PORTUGAL LAW AND PRACTICE Contributed by: João Gonçalo Galvão, Carolina Cardoso Alves and Miguel Paquete, CS’Associados
3.5 Legal Requirements Before an Entity Can Give Valid Security Companies may grant security as collateral to their own liabilities within the performance of their activity. However, the granting of security as collateral for third-party liabilities is restricted by corpo - rate benefit rules. Any security interest provided for third-party liabilities is deemed null and void, unless it secures the liabilities of a company with which the security provider is in a control rela - tionship or if it has a justified corporate interest therein (which may include a direct or indirect economic benefit to its activities). Regarding financial assistance restrictions, any security granted by a company to secure liabili - ties related to the acquisition of its share capital is considered null and void. 3.6 Formalities When a Borrower Is in Default Contractual provisions requiring the prior accel - eration of secured liabilities as a requirement for security enforcement are standard. Judicial enforcement proceedings involve a court appli - cation, seizure of the property and public sale. The principle is that the priority of a security interest is determined based on the date of its creation (this being assessed, in the case of a mortgage, by the priority of its registration with the LRO). The lender’s mortgage, if registered as a first-ranking mortgage, gives priority over creditors that do not benefit from statutory liens (such as legal expenses, real estate tax and transfer taxes) and allows the property to be sold free of prior security interests. The timeframe for enforcing a mortgage can vary from several months to over a year, depending on court workload and the parties’ statements.
At time of writing, lenders are actively exercising their foreclosure rights whenever necessary and there is an active market for non-performing loan portfolios. 3.7 Subordinating Existing Debt to Newly Created Debt Existing mortgage-secured debt may become subordinated to newly created debt by agree - ment between secured creditors, such agree - ment to be entered into as a public deed or authenticated private document and submitted for registration. The ranking assignment is in principle subject to debtor and security provider authorisation. Furthermore, creditors may agree to subordi - nate secured debt through intercreditor agree - ments in restructuring scenarios where new debt is ranked with priority. Under the Portuguese Insolvency Code, the so-called Special Revitali - sation Procedure allows new financing under a recovery plan to be given preferential treatment over existing secured debt. Moreover, under the Extrajudicial Business Recovery Regime, new financing can be given priority subject to credi - tors’ agreement. 3.8 Lenders’ Liability Under Environmental Laws Please see 2.7 Soil Pollution or Environmental Contamination . 3.9 Effects of a Borrower Becoming Insolvent Security interests do not automatically become void upon insolvency. However, security created within the two years prior to an insolvency may be voided if deemed fraudulent or preferential, especially if granted for pre-existing debt. Furthermore, cases in
791 CHAMBERS.COM
Powered by FlippingBook