PORTUGAL Law and Practice Contributed by: Manuel Magalhães, Mafalda Ferreira Santos, Francisco Boavida Salavessa and Maria José Lourenço, Sérvulo & Associados
or any other payment, from the company while the recovery plan is in force.
evant. The debtor has an obligation to co-operate with the insolvency administrator in this mission, as do the other insolvency bodies, such as the assembly and the creditors’ committee. 5.3 The End of the Liquidation Procedure(s) The liquidation proceedings may end in various situ - ations listed in Portuguese law, such as: • final pro rata payment to creditors at the end of the liquidation; or • a final judgment declaring the insufficiency of the insolvent estate, which means that it is insuffi - cient to pay the costs of the proceedings and the estate’s debts, and no creditors of the insolvency will be paid. 5.4 The Position of Shareholders and Creditors in Liquidation Insolvency affects creditors – both secured and unse - cured – as well as the insolvent’s shareholders. Shareholders One of the most important consequences of insol - vency for the debtor’s shareholders stems from the fact that the insolvency plan may provide for the share capital to be reduced to zero followed by a subse - quent capital increase (“harmonium operation”), with the previous shareholders being deprived of owner - ship of the debtor’s shares. The typical means by which shareholders defend their rights in insolvency proceedings is to file an opposition to the judgment declaring insolvency (“embargo”) and to request the non-approval of the insolvency plan. Creditors The insolvency declaration may lead to the extinc - tion of guarantees and credit privileges (provided that certain legal conditions are met). In cases where guarantees and privileges are not extinguished by the declaration of insolvency, other relevant effects of insolvency on ongoing business are foreseen in the CIRE. The existence of guarantees for the fulfilment of these deals must be analysed on a case-by-case basis, since the solution to be given depends on the position that the insolvent takes in the deal.
5. Statutory Insolvency and Liquidation Procedures 5.1 The Different Types of Liquidation Procedure Liquidation Proceedings Insolvency proceedings are universal enforcement proceedings aimed at satisfying creditors by liqui - dating the insolvent debtor’s assets and distributing the proceeds to creditors. The criterion for initiating a procedure is insolvency, defined as the inability of the debtor to fulfil its obligations as they fall due, or a situation where the liabilities of the debtor clearly exceed its assets. Subjective Scope of the Proceedings Insolvency proceedings apply to both individuals and corporate entities in Portugal (with some differ - ences), and usually commence via the lodging of an application in court, which can be filed by the debtor, the creditors or the Public Prosecutor’s Department. Filing for insolvency may be an obligation, once the assumptions foreseen in the law are met. 5.2 Course of the Liquidation Procedure Effects of Proceedings on the Debtor and on Ongoing Contracts Once insolvency proceedings have begun, the debt - or remains in place, as does its management, unless precautionary measures are requested – namely, the appointment of a PA with exclusive powers to man - age the debtor’s assets or to assist the debtor in its management. Contracts in force will, in principle, continue to be exe - cuted under the terms in which they were contracted until insolvency is declared. Interests at Stake in Liquidation Proceedings In insolvency proceedings, particularly if the debtor is to be liquidated, the interests to be defended are the creditors’. To this extent, the role of the insolvency administrator, whose mission is to liquidate the insol - vent estate and pay the creditors, is particularly rel -
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