PORTUGAL Law and Practice Contributed by: Manuel Requicha Ferreira and Diana Avillez Caldeira, Cuatrecasas
Breach of the financial assistance prohibition renders the respective guarantees, security, financing or fund- ing made by the target company null and void. In addi- tion, directors may incur civil and criminal liability. For this reason, it is common to include guarantee-limita- tion language in a guarantee or security agreement. 5.5 Other Restrictions The parties usually agree, for tax reasons, to limit the maximum amount secured by the guarantees or security in order to limit the impact of stamp duty that is due in connection therewith (see 4.2 Other Taxes, Duties, Charges or Tax Considerations ). In the event that the assets of Portuguese compa- nies are covered by legal immunities, namely public domain assets of the Portuguese Republic, or are allocated to any public service purposes, those com- panies can claim immunity from suit, attachment or other legal process in respect thereof. Finally, any guarantee or security must guarantee or secure one or more obligations, to which they are ancillary, and such obligations shall be identified in the guarantee or security agreement. Accordingly, the guarantee/security will always follow the underly- ing secured obligation. As such, the invalidity of the underlying obligation would entail the invalidity of the guarantee/security, and termination of the underlying obligation would entail termination of the guarantee/ security. 5.6 Release of Typical Forms of Security Guarantees and security are ancillary to the guar- anteed or secured obligation; thus, the repayment, satisfaction or cancellation in full of such obligations automatically determines the release of the guaran- tees or security. Nonetheless, it is market practice to execute a formal release agreement in order to obtain all necessary documentation from the lenders allowing perfection of the release of the security to the relevant authorities. This is particularly relevant if the security had been registered with a real estate or commercial registry office (mortgages and quota pledges), or with a bank (bank account pledges). Other actions, such as notifi- cations, the return of share certificates and the cancel-
lation of registrations, may also be required, depend- ing on the type of security that is being released. 5.7 Rules Governing the Priority of Competing Security Interests The priority of competing security interests is deter- mined by the date of registration of the security inter- est (registration priority principle) if the security is sub- ject to registration – mortgages on properties, vessels and aircraft, factory and car mortgages, quota pledg- es, pledges over bank accounts and pledges over deposited and dematerialised shares are all examples of security interests that are subject to registration. Conversely, if no registration is required (eg, assign- ment of receivables), priority is determined by the date on which the relevant perfection requirements of the security are completed, namely the act of possession by the creditor or similar (eg, notification to debtors in an assignment of receivables). Contractual subordination is allowed under Portu- guese law. Creditors may qualify their debt as subor- dinated and have it treated as such in an insolvency proceeding. However, contractual subordination is only recognised if it is made before all creditors (eg, deeply subordinated debt) and not just before certain creditors (eg, mezzanine debt), because insolvency law has general classes of creditors (see 7. Bank- ruptcy and Insolvency ). Therefore, waterfall provisions of intercreditor agree- ments are not recognised in insolvency proceedings, and distributions may have to be redirected amongst creditors after receiving the proceeds in an insolvency proceeding to comply with intercreditor agreements. Under Portuguese law, structural or legal subordina- tion resulting from law is also permitted. 5.8 Priming Liens Privilégios creditórios (preferential claims) are statu- tory liens that allow a creditor to be paid preferentially over other creditors. They result directly from the law and can be of two types. • Real estate statutory liens:
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