaining liabilities, such as those relating to the value of the unavailable income, terms of allocation of the debtor’s income or requests for early termination of the exemption procedure.”

The law now published was approved by parliament in mid-November, with the governing Socialist Party (PS) and the three-member People-Animals-Nature (PAN) voting in favour and all other members of parliament abstaining. It was promulgated on 25 December by the president, Marcelo Rebelo de Sousa.

The legislation seeks to implement commitments made by Portugal under the Recovery and Resilience Plan (RRP) for spending European Union post-pandemic funds and transposes into national law an EU directive that aims to speed up the access of companies in preventive restructuring schemes, which allow the company to maintain its activity and avoid job losses, and to ensure that insolvent or over-indebted companies benefit from total debt forgiveness after a certain period.