Bankruptcy - Portugal

Updated 02/2011

Legal requirements

Entrepreneurs may be able to avoid bankruptcy by anticipating difficulties – if they keep a close eye on the financial situation of their business.

Financial difficulties — Portugal

The new Insolvency and Business Recovery Code (CIRE) was introduced to speed up the bankruptcy process and enable businesses to recover. As a result of speeding up the bankruptcy process, by having specialist courts and simplifying the winding-up and sale of businesses, settlements with creditors are now faster and more effective.

Insolvency and Business Recovery Code

The dichotomy between recovery and bankruptcy has been eliminated, with the situation of insolvency being the only objective pre-condition for the process (‘insolvency process’). However, insolvency should not be confused with ‘bankruptcy’, given that being unable to meet overdue obligations (insolvency) does not imply that a business is not economically viable or cannot recover financially (bankruptcy).

It is the wishes of the creditors that govern the whole process. As a result, it is for the creditors to decide whether payment will be made by complete liquidation of the debtor’s assets, as laid down in the Code or in an insolvency plan approved by the creditors, or by keeping the business going, in the ownership of the debtor or third parties, and restructuring it along the lines also set out in a plan.

Insolvency procedures

The declaration of bankruptcy must be preceded by a comprehensive assessment of the financial situation of the business, as this can simply involve a situation of insolvency – preventing the business from meeting its obligations – or financial difficulties.

The Out-of-Court Conciliation Procedure (PEC) is aimed at businesses that are in a position to apply to the courts for their insolvency. Its purpose is to reach an agreement, negotiated by professionals from the Institute for Support to Small and Medium-Sized Enterprises and Innovation (IAPMEI), between the struggling business and its creditors, in order to enable its recovery. The process can be started by either the business or its creditors, and involves submitting an application accompanied by a five-year business plan.

Out-of-Court Conciliation Procedure
Institute for Support to Small and Medium-Sized Enterprises and Innovation

In accordance with the Insolvency and Business Recovery Code, when a court decides to end the insolvency proceedings due to the debtor’s lack of funds, and once this decision has been notified to the competent registration service, the administrative procedure of liquidation is officially started by the registrar, with the appointment of one or more liquidators.

In this case, the registrar will immediately declare that the liquidation of the business has been completed, except where the insolvency proceedings result in assets allowing the costs of the administrative liquidation procedure to be met.

Responsible bodies

The bankruptcy process is the responsibility of the court closest to where the head office of the business is located.

Courts – Contact Details [293 KB]

Court-Appointed Liquidators and Insolvency Administrators are responsible for liquidating the bankrupt’s assets.

Portuguese Association of Court-Appointed Managers and Liquidators and Insolvency Administrators
Insolvency Administrators – Lists for the Judicial Districts of Coimbra, Évora, Lisbon and Porto

Handling bankruptcy

The establishment of a single special process – the insolvency process, which is intended to speed up the court decision (by making the opening and closing of the process quicker and more flexible) and ensure a fairer balance between the respective interests at stake – should be particularly noted in the new Insolvency and Business Recovery Code.

Entrepreneurs having experienced bankruptcy should not lose confidence in their ability to embark on a new business.

Business — Starting up

Administrative procedures

The application form for the Out-of-Court Conciliation Procedure (PEC) can be accessed through the following link:

PEC Application [76 KB]

Bankruptcy process: step-by-step guide

Businesses can apply to start the bankruptcy process 60 days after failing to meet certain obligations. The bankruptcy process can also be started by the creditors if the shareholders have disappeared and the head office of the business has been abandoned, or if the assets have disappeared or been embezzled. In such cases, the bankruptcy process can also be started by the Public Prosecution Service.

Public Prosecution Service – Office of the Public Prosecutor of the Republic

The bankruptcy process starts with a written petition. The subsequent phases are: summons (notification of all interested parties, including creditors), objection (in which those persons summoned have 10 days to submit their objections to the process and to prove their claims), order to continue the proceedings, hearing, decision , and finally objection by appeal (to request that the bankruptcy decision is overturned).

Business bankruptcy

Court decision

Reorganisation

The Insolvency and Business Recovery Code (CIRE) regulates the closure or financial reorganisation of a business, in which the creditors are given a central and leading role (due to the insolvency, they are regarded as the financial owners of the business).

As a result, it is now much more for the creditors to decide whether to recover the business and under what terms, in particular whether the business will continue to be owned by the insolvent debtor or by someone else. The creditors have to decide whether their claims will be paid by complete liquidation of the debtor’s assets or by keeping the company going and restructuring it.

The business recovery measures are no longer as constraining as they were in the previous legislation. The contents of the insolvency plan are now freely defined by the creditors (in this respect, the court’s intervention is restricted to ensuring that the process is legal so that it can be approved).

Compulsory liquidation

Although, when starting the liquidation, the insolvency administrator should preferably aim to dispose of the assets as a whole, the Supreme Court of Justice has confirmed that failure to approve an insolvency plan does not necessarily mean that the business will be wound up. Furthermore, approval of an insolvency plan does not mean that the business will continue.

The absolute priority is the wishes of the creditors whose interests must be protected by the process: namely, payment of the respective claims under fair conditions with regard to the prejudice resulting from the debtor’s assets not being sufficient to meet the creditors’ claims in full.

Check also the legislation on this topic in:

Bankruptcy - Portugal