Portugal Survey on: Claw-back of security in insolvency Questionnaire

Transcription

1 1. Introductory questions Portugal Survey on: Claw-back of security in insolvency Questionnaire 1.1 Please briefly describe the main type of security in your jurisdiction (per type of asset; per perfection technique; per type of secured obligation). A. Types of security For the purposes of this section the expression security right corresponds to the Portuguese concept of direito real de garantia, i.e. a security right in rem granting, at least, the following two fundamental rights in rem to the secured party: (a) the right to pursue the secured asset, even if it is transferred to any third party and (b) the right to be paid out of the proceeds of the sale of the secured asset with priority over any unsecured creditors. Under Portuguese law, parties may establish different types of security rights on different types of assets. However, it is not possible to grant or create security rights different from those categorically foreseen and regulated in the law, due to the fact that all rights in rem are subject to a numerus clausus. This being said, the most common types of security used in banking transactions in Portugal would be the following: (a) Mortgage hipoteca - A mortgage is a type of security right in rem which entitles the creditor to be paid with priority over unsecured creditors, against the value of certain real estate (or of any assets considered by law as equivalent to real estate, such as vehicles, vessels, etc.) owned by the debtor or by third parties. Mortgages may only be created over the following assets: (i) ownership rights over real estate; (ii) surface rights; (iii) rights resulting from the concession of assets of the public domain (iv); usufruct over any of the mentioned rights/assets; (v) any movable assets which may be treated by law in the same manner as real estate, namely regarding registration procedures, etc. (ex.: vehicles, ships, aircraft, etc.). (b) Pledge penhor - A pledge entitles the creditor to be paid, with priority over unsecured creditors, against the value of certain existing movable assets or rights, including not only credit rights but also other patrimonial rights which are not susceptible to being mortgaged (in order for a pledge to be valid the rights subject thereto have to be certain or, at least, definable). In practice, the pledge grants the creditor a priority right over the proceeds of the sale of the pledged asset or right, in relation to the remaining unsecured creditors. (c) Assignment of credits in security cessão de créditos com escopo de garantia - In general, Portuguese law does not foresee fiduciary ownership and usually security rights foreseen by Portuguese law do not allow for a transfer of ownership of the secured assets to the creditor. In addition, as a general rule [with the particular exception of the financial collateral regime established by Decree Law nr. 105/2004 of May 8 (the Financial Collateral Law ) which transposed Directive 2002/47/CE (the Financial Collateral Directive ) to the Portuguese internal legal system] and for the generality of the security rights, the Portuguese Civil Code does not allow for the creditor to become, automatically, the owner of the secured assets in the case of default by the debtor ( pacto comissório ). This means that enforcement of security rights must usually be carried out through the sale of the relevant assets to third parties. This being said, in the specific case of receivables and of other credit rights, namely those having a pecuniary value, Portuguese doctrine has come to accept as valid an assignment of such assets in favour of a creditor, such assignment being done for the purposes of security ( com escopo de garantia ). It is therefore common in banking documentation to find an assignment by the debtor of certain credits in favour of its creditors, particularly in relation to future credits (which cannot be pledged). This system, however, has not been extended to bank accounts, which, in the opinion of the majority of the doctrine may be subject to a pledge (therefore, not requiring the use of the assignment in security concept). 1

2 (d) Financial Security - Without prejudice to (c) above, Portugal implemented the Financial Collateral Directive to the Portuguese internal legal system, through the Financial Collateral Law, which provides, in specific cases, for the possibility of fiduciary transfer of ownership as a security right and for the possibility of the creditor to become the owner of the secured assets in the case of default by the debtor ( pacto comissório ). This regime is only applicable if the collateral to be posted consists of cash or financial instruments (i.e. securities, money market instruments and credits or rights relating to any of the referred financial instruments). The Financial Collateral Law foresees two types of financial security agreements: (i) fiduciary transfer by way of security (in which title regarding the relevant collateral is effectively transferred by way of security to the transferee) and (ii) financial pledge [which does not imply the transfer of title on collateral to the secured party, but provides for the possibility of the creditor to become the owner of the secured assets in the case of default by the debtor ( pacto comissório )]. The financial collateral regime applies only to financial security agreements in which either the provider of security or the beneficiary thereof is one of certain entities, such as a Bank/Credit institution. The financial obligations to be secured by means of a financial security agreement must consist of a transaction settled in cash or by means of the delivery of financial instruments. B. Security per type of asset: (a) Real Estate: The concept of Real Estate ( bens imóveis, literally translated as immovable property ) includes land together with its permanently affixed fixtures/equipment. As referred to above, whenever the asset on which the security is established is an immovable asset, the applicable type of security right will be a mortgage. Contractual mortgages on real estate require the execution of a notarial deed and are subject to registration with the Land Registry Office. Without due registration the envisaged security is null and void. The priority granted by duly registered mortgages to the corresponding beneficiary ranks pursuant to the date of registration and, if registered on the same day, equally. The mortgagee/creditor does not have the right to automatically take possession of the property in the event of default of the secured obligation, the latter must seek judicial sale of the property and be paid out of the proceeds of such sale. (b) Charging assets (inventory, stocks etc.): The establishment of floating charges or the creation of security on a whole pool of assets owned by an entity by way of the execution of one general instrument or contract is not admitted under Portuguese law as a valid form of establishment of security rights. Pursuant to Portuguese law, any creditor intending to expand its security rights so as to cover any new assets meanwhile acquired by the debtor must always establish new security rights over such new assets. In Portugal, there is no concept of automatic seizure of new security rights to rights established on asset(s) existing prior to subsequent acquisitions. Hence, due to the numerus clausus feature of Portuguese rights in rem, a contractual provision in this respect would be regarded as null and void. Furthermore, it is not possible to grant security over an uncertain asset. For the security to be valid and existing it has to be established over a certain asset and in the case of an inventory, each of the assets comprising such inventory will be regarded as a movable asset. Accordingly, please see (c) below in respect of the establishment of security rights over movables. (c) Movables: Security rights may be established over movable assets by way of a pledge, which may be formalized by way of a private written agreement. As a matter of principle, the perfection of a pledge over movable assets requires that the creditor takes possession of the pledged assets until full discharge of the debt. However, and as an exception to the this principle, Portuguese banking law (Decree-Law nº of 17 August 1939) foresees that a pledge established to secure credits of duly authorised banking institutions produces its effects (between the parties to the credit agreement and as well as in respect of third parties), regardless of the delivery of the asset/dispossession or of the document attesting the right. This means that, exceptionally, in the case of a pledge granted in favour of banking institutions, the debtor may keep possession of the relevant pledged assets (this type of pledge requires that signatures on the security document must be authenticated by a lawyer or notary public). In this case, the debtor will be considered as a holder on behalf of a third party. Should the debtor dispose of, modify or destroy the object of the pledge without the creditor s prior consent, the former shall be subject to criminal liability. (d) Shares: (i) Pledge over shares of private limited companies ( sociedades por quotas or Limitadas ): The shares ( quotas ) representing the share capital of private limited companies are not materialised in certificates, consisting of a simple registration in favour of the respective holder, in the commercial registry. Accordingly, the creation of a pledge over shares of this type of company is subject to the execution of a private written document (containing the terms and conditions under which the pledge is granted, in favour of 2

3 whom the pledge is granted and the rights which are to be secured). The said private document must subsequently be registered with the Commercial Registry Office, in order for the pledge to be effective against third parties (erga omnes). (ii) Pledge over shares of joint stock companies ( sociedades anónimas or SA ): Pledges over shares of joint stock companies are established by way of a private written document (containing the terms and conditions under which the pledge is granted, in favour of whom the pledge is granted and the rights which are to be secured). Perfection of pledges over the different types of shares of SA companies is achieved as follows: (1) Book entry shares: the pledge must be registered in the account in which the shares are registered; (2) Nominative certified shares: the pledge must be registered with the respective issuer (through the filing of an application signed by the pledgor) joint stock companies must have a share registration book, which must be kept in their registered office and which must contain all records regarding the ownership and encumbrances created over the shares. The new owners of nominative shares or the pledgees of such type of shares must request the company s management to record their title in the said share registration book (further to a declaration of pledge recorded in the certificate itself, signed by the owner of the shares to be pledged); (3) Bearer certified shares: dispossession, i.e., delivery of the share certificates to the pledgee. (e) Rights under contracts (receivables): As mentioned above, one may establish security over credit rights by way of a pledge, whenever the object underlying such rights is a movable asset (e.g. cash or any other movable assets) capable of being transferred. The rule is that the creditor must take possession of any documents evidencing the debt, and the debtor owing the corresponding debt must be notified by the pledgor of the establishment of the relevant security right (or accept it) in order for the pledge to be effective vis à vis the said debtor. It is also usual in Portugal, as an alternative or complementary to a pledge, to grant an assignment in security over the receivables, as described in 1.(d) above. The formalities required in this regard are similar to those described in the foregoing for pledges over credit rights (e.g. notification of the debtor is crucial). (f) Bank Accounts: Bank accounts may be subject to pledges, which may be formalized by way of a private document, subject to registration with the relevant credit institution, i.e., in order for the security right to be perfect, such credit institution must always be notified or accept the pledge. Besides these mandatory requirements, parties are free to agree on the specific terms/mechanics of the pledge. Usually, bank deposits are specifically allocated to the satisfaction of certain obligations. Hence, the pledgor/debtor would normally be prevented from using such deposit while its debt remains outstanding. Typically the pledge allows the credit institution, on the due date, to be paid by debiting such account, i.e. to set-off its credit against the balance of the account. It is also usual to create the pledge over the balance of the account, thereby allowing the debtor to operate the account before the maturity date. It is also possible for parties to implement financial pledges or fiduciary transfers by way of security (i.e. financial security agreements) over bank deposits provided the requirements foreseen in the Financial Collateral Law are duly satisfied (e.g. one of the parties is a financial institution and the secured obligations consist of a transaction settled in cash or by means of the delivery of financial instruments). In terms of formalities, the financial security agreement must allow for the identification of the collateral provided, as follows: (i) financial pledge on cash collateral - Registration in the account of the collateral provider; (ii) fiduciary transfer by way of security of cash collateral - Registration of the credit in the account of the beneficiary/creditor (g) Financial instruments (e.g. securities): As a matter of rule, security rights over securities and similar financial instruments are created by way of a pledge, following the formalities described in (d) above. It is also possible to implement financial security agreements over bank securities provided the requirements foreseen in the Financial Collateral Law are duly satisfied. As referred in 1. (d) above, the financial security agreement must allow for the identification of the collateral provided, as follows: (i) financial pledge on dematerialized (book-entry) securities - Registration in the account of the owner or in the account of the beneficiary/creditor; (ii) Fiduciary transfer by way of security of dematerialized (book-entry) securities - Registration of the fiduciary acquisition in the name of the beneficiary/creditor. (h) Intellectual Property: Portuguese law divides the concept of Intellectual Property into two separate concepts, ruled by two different Codes. The Industrial Property Code regulates the legal regime applicable to trademarks and patents whilst the Copyright and Connected Rights Code concerns copyrights and similar rights. Trademarks, patents and copyrights can be posted as security by way of the creation of pledges. The creation of pledges over trademarks and patents is subject to the execution of a written document which must be registered with the Industrial Property National Institute ( Instituto Nacional de Propriedade Industrial known as INPI ). This registration is a condition of effectiveness erga omnes. Copyrights are 3

4 regarded as subjective rights, which grant the respective holder the possibility to exercise them directly and/or the possibility to require compliance with that right from any third parties. It is viewed as an exclusive temporary right. Copyrights include personal (or moral) and financial elements. Only the financial elements of a copyright can be subject to pledge, as follows: (i) pledges established over a part of the financial elements of a copyright may be formalized by a private written document with notarial certification of the respective signatures; and (ii) pledges established over the whole financial elements, must be formalized by way of a notarial deed. No registrations are required in relation to security over copyrights. (i) Other assets: Parties may furthermore establish mortgages over the following assets: (i) vessels - by way of the execution a notarial deed. Mortgages over commercial vessels are subject to registration with the Commercial Registry Office. Mortgages over pleasure yachts are subject to registration with the competent port authority; (ii) vehicles (i.e. movable assets subject to registration which, like vessels, follow the legal regime applicable to mortgages) - by way of a private written document which must be registered with the Vehicles Registry Office; (iii) aircraft by way of a private written document which must be registered with the National Civil Aviation Institute ( Instituto Nacional da Aviação Civil also known as INAC). Animals, harvests and timber are regarded as movable assets, therefore it is possible to create pledges over them in accordance with the formalities and with the restrictions described above. 1.2 Please briefly describe whether your jurisdiction provides for a procedure of protection against creditors (usually initiated by a debtor at a time when the debtor is yet not insolvent) and if so what are its basic assumptions? The only specific procedure of protection against creditors available to debtors under Portuguese law would be the insolvency procedure, as described in 1.3 below. 1.3 Please briefly describe the types of insolvency proceedings contemplated by your legislation (liquidatory proceedings; reorganisation or recovery proceedings). In addressing these we will have to provide a separate analysis for corporations and credit institutions (other entities such as insurance companies and pension funds will not be analyzed). A. Corporations The current legal insolvency regime, as reflected in the Insolvency and Recovery Code approved by DL 53/2004 of 18 March, 2004 which came into force on 15 September, 2004, as amended (the Insolvency Code ), foresees one type of procedure: the Insolvency Procedure. The Insolvency Code defines insolvency as a situation in which a debtor is not capable of complying with its obligations as they fall due. Corporate entities are also considered as insolvent whenever their liabilities clearly exceed their assets. Upon an application for insolvency (which may be filed by the debtor, any creditor or the public prosecution agency known as Ministério Público ), the court must, within three days, issue a decision either: (i) overruling the application; (ii) immediately declaring the debtor as insolvent whenever the applicant is the debtor itself; or (iii) notifying the debtor of the relevant application so that the latter may contest it. After the issuance of the declaration of insolvency (which is published in the official gazette, in newspapers and in other public registries and involves, inter alia, the appointment of the administrator of the insolvency, the apprehension of all accounting documents and assets of the debtor and the notice to creditors to present their claims), the creditors must present their claims in order for such claims to be recognized or not and listed in terms of priority by the court which will then issue the relevant decision in relation to the validity of the claims and the corresponding priority graduation. The administrator appointed by the court will then produce a report analyzing the financial status of the Corporation and presenting his opinion as to the possibilities of recovery and the convenience of the approval of an insolvency plan in view of such recovery. Subsequently the creditors assembly meets in order to decide whether to instruct the administrator to approve an insolvency plan envisaging recovery or to immediately liquidate the Corporation in question. 4

5 B. Credit Institutions Where a Credit Institution faces financial difficulties (e.g. fails to pay or declares that it is not able to pay its creditors), the Bank of Portugal (the Portuguese Central Bank) may intervene in the management of such Credit Institution, pursuant to Article 143 of the General Regulation of Credit Institutions and Financial Companies - DL 298/92 of 31 December, 1992, as amended (the Banking Law ) and adopt certain recovery measures. During the period of such intervention all proceedings against the Credit Institution will be suspended (in a manner similar to what happens to a Corporation within the scope of insolvency proceedings). In cases where the Credit Institution does not recover, then the Bank of Portugal will revoke the authorization allowing the Credit Institution to pursue its activity and the latter will be liquidated in accordance with the terms of the Law on Liquidation of Credit Institutions and Financial Companies - DL 199/2006 of 25 October, which implemented Directive 2001/24/CE of the European Parliament and Council of 4 April, 2001 into the Portuguese jurisdiction ( LLCIFC ). Pursuant to Articles 5 nr. 1 and 8 nr. 2 of LLCIFC, Credit Institutions are automatically regarded as dissolved by virtue of the said revocation of authorization. According to Article 8 of LLCIFC, the application for the judicial liquidation of Credit Institutions based on the referred revocation must exclusively be filed by the Bank of Portugal and the corresponding process of liquidation will be carried out pursuant to the rules of Insolvency Code (Article 9, nr. 3 of LLCIFC), to the extent that such rules do not conflict with the Banking Law and LLCIFC. The revocation by the Bank of Portugal produces the effects of a declaration of insolvency, as described above in relation to Corporations and the provisions of the Insolvency Code will apply in substance (again, provided that such provisions do not conflict with the Banking Law and LLCIFC) to the liquidation of Credit Institutions. Once the application for liquidation is filed and accepted by the court, the judge, following a proposal by the Bank of Portugal, appoints a liquidator or a liquidation committee composed of three members (according to the complexity of the relevant liquidation), to whom are granted the same powers and prerogatives of the insolvency administrator, as foreseen in the Insolvency Code. The Bank of Portugal may follow the activity of the liquidator and present any claims and appeals as deemed convenient. 1.4 Please briefly describe the types of claw-back actions available in your jurisdiction. Please address, in particular, any of the following questions: (a) Is claw-back automatic or does it require a positive assessment of the existence of the relevant conditions by the court or the receiver? (b) Does your legislation differentiate between transactions (including the granting of security) with consideration and without consideration? (c) Does your legislation differentiate in cases of security in general, between security taken concurrently with the granting of the secured debt and security taken in a different period of time? (d) Are there special provisions for intra-group transactions and transactions between related parties? A. General Principle Article 120 of the Insolvency Code establishes the general principle that any actions or omissions that are prejudicial to the insolvent estate performed or omitted within the four years preceding the starting of insolvency proceedings may be terminated to the benefit of the insolvent estate. Any transactions capable of decreasing, frustrating, obstructing, endangering or delaying the satisfaction of the creditors of the insolvent estate are legally considered as prejudicial to the estate. Save for the cases foreseen in 1.4.B. below, the termination of prejudicial transactions requires that any third parties must have acted in bad faith. In any event, the law foresees a presumption that third parties intervening in the said prejudicial transactions have acted in bad faith whenever: 5

6 (a) such actions or omissions had taken place within a period of two years prior to the starting of insolvency proceedings; and (b) The said third parties are specially related to the insolvent party (inter alia, affiliates, directors, etc.) and have participated in, or have taken advantage from, such actions or omissions, even if the special relationship did not exist at the time of the fact in question. The transactions listed in paragraph 1.4 B. below are also legally presumed (without admission of evidence to the contrary) to be prejudicial to the insolvent estate. B. Unconditional Termination Pursuant to Article 121 of the Insolvency Code, the following acts/contracts are legally presumed as prejudicial to the insolvent estate and may be terminated to the benefit thereof without the need of any further requirements: (a) (b) (c) (d) (e) (f) (g) (h) (i) partilha (division of assets between heirs of an individual) entered into within one year prior to the beginning of insolvency proceedings, if under such partilha the portion of assets attributed to the insolvent entity consists of easily concealable assets whilst the remaining heirs are granted the generality of the immovable or nominative assets; acts/contracts entered into on a gratuitous basis by the insolvent party within the two years prior to the date on which the insolvency proceedings have been initiated; security in rem created or replaced/increased by the insolvent party in relation to pre-existing obligations, within six months prior to the beginning of insolvency proceedings; guarantees and sub-guarantees in personam ( fianças, sub-fianças, aval and mandatos de crédito ) granted by the insolvent party within six months prior to the beginning of insolvency proceedings, provided such guarantees have been granted in respect of a transaction of no serious interest to the insolvent party; security in rem created simultaneously with the secured obligations within sixty days prior to the beginning of insolvency proceedings; payments or any other legal act of extinction of obligations (e.g. set-off), with a maturity date occurring after the starting of insolvency proceedings, made within a period of six months prior to the beginning of such proceedings or made after such beginning of proceedings but prior to maturity; payments or any other legal form of extinction of obligations (e.g. set-off), which the corresponding creditor would not be entitled to claim, made within a period of six months prior to the beginning of insolvency proceedings in terms legally considered as non-usual; acts/contracts onerously entered into by the insolvent entity within one year prior to the beginning of insolvency proceedings, according to which the obligations undertaken by the latter clearly exceed those undertaken by its counterpart; reimbursement of shareholders loans within one year prior to the beginning of insolvency proceedings. 2. Specific questions 2.1 Is claw-back subject to specific rules with respect to any type of security available in your jurisdiction? If so, please describe any such rules. The rules described in 1.4 above apply regardless of the nature and type of security available under Portuguese law. 2.2 Are there any total or partial exemptions from claw-back, depending on (for example): (a) The type of security; 6

7 (b) (c) (d) (e) (f) The type of transaction secured (including its legal form); The type of (wider) transaction within which the financing is granted and the relevant security is taken (e.g. financings granted in the context of certain reorganisation proceedings); The nature of the grantor of security; The nature of the beneficiary of security; Other. In this respect, it should first be noted that under Article 122 of the Insolvency Code, any acts included within the scope of payment systems as defined by paragraph a) of Article 2 of Directive 98/26/CE of May 19, are not subject to termination in the terms described in 1.4 above. In addition, pursuant to Article 17 of the Financial Collateral Law, as a matter of exception to the general regime described in 1.4, financial security agreements and financial collateral posted under such agreements cannot be terminated due to the fact that such agreements had been executed and such collateral had been posted: (a) on the date of opening of liquidation or recovery proceedings provided that such agreements are executed and/or the collateral is posted before the sentence or equivalent decision; (b) on a given previous period defined by reference: i. to the opening of liquidation or recovery proceedings; ii. to the adoption of any other measures or the occurrence of any other fact during such proceedings. The following acts also cannot be terminated when performed within the said periods: (c) the posting of new collateral in the event of variation of the amount of the secured financial obligations or in the event of variation of the value of the collateral itself; and (d) the replacement of the collateral by similar assets. 2.3 How does your legal system address the claw-back of quasi-security transactions, e.g. a sale of a property in return for a price payable in instalments may hide a financing transaction secured by the property; which legal regime applies in this case: that of the claw-back of security, or that of the termination of pending (sale and purchase) agreements? It would be, in our view, unlikely that a quasi-security transaction such as a sale of a property in return for a price payable in instalments would be re-characterised as a proper security transaction for the purposes of paragraphs (c), (d) and (e) of 14.B above. Hence, the crucial issue would be not so much to ascertain the type of transaction in question (e.g. quasisecurity or other transactions), but to determine (a) the moment on which such transaction was executed; (b) whether the transaction is or is not prejudicial to the insolvent estate; and (c) whether it was entered into in bad faith by the third party. If the relevant quasi-security transaction is entered into within the four years preceding the starting of insolvency proceedings, is entered into in terms that are prejudicial to the insolvent estate and is entered into in bad faith, it can be terminated by the insolvency administrator to the benefit of the insolvent estate. 2.4 What are the legal consequences of the claw-back for the parties involved? For example: (a) (b) Is an agreement, deed or transaction subject to claw-back invalid or just ineffective between the debtor an the party to the agreement; To what extent can claw-back affect the successful exercise or enforcement of security rights as may have occurred prior to the adjudication in bankruptcy (e.g. claims cashed by the secured lender under a security assignment of receivables prior to the adjudication in bankruptcy)? Is there any difference between the case of selfenforcing security (e.g. the cashing of claims referred to above) and a court-driven enforcement (e.g. the enforcement of a mortgage)? 7

8 As referred to above, the execution of any of the transactions in the terms described in 1.4 above entitles the insolvency administrator to terminate such transaction to the benefit of the insolvent estate. Pursuant to Article 126 of the Insolvency Code, such termination has retroactive effects, which means that the legal consequences of the claw-back are that the insolvent entity will be restored to the situation in which it would have been had the terminated transaction not been executed. Accordingly, claw-back can affect the successful exercise or enforcement of security rights to the extent that such security rights may be terminated pursuant to 1.4 above. This may occur both in relation to selfenforcing security and a court-driven enforcement. Again, the question would be to ascertain whether the security transaction is included within the list detailed in 1.4 B or, if not, to determine (a) the moment on which the security transaction was executed; (b) whether the security transaction is or is not prejudicial to the insolvent estate; and (c) whether it was entered into in bad faith by the relevant third party. 2.5 What are the rights of the parties involved once the claw-back had been enforced (as a result of operation of law or court ruling)? Under Article 126 of the Insolvency Code, the insolvency administrator may enforce termination and its legal consequences (e.g. the restitution of assets delivered to third parties to the insolvent estate) through a court action attached to the relevant insolvency proceeding. Any third party that does not deliver to the insolvent estate the assets held under a terminated transaction following a court ruling to that end may be subject to criminal sanctions. The restitution of an asset delivered to the insolvent entity by a third party under a transaction terminated pursuant to the foregoing may only take place if such asset can be identified and segregated from the assets that are part of the remaining estate. If the asset cannot be identified and segregated, the obligation of the insolvent entity to return the corresponding value shall be regarded as common credit ranking equally with other unsecured credits (with certain specifications in terms of priority in the event of enrichment as from the date of the declaration of insolvency). 2.6 What is the claw-back regime for security granted by third parties/in respect of third party indebtedness? Please analyse from the perspective of the insolvency of the debtor and of the insolvency of the third party grantor of security. Does the possibility for the third party grantor to act in recourse against the insolvent debtor make a difference? It should be noted that Article 6/3 of the Portuguese Companies Code establishes the principle that Portuguese companies cannot grant security rights either in personam or in rem over debts of third parties, since such is considered by law as being contrary to the corporate purpose of a commercial company. Nevertheless, the same provision permits the granting of such security rights if there is a justified own interest of the company in granting such security right to the third party or if such third party is part of the same group of the former. Since the said Article 6/3 is an imperative provision, any transactions in violation thereof will be regarded as null and void (under Article 294 of the Portuguese Civil Code, any transactions entered into in breach of imperative legal provisions will be null and void, except where otherwise foreseen in the law). Accordingly, any security granted to third parties in breach of Article 6/3 of the Portuguese Companies Code may be declared null and void by a court. Nullity/voidness may be invoked by any interested party in any instance. Hence, such nullity/voidness may be invoked both by any interested party within the scope of the insolvency of the debtor and of the insolvency of the third party grantor of security. In addition, section 1.4 above should be taken into consideration in this respect. Firstly, it must be borne in mind that transactions with related third parties may be presumed to have been entered into in bad faith. Secondly, the transactions described in paragraphs (c), (d) and (e) of 1.4 B. may be unconditionally 8

9 terminated to the benefit of the insolvent estate. From the perspective of the insolvency of the debtor (receiver of security), any interested party (e.g. a creditor of the grantor of security) can claim nullity/voidness of the security granted if such security is granted in breach of the said Article 6/3 of the Portuguese Companies Code. Furthermore, interested parties may also file paulian actions ( impugnação pauliana ) in respect of acts (e.g. granting of security) performed with wilful misconduct ( dolo ) and bad faith envisaging to decrease the solvency of the debtor and thereby prejudicing the relevant creditor (Article 610 et seq. of the Portuguese Civil Code). From the perspective of the insolvency of the third party grantor of security, the insolvency administrator (at his own initiative or at the request of any creditor) may terminate any transaction deemed prejudicial or illegal. Paulian actions may be filed as well. 2.7 What is the claw-back regime for security which has been agreed (i.e. the relevant security agreement has been executed) but not yet perfected at the time of the adjudication in bankruptcy of the debtor/grantor? Pursuant to Article 97/1/d) of the Insolvency Code, security in rem subject to registration (i.e. to perfection) created by the insolvent entity over real estate or over movables/rights/shares that are part of the insolvent estate, which has been agreed but not perfected, will be automatically extinguished with the declaration of insolvency. 2.8 Other? We have no further comments. Lisbon, August 31, 2011 Tiago Ferreira de Lemos (Partner) PLEN - Sociedade de Advogados RL Av. António Augusto de Aguiar, n.º 24-7.º Esq Lisboa Telef: Fax: tiago.lemos@plen.pt 9