PORTUGAL Law and Practice Contributed by: Bernardo Abreu Mota, David Oliveira Festas and Francisco Albuquerque Reis, CS’Associados
In cross-border mergers comprising at least one Portuguese company and a company incorporated in accordance with the laws of another EU member state (which has registered offices, central manage - ment or its main establishment within the EU territory), Portuguese legal provisions are aligned with European standards concerning employees’ participation in the company resulting from the merger. Therefore, if the headquarters of the merging companies is in Portu - gal, the employees’ participation shall be ruled under Portuguese law, which sets forth that the employees’ participation in the company resulting from the merger is not mandatory. Nonetheless, if any of the merging companies has had an average of 500 employees in the six months prior to the cross-border merger and operates an employ - ee participation system, the employees’ participation may comprise their right to appoint or elect members of the corporate bodies or of committees thereof, or the right to recommend or oppose the appointment of members of the management or supervision bodies of the company. This participation right will also be applicable if the Portuguese regime does not provide for the same level of participation as the regime appli - A national security review of acquisitions may exist in certain inbound foreign investments; see 2.3 Restric- tions on Foreign Investments . 3. Recent Legal Developments 3.1 Significant Court Decisions or Legal Developments Although court decisions and precedents in Portugal are not often relevant in M&A-related disputes (partly because of the increased use of arbitration arrange - ments, which do not permit decisions to be made public), a landmark ruling from the Supreme Court of Justice in 2016 established the view of the highest Portuguese court regarding the use of representations and warranties in business acquisition contracts. The Supreme Court of Justice held that the represen - tations and warranties given in two share purchase cable to the merging companies. 2.6 National Security Review
agreements constituted guarantee obligations ( obrig - ações de garantia ), whereby the sellers fully assumed the risk of non-verification of what was represented and warranted. It was further held that, under such clauses, the sellers shall be liable for the divergences between what was represented and warranted and the true state of the target company, regardless of their fault in such divergence. The Court deemed these clauses and the “automatic guaranteeing sys - tem” created by them to be valid under the parties’ contractual freedom. Under Portuguese civil law, objective liability (ie, lia - bility independent of fault) is an exception, with the rule being that fault of the breaching party is a nec - essary prerequisite for liability. Therefore, one of the main points of dispute regarding representation and warranty clauses is whether there is an obligation to compensate in the absence of fault in the breach of representations and warranties. In this ruling, the Supreme Court of Justice appears to answer such query positively, albeit with a signifi - cant technical distinction, holding that the breach of a representation or warranty should be understood not as a contractual breach triggering an indemnification obligation, but as a trigger of a contractual obligation to pay the purchaser (regardless of the existence or absence of fault on the part of the seller) the amount corresponding to the financial/economic difference between the value of the company as represented and warranted by the seller and its actual value. Although a considerable number of questions remain unanswered, the singularity of the ruling should be considered as an important precedent related to M&A. The following recent legal developments with rel - evance to M&A are worth highlighting. • Decree-Law No 114-D/2023 of 5 December entered into force on 4 January 2024 and amended the existing regime for national and cross-border mergers, national demergers and national con - versions, implementing Directive (EU) 2019/2121 and creating the legal framework for cross-border demergers and conversions. This regime is expect - ed to add complexity to the acquisitions of com -
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