PORTUGAL Law and Practice Contributed by: Marta Pontes, Hélder Frias and José António Reymão Nogueira, Uría Menéndez
• avoid market manipulation; and • protect the interest of minority shareholders. However, and as in most jurisdictions, excep- tions apply in the case of financial assistance provided either: • to a company’s employees; or • by banks and other credit entities within their ordinary course of business. Some Portuguese scholars argue that financial assistance prohibition rules only apply to lim- ited liability companies by shares and not to limited liability companies by quotas, as there is no specific prohibition of financial assistance for this type of company, but the matter remains debatable. As a result of these rules, leveraged acquisi- tions of limited liability companies by shares are generally not permitted. Specifically, and simi- larly to other European countries, there is some debate between scholars on whether leveraged buy-out (LBO) transactions qualify as financial assistance. Some argue that LBOs qualify as financial assistance since the SPV has typically no significant activity that can provide economic justification for the merger. Other scholars state that, due to the complex corporate procedure required in the case of a merger to safeguard the positions of minority shareholders and creditors (eg, creditors have a period of opposition before the merger is completed), an LBO transaction would not qualify as financial assistance. There are no relevant court decisions on this matter that can help to resolve this issue. To avoid the problems related to financial assis- tance rules, the following structures may be implemented:
• the creation of specific tranches under the financing agreement to segregate the amounts that can be guaranteed or secured by the Portuguese target company (eg, trans- action costs or working capital requirements) from the funds raised to acquire the shares of the target; • a pledge of the target shares (since the Portu- guese target company is prohibited from pro- viding security or guarantees, its sharehold- ers can pledge the shares of the Portuguese target company); and • financing the reimbursement of shareholder loans or other forms of quasi-equity instru- ments by the target company. All parties must take into consideration the rules on financial assistance. Buyers who intend to conduct leveraged acquisitions and LBO-type transactions cannot rule out the risk of the appli- cation of these rules. 5.6 Other Restrictions Corporate Benefit Pursuant to the Portuguese Companies Code, the granting of any guarantees or security by a Portuguese company to secure the obligations of third parties shall only be considered included within the corporate power of said company if: said third parties are in a group or control rela- tionship with the security grantor, as set out in the Portuguese Companies Code; or the grantor of the guarantee or security has a justifiable cor- porate interest ( justificado interesse próprio ) in granting the guarantee or security. The law does not define the concept nor provide examples of what may be considered a justifiable corporate interest of a given company. Portuguese courts and scholars tend to use as criteria for determin- ing the existence of justifiable corporate inter- est in specific situations, inter alia, whether the granting of the guarantee or security is neces-
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