CONTRACT ETD/2008/IM/H1/53

Transcription

1 CONTRACT ETD/2008/IM/H1/53 IMPLEMENTED BY FOR DBB LAW COMMISSION EUROPEENNE Study on the feasibility of reducing obstacles to the transfer of assets within a cross border banking group during a financial crisis National Report PORTUGAL By Luis Nobres Guedes Page 1 of 124

2 Recent Developments In view of the recent highlights concerning the international financial crisis, the Portuguese Government has determined, last October 12, the following: - Create a State Security up to the maximum amount of ,00 in order to ensure that credit institutions can fulfil its financing or refinancing operations; - This State Security shall be valid until December 31, 2009 and shall be valid only if the market conditions justify its maintenance; - This security can be enforced by all credit institutions having its head office in Portugal; Please be advised that this security is currently a Law proposal, which must be approved by the competent legislative organ in order to be implemented: the Assembly of the Republic. Page 2 of 124

3 Part I - National regulation Summary Scope Conditions and sanctions a) Authorisation c) Counterpart for the asset transfer a) Compulsory counterparts and guarantees b) Financial capacities of the transferor and the transferee c) Information and transparency d) Sanctions e) Third parties Supervisory authorities Minority shareholders Creditors Employees Deposit holders Member State f) Private international law Part II -Evaluation of potential solutions Transfers from the parent company to the subsidiary or from the subsidiary to the parent at arm s length: Proposal n Transfers from the subsidiary to the parent company (in preferential conditions) a) Prior and overall agreements Proposal n 2: b) Strong guarantees covering the risk of outstanding payment Page 3 of 124

4 Proposal n c) Liability of the parent company for the subsidiary s debts Proposal d) Improving transferability transfer through the introduction of a new concept of "banking group" Proposal n Proposal n e) Other solutions ANNEX A National regulations relevant in assets transfers between banks part of a same banking group B) Notice 12/92 of the Bank of Portugal ANNEX B Examples of transfer of assets agreements Page 4 of 124

5 Part I - National regulation In order to submit a brief report on the Portuguese regulation, in the following pages it shall be made a description of the main aspects relating with the transfer of assets within a cross border banking group during a financial crisis 1. We will try to explain the general rules concerning company groups and, at the same time, we will also describe related aspects, namely the specific rules governing Banks and credit institutions on this subject. First of all, please be advised that the Portuguese Banking System has a Legal Framework for the Credit Institutions ( Regime Geral das Instituições de Crédito e das Sociedades Financeiras, hereinafter RGICSF ), which mostly deals with the institutional issues of the banking activity, namely solvency ratios, supervisory powers and norms relating with specific corporate issues of banks and credit institutions. In general, we can say that this legal framework foresees the supervisory powers of the Bank of Portugal and the duties of institutions subject to that supervision. This Framework does not foresee rules concerning the material activity of banks and credit institutions, namely contracts. In fact, Portuguese Banking System is a complex sum of several legal frameworks, namely, but not limited to: - The Portuguese civil code ( Código Civil ), which contains the basic rules governing contracts in general (and, therefore, banking contracts, such as loans); 1 Throughout this report we shall a consider crisis situation a situation where a bank subject to the supervisory authority of the Bank of Portugal is subject to recovery measures determined by the Bank of Portugal in order to avoid bankruptcy and to recover the bank s solvency ratios. Page 5 of 124

6 - The Commercial Companies Code ( Código das Sociedades Comerciais, hereinafter), which contains the basic aspects and rules concerning commercial companies 2. - The Securities Code ( Código dos Valores Mobiliários ), which is applicable when a Bank or Credit Institution is a Public Company, i.e., in general terms, a company open to public investment and listed in a regulated market (stock exchange). - Insolvency Code ( Código da Insolvência, which contains and sets forth the rules governing insolvency procedures; - Corporate Income Tax Code ( Código do Imposto sobre o Rendimento Colectivo ), which contains the rules governing corporate tax. Finally, please be also advised that besides this task of harmonizing the several rules applicable to the material activity of Banks and Credit Institutions in Portugal, these institutions must also comply with norms contained in extravagant Decree- Laws. Among these rules, it must be emphasized the Instructions and Notices issued by the Bank of Portugal under its supervisory powers. These instructions develop and complete the norms set forth in RGICSF. In order to make easier reading this report, please find attached in Annex A the translation of the relevant rules of the Portuguese Legislation. Please be advised that in Portugal, with exception to cases involving consumers, namely in what concerns credit operations to acquire real estates 3, it is not very common to enforce judicial proceedings against a Bank. Usually, its shareholders or its qualifying shareholders (i.e. shareholders holding a qualifying holding) prefer to file proceedings in arbitral courts due to the fact that these courts may be bound by confidentiality agreements and, especially, due to the fact that its decisions can be obtained swiftly. 2 Please be advised that is mandatory that a Bank, under Portuguese Law, must be a company limited by shares ( sociedade anónima ), a type of commercial company foreseen in the Commercial Companies Code. 3 Usually these operations consist in a loan agreement secured with a mortgage over the real estate to be bought. Page 6 of 124

7 1. Summary Generally speaking, the transfer of assets is allowed in crisis situation: - from parent to subsidiary - from subsidiary to parent - from subsidiary to another subsidiary Nevertheless, in what concerns Banking Law, the transfer of assets may be subject to a mandatory previous authorisation from the Bank of Portugal if recovery measurements are taken concerning a credit institution and that credit institution is one of the parties of the transfer of assets agreement. Similar rules apply in Insolvency Law. In fact, when an Insolvency proceeding is commenced, the sale of assets must be authorised by the judicial liquidator, who is the person in charge of the management of the insolvent mass further to an insolvency declaration. In what concerns this particular aspect of Insolvency Law, please find attached in annex A the rules regarding the effect in insolvency in transactions being carried out during an Insolvency proceeding. In going concern situations, transfers within a group are allowed. Therefore, it is possible to perform transfer of assets: - from parent to subsidiary - from subsidiary to parent - from subsidiary to another subsidiary In Insolvency Law there is a general principle stating that a company s manager must avoid transactions creating the possibility of an Insolvency situation. This is a development of the general duties foreseen in the Commercial Companies Code. In what concerns Banking Law, the transfer is subject to the rules relating to solvency rations and qualified holdings, if one of the parties of the transfer of assets is subject to the supervision of the Bank of Portugal (and the Securities Commission Page 7 of 124

8 if one of the parties is a Public Company subject to the supervisory authority of the aforesaid Commission). Nevertheless, these transfers are always subject to rules concerning solvency ratios and qualified holdings and, in extreme cases, can originate sanctions to the transferor or the transferee, namely from supervisory authorities if they are subject to its supervision, as well as civil liability before the company s shareholders, company s workers, company s creditors and/or third parties. There are no specific regulations for cross-border transfer of assets. Besides the rules relating to solvency ratios and qualified holdings there are no specific rules in Banking Law in relation to transfer of assets. When the bank/group is in crisisthe only rules are those relating to the recovery measures imposed by the Bank of Portugal. 2. Scope The notion of company groups - The Portuguese Companies Code does not contain a definition of company group. In fact, under the category of colligated companies ( sociedades coligadas ) there are four different situations: a) Companies in a simple participation relationship, i.e. when a company owns 10% or more of the quotas or shares of another company (article 483, number 1 of the Commercial Companies Code); b) Companies in reciprocal participation relationships, i.e., when two companies simultaneously own 10% or more of the quotas or shares of the other company (article 485, number 1 of the Commercial Companies Code); c) Dominion relationship, i.e., when a company directly or indirectly can perform a dominant influence. According to the Portuguese law, one must assume that there is a dominant influence when (article 486, number 2 of the Commercial Companies Code): Page 8 of 124

9 i) A company owns the majority of the share capital; ii) A company owns the majority of the voting rights of another company; iii) A company has the possibility to appoint the majority of the members of the executive or supervision corporate bodies of another company; d) Group relationships, which include three different situations: i) Full dominion, which may occur upon the incorporation of a company (usually a company limited by shares ( sociedade anónima ) is the sole shareholder of the company which incorporates. This company must be a company limited by shares ( sociedade anónima ). The full dominion relationship may occur also as result of the acquisition of more than 90% of the share capital of the company (articles 488 and 489 of the Commercial Companies Code); ii) Joint-group agreement ( grupo paritário ), i.e., an agreement that foresees that two companies without a relation may execute an agreement in order to submit themselves to a joint and sole direction (article 492 of the Commercial Companies Code); iii) Subordination agreement, i.e. an agreement subordinating the management of a company to another company (article 493 of the Commercial Companies Code). e) We must emphasize that these four situations are considered group relations. Nevertheless, only the relations described in paragraph d) may be defined as group relations stricto sensu. This happens due to the fact that, in these circumstances, it is created a corporate structure under the direction of a sole company. f) Group relations only verify when the concerned companies are limited liability companies ( sociedades por quotas ), limited company by shares ( sociedades anónimas ) and limited partnership with share capital ( sociedades em comandita por acções ) article 481.º, number 1 of the Commercial Companies Code. Page 9 of 124

10 - In what concerns Banking law, the legal framework of credit institutions remits to the general rules of companies law in order to define companies groups. - However, it gives a broader definition of dominion relationship than the one foreseen in the Commercial Companies Code. - In fact under this framework, there is a dominion relationship when an individual or a legal entity (article 13, number 2, item a) of RGICSF): a) Owns the majority of the company s voting rights; b) Is a partner of the company and has the right to appoint or to remove more than half of the company s board of directors or supervisory bodies: c) Can implement a preponderant influence over the company, as a result of contract or clauses of the company s by-laws, d) Is partner of the company and control, per se, the majority of the voting rights as a result of entering into an agreement with the other companies partners; e) Owns a participation not lesser than 20% of the company s share capital, since it has not effectively performing a dominant influence or both of them are under the sole management. - Portuguese law does not foresee a definition of group interest. Nevertheless, in what concerns commercial companies capacities, Portuguese legislation foresees that it is contrary to the company s social object to act as a guarantor unless there is a justified interest of the guarantor company or if there is a dominion or group relation between the guarantor and the beneficiary of the guarantee (article 6, number 3 of the Commercial Companies Code). - However, in what concerns banking law the rules governing financial assistance are developed. Therefore, it is forbidden to credit institutions to grant credit in any form, including acting as guarantor, directly or indirectly to companies or other legal entities directly or indirectly dominated. Page 10 of 124

11 - - The previous paragraph summarises the basic principle in this matter. The sole exceptions foreseen in RGICSF are as follows (Articles 85, no 5 to 7): - This rule shall not apply to non-executive members of the board of credit institutions and to companies or other collective bodies controlled by them. - The Bank of Portugal may provide for the application of the provisions of Article 109 of RGICSF to the entities referred to in the foregoing paragraph, to the members of other bodies, which are deemed by the Bank of Portugal to perform equivalent functions and to companies or other collective bodies controlled by them. - This rule shall not apply to credit granting operations, the beneficiaries of which are credit institutions, financial companies or holding companies included in the perimeter of supervision on a consolidated basis to which the credit institution in question is subject, nor to pension fund management companies, insurance undertakings, brokers and insurance mediating companies controlling or being controlled by any entity included in the same perimeter of supervision. - This rule does not apply to operations where the companies involved are in the supervision perimeter in which the relevant credit institution is included. - The supervision perimeter refers to all companies subject to the supervision of the Bank of Portugal. According article 117.º, number 1 of RGICSF holding companies shall be subject to the supervision of Banco de Portugal when their holdings, either directly or indirectly, confer on them a majority of the voting rights in one or more credit institutions or financial companies. Moreover, article 117.º, number 2 of RGICSF states that the Bank of Portugal may also subject to its supervision the holding companies which, albeit not covered by the provisions envisaged in the foregoing paragraph, hold a qualifying holding in a credit institution or financial company; - Please be advised that that article 117-A, number 1 foresees that the Bank of Portugal may subject to its supervision the entities that have Page 11 of 124

12 as their purpose to carry on, or that actually carry on, activities especially relevant for the operation of the payment systems, specifying the rules and duties applicable to them, from amongst those envisaged in this Decree-Law for financial companies. Moreover, article 117.º, number 2 of RGICSF also foresees that the entities carrying on any activity within the scope of the payment systems shall communicate that fact to the Bank of Portugal and supply all and any information required by the latter. - In general, the rules governing the transfer of assets are foreseen in the Portuguese Civil Code, which contains the rules relating to sale and purchase, credit assignment, et cetera. Commercial Companies Code foresees the corporate issues concerning the transfer, namely resolutions to be taken4. - RGICSF does not contain rules concerning the transfer of assets. In fact, it only foresees the acquisition of shares creating qualified holdings and the solvency ratios that credit institutions must respect while carrying out their business. - Credit institutions cannot have a qualified participation5 whose amount exceeds 15% of own funds of the participating institution. Nevertheless, this limitation does not apply to holdings in other credit institutions, in financial companies, in management companies of pension funds, in insurance and in reinsurance companies (article 100.º, numbers 1 and 6 of RGICSF). - In any case, if a company wishes to acquire a qualified holding in a credit institution it must previously communicate to the Bank of Portugal its acquisition project (article 102, number 1 of RGISCF). 4 These aspects shall be developed in section 3 below. 5 According to the legal Framework of the credit institutions, qualifying holding means a holding, directly or indirectly, isolated or joint, which by any means gives the possibility to its owner to have a significant influence in the management of the participated entity. One must assume that there is a relevant influence in all cases where the participant has, at leat, 5% of the share capital or voting rights of participated company. The Bank of Portugal can overrule this assumption having in mind all data submitted by the interested if the participation does not exceed 10%. Page 12 of 124

13 - Please be advised that under the term guarantee 6, Portuguese Law comprehends personal securities as well as real securities like mortgages or pledges. Portuguese law does not expressly foresee guarantees like guarantees on first demand or comfort letters, but it is very common to see comfort letters issued by holding companies and guarantees on first demand are very common in corporate transactions. - In what concerns Banking Law, the amount of credits granted (including securities) to an entity holding, directly or indirectly, a qualified holding in a credit institution and to the company that the aforesaid entity directly or indirectly holds or which is in a group relationship, cannot exceed, in any moment, 10% of the own funds of the institution. - These operations must be approved by a qualified majority of, at least, two thirds, of the members of the management body of the company and must also obtain a favourable appraisal report of the supervisory body of the credit institution. - There is no definition of group interest that specifically allows or facilitates intra-group transfer of assets. In Portuguese Law, the definition of corporate interest or group interest is not defined in Commercial Companies Code. This implies that Jurisprudence and some case Law tends to construct some definitions of group interest or corporate interest - In what concerns Tax Law, intra-group transfers must comply with the rules regarding price transfers. - The Coroporate Tax Code foresees that in commercial operations, including, but not limited to, operations or a set of operations concerning assets, rights or services as well in financial operations made between a taxable person and any other entity with which the 6 The Portuguese Civil Code does not contain a definition of the term guarantee. In general terms, guarantee means an act through which the fulfilment of obligations is reinforced, whether by the intervention of a third party (personal security), whether through the preferential allocation of an asset which, in preferential terms, shall respond for the debts of the party granting the security. The regulated real securities are pledges, mortgages and liens. Page 13 of 124

14 taxable person is in a special relation, must be made in the same terms and conditions that would normally be agreed and practiced between independent parties in comparable operations (article 58, number 1). - In order to do so, the taxable person must adopt a method or methods capable of ensure the highest degree of comparability between the operations or group of operations, according to the arm s length principle, i.e. the market normal conditions and the absence of special relations between the parties. - According to the Corporate Income Tax, it is deemed that special relations between two entities occur when one of such entities has the power to directly or indirectly exercise a significative influence in the management decision. It is considered that such influence occurs between (Article 58, number 4): a) an entity and the owners of the respective capital stock owners, its spouses, ascendants or descendants, which hold, directly or indirectly, a holding not inferior to 10% of the capital stock or the voting rights; b) entities in which the same owners of the capital stock, its spouses, ascendants or descendants, which hold, directly or indirectly, a holding not inferior to 10% of the capital stock or the voting rights; c) an entity and the members of its corporate bodies, or the members of any management or audit bodies and the respective spouses, ascendants and descendants; d) entities in which the majority of the members of the corporate bodies or the members of any management or audit bodies are the same persons or, if they are different persons, they are linked by marriage, companionate marriage judicially acknowledged or if they relatives in a direct line; e) entities connect by means of a subordination agreement, a group contract or any other equivalent effect; Page 14 of 124

15 f) companies in a dominion relationship in the terms set forth in the applicable laws determining the obligation to supply consolidated financial statements; g) entities where as a result of commercial, financial, professional or juridical relationships, directly or indirectly foreseen or practised, occurs dependency situation, namely when any of the following occurs: 1) the exercise of one s activity substantially depends of the assignment of industrial rights or copyright or know-how owned by the counterparty; 2) the supply of commodities or the access to the products distribution channels, commodities or services substantially depends of the counterparty; 3) a substantial part of one s activity can only be performed or depends of the counterparty decision; 4) the right to determine prices, or equivalent economical effect, concerning the assets or services sold, performed or acquired are in the counterparty s ownership, as a result of a provision foreseen in a contract; 5) by the terms and conditions of its commercial or juridical relationship, which allows imposing conditions to the management decisions of the counterparty, as a result of facts and circumstances not related with such commercial or professional relation; h) a domiciled entity or a non-domiciled entity with a fixed establishment in the Portuguese territory and an entity subject to a favourable tax regime domiciled in a country, territory or region referred in the list approved in an ordinance ( Portaria ) of the Minister of State and Finances - In what concerns banking groups, Decree-law no. 145/2006 of July 31, which has transposed for the Portuguese jurisdiction Directive 87/2002/EC contains some rules relating allffinance groups ( Bancassurance ). There is no specific regulation for cross border transfer of assets. The only rules regarding banking groups refer usually to financial statements and consolidated supervision. Page 15 of 124

16 3. Conditions and sanctions a) Authorisation Unless otherwise specified in the company by-laws, the Board of Directors has the competence to decide all issues concerning the company s management, namely acquisition, selling or encumber the company s real estates, as well as to approve resolutions in order to make the company guarantor of any contract (article 406 of the Commercial Companies Code). Nevertheless, please be advised that, according to Portuguese law, the Directors can bind the company, signing a document referring that they act as administrators (article 409, number 1 of the Commercial Companies Code). "act as administrators" means that the Directors must expressly refer that they act as the company directors, id est that they have powers to bind the company and that they act on its [the company s] behalf. In fact, Directors can bind the company, signing a document referring that they act as administrators. If this situation happens and the By-laws are breached, the Directors are subject to civil liability before the Company and its shareholders. If the counterpart of the transfer of assets is a company, the transfer must be approved by its Board of Directors, unless otherwise specified by the bylaws. In what concerns supervisory authorities, some aspects must be emphasized. If a credit institution having its head office in Portugal wishes to purchase, directly or indirectly, holdings in credit institutions having its head office abroad or in financial institutions which represent 10% or more of the share Page 16 of 124

17 capital of the participated entity or 2% or more of the share capital of the participant institution, the acquisition projects must be previously communicated to the Bank of Portugal (article 43 A of RGICSF). Similarly, all acts aiming the increase of a qualifying holding must be previously communicated when they can give origin to holdings over 5%, 10%, 20%, 33% or 50% of the voting rights of the participated institution, or when the latter would became an affiliated of the acquiring entity (Article 102, number 2 of RGICSF). Notwithstanding with the previous paragraph, the acts or facts creating a qualifying holding of, at least, 2% of the company stock capital or its voting rights must be communicated in the 15 days following the occurrence of that act or fact (Article 102, number 4 of RGICSF). First of all, please be advised that, due to the fact that the legal framework of credit institutions does not foresee general rules on the transfer of assets except the sale and purchase of shares which may create qualifying holdings. Therefore, under this particular legal framework, the transferor and the transferee will only have information duties when the asset to be transferred is a share. In fact, in all other cases, for instance a credit assignment, the transferor and the transferee will only have to comply with the solvency ratios set forth by the legal framework of credit institutions. Please be also advised that the transfer of assets may be subject to certain conditions. In fact, when a credit institution subject to the supervisory powers of the bank of Portugal is in a crisis situation and there are recovery measures to be implemented, the Bank of Portugal may determine that the transfer must be previously authorised by him (Article 141 of RGICSF). Under Portuguese Law there is a Fund to Guarantee Deposits ( Fundo de Garantia de Depósitos ), which aims to ensure the reimbursement of deposits made in the credit institutions which adhere to this fund. Nevertheless, deposits owned by companies in a dominion or group Page 17 of 124

18 relationship with the participant credit institution are not covered by this Fund. If the credit institution or the counterpart in the transfer of assets is open to public investment ("public company ) the transfer of assets, i.e., shares or other securities, must be communicated to the Securities Commission ( Comissão do Mercado dos Valores Mobiliários ) in accordance with article 16 of the Securities Code). In fact, any entity reaching or exceeding a holding of 10%, 20%, a third, a half, two thirds and 90% of the voting rights in the capital of a public company subject to Portuguese law or reducing its holding to a value lower than any of the above thresholds, should, within 4 trading days of the occurrence of said fact or the knowledge thereof shall a) Inform the CMVM and the company holding the participating interest of said fact and b) Inform the entities described in the previous paragraph of those situations that determine the granting to the participant of voting rights inherent in securities belonging to third parties. The following is also likewise subject to the duties referred to in the preceding paragraph: a) any entity reaching or exceeding a holding of 5%, 15% and 25% of the voting rights in the capital or reducing its holding to a value lower than any of the above thresholds with regard to: i) A public company, subject to Portuguese Law, that issues shares or other securities granting the right to its subscription or acquisition, listed on regulated markets situated or operating in a EU Member State; ii) A company, with registered office in another Member State, that issues shares or other securities granting the right to its subscription or acquisition, listed exclusively on regulated markets situated or operating in Portugal; iii) A company, with head-office outside the European Union, that issues shares or other securities granting the right to its subscription or acquisition, listed on regulated markets situated or operating in Portugal, regarding which the CMVM is the competent authority pursuant to Article 244-A of the Securities Code; and Page 18 of 124

19 b) Any entity reaching or exceeding a holding of 2% and reducing its holding to a value lower than said percentage of the voting rights in the capital of a public company envisaged in i) of the preceding subparagraph. Besides these information duties, and depending of the nature of the assets to be transferred, some acts must be notified and/or published to become effective against third parties. In fact, if the asset is a real estate, it is advisable to register the transfer of property as well as the constitution and/or termination of any other property rights, Under Portuguese law, the register of real estate is not mandatory. Nevertheless, until the transfer of property of a real estate is not registered the transferor may sell again the asset and the new transferee can obtain its register. If the assets transferred are shares, the transfer must be registered with the book entries of the transferee, unless the shares are bearer securities. There is no need to incorporate the terms and conditions of the transfer between transferor and transferee and to execute it by their authorised representative, unless the agreement concerning the transfer of assets is going to be signed by an attorney of the company. In this case, the power of attorney must clearly refer the powers granted to the representative. In what concerns a power of attorney granting powers to make a transfer of assets, it is advisable that the power of attorney makes reference to the main aspects of the transfer, namely the counterparty identification, assets to be transferred and transfer price, in order to avoid granting broad powers to the attorney. There is a general duty for the managers to perform its duties, i.e., to act in accordance with the company s interest. This implies that they must take all measures to avoid the creation of going concern situations and, consequently, crisis situations also. Page 19 of 124

20 In what concerns Banks, when a crisis situation occurs, the Bank of Portugal may impose that some operations (namely transfer of assets within a banking group) must be previously authorised (Article 141 of RGICSF). c) Counterpart for the asset transfer In what concerns the treatment given to the transfer of assets, we shall consider the following situations: a) arm s length principle/normal market conditions dealing Besides the rules governing transfer prices (article 58 of the Corporate Income Tax Code), Portuguese law does not contain a definition of the arm s length principle/normal markets conditions dealing. Nevertheless, according to the terms and conditions set forth in the agreement some sanctions could apply. Please see paragraph b) below. b) agreement under preferential conditions or disadvantageous to the transferee but advantageous to transferor and the group as a whole In this situation, one must interpret the agreement in order to see if the agreement is usurious, due to the fact that Portuguese law considers null all agreement where a party explores the situation of its counterpart obtains the promise or the granting of excessive or unjustified benefits. In what concerns Tax Law, intra-group transfers must foresee a real price, i.e., a price that would be foreseen in an equivalent operation, in order to ensure that no fictitious values are referred or expresses in the accountancy documentation of the company and, as a consequence, avoid the artificial decrease or increase of value of the relevant companies. c) no counterpart/compensation for the transfer Page 20 of 124

21 If no compensation for the transfer is agreed, one must try to interpret the contract in order to qualify it. This happens because the sale and purchase agreement has qualifying conditions in order to its rules be applicable. In fact, it s qualifying condition the foreseeing a price. If this does not happen, as a principle, we shall be before a donation agreement. However, this does not imply a different treatment under Portuguese Civil Law. Notwithstanding with this general regime foreseen in the Portuguese Civil Code, in what concerns Tax Law, intra-group transfers must foresee a effective price, i.e., a price that would be foreseen in an equivalent operation, in order to ensure the exactness of the transfer price, which must be reflected in the company s accountancy documents. In other words, the Portuguese tax regime has adopted the arm s length principle in issues relating price transfers. d) the transfer is included in a loan or credit agreement between transferor and transferee. In this situation it must be analyzed if the circumstance that, in abstract, this loan or credit agreement can configure a financial assistance between a company and its shareholders. In fact, it is mandatory to determine the scope of the credit or loan in order to determine if the operation aims that the beneficiary acquires shares of the company. This rule does not apply to the current banking operations nor the operation made with the scope of the workers of the company to acquire shares. However, as result of these operations, the net assets of the company cannot become lower than the amount of the capital subscribed, accrued with the reserves that the law (i.e., the Commercial Companies Code) or the company s by-laws do not allow to distribute. Page 21 of 124

22 There is a general duty for the managers to perform its management duties. This implies that they must take all measures to avoid the creation of going concern situations and, consequently, crisis situations also. In what concerns Banks, when a crisis situation occurs, the Bank of Portugal may impose that some operations (namely transfer of assets within a banking group) must be previously authorised by it in order to avoid the bankruptcy of the concerned bank. a) Compulsory counterparts and guarantees There is no compulsory counterpart or guarantee that transferee should provide to transferor, unless specifically agreed by the parties. b) Financial capacities of the transferor and the transferee The decision to transfer must comply with conditions relating to the financial capacities/health of the transferor/transferee. In fact, the transfer of assets must comply with the requirements set forth in the legal framework for the credit institutions.. In this context, the general rule states that the own funds of the credit institutions cannot be inferior to the minimum amount of share capital required by law: If these conditions are not met and the own fund go below the minimum thresholds, the Bank of Portugal may grant to the relevant institution a limited time period in order to regularize this situation. If this does not happen, recovery measures may be imposed by the Bank of Portugal in order to avoi the concerned bank s bankruptcy. According to Portuguese law, unless the transferor is secured with a special guarantee, i.e. a personal security or a real security (mortgage, pledge or lien), it is considered a common creditor. In Insolvency Law, it shall be made a graduation of the credits, in order to settle the ranks of the secured and unsecured creditors. Besides special Page 22 of 124

23 securities, Portuguese law foresees several creditor s preferential claims 7, namely credits related to taxes and credits related to employees wages. Please be advised that the Insolvency Code foresees the concept of subordinated credits, which shall be graduated after all the remaining insolvency credits. These are the foreseen subordinated credits (Article 48 of the Insolvency Code ): a) credits held by persons especially connected with the debtor, if the special connection already existed in the moment of the acquisition, and by those to which they have been transferred in the 2 previous years before the commencement of the Insolvency Proceeding; b) non subordinated credit interests created after the insolvency declaration, except for credits secured by a real security and general preferred credits until the value of the respective assets; c) credits whose subordination has been agreed by the parties; d) credits having as an object free obligations from the debtor; e) credits over the insolvency that go for a third party not acting in good faith, as a consequence of the resolution in favour of the Insolvency assets; f) interests of subordinated credits created after the insolvency declaration; g) credits over shareholders loans. There is a general duty for the managers to perform its duties. This imply that they must take all measures to avoid the creation of going concern situations and, consequently, crisis situations also. In what concerns Banks, when a crisis situation occurs the Bank of Portugal may impose that some operations (namely transfer of assets within a banking group) must be previously authorised in order to try to avoid the Bankruptcy of the relevant credit institution. c) Information and transparency 7 Please be advised that these creditor s preferential claims are not compiled in a code. By the contrary, they are scattered through several Decree-Laws. Page 23 of 124

24 In what concerns the information duties, these are as follows: - supervisors i) Bank of Portugal - As a general rule, credit institutions cannot own a qualified participation whose amount is higher that 15% of the participating institution. Nevertheless, these amounts do not apply to participations in other credit institutions, in financial companies, in financial institutions, in fund pensions management companies and in insurance and reinsurance companies. - As a general rule, credit institution cannot own, directly or indirectly a for a continuous or interpolated period of more than 3 years participation granting 25% of the voting rights, corresponding to the capital of participated company; this limit shall be of five years it the participation is held by venture capital companies (article 101, number 1 and 4 of RGICSF); - This limit shall not apply to holdings in a credit institution in other credit institutions, financial companies, auxiliary services companies, securitization companies, insurance companies, affiliates of insurance companies held in accordance with the applicable law, insurance and brokers and insurance intermediaries, management companies of pension funds, venture capital companies and holding companies that only hold parts of the share capital of the referred companies (article 101, number 3 of RGICSF). - When an individual or a legal entity wishes to acquire a qualified holding in a credit institution they must communicate the project to the Bank of Portugal. - The Bank of Portugal may oppose to that project in the following three months if he considers that the entity or its project do not guarantee the conditions necessary to a sound a prudent Page 24 of 124

25 management of the credit institution (article 103, number 1 of RGICSF). - If this communication requirement is not met, there are sanctions. In fact the voting rights can be suspended. Moreover, the resolutions of the relevant credit institution can be annulled and the Bank of Portugal may refuse to register the corporate bodies of the credit institution (Article 105 of RGICSF). - Please be also advised that the Bank of Portugal may, ex officio, declare the qualified nature of any participation in the share capital or in the voting rights of a credit institution, if he determines that some acts concerning the qualification have not been communicated or have been erroneously made. This also applies when the Bank of Portugal considers that were practiced acts which may alter the influence made by the holder of a participation in the management of the participated institution (article 102-A of RGICSF). - Finally, after the completion of the acquisition of the qualified participation, it is mandatory to communicate the acquisition in the 15 days following its completion (Article 104 of RGICSF). - In what concerns the decrease of the qualifying holding amount, it is also mandatory to communicate to the Bank of Portugal the decrease project as well as its completion in the 15 days following the completion Article 107 and 104 of RGICSF). - If a decrease below a participation of 5% of the share capital or the voting rights occurs, the Bank of Portugal, in a period of 30 days, shall communicate it considers that the participation is qualified (Article 107 of RGICSF). - This communication duties impend also on the relevant credit institutions. ii) Securities Commission Page 25 of 124

26 - According to article 16 of the Securities Code, if one of the credit institutions are public companies and the transfer of assets of the intervenients reaches or exceeds a holding of 10%, 20%, a third, a half, two thirds and 90% of the voting rights in the capital of a public company subject to Portuguese law or reducing its holding to a value lower than any of the above thresholds, should, within 4 trading days of the occurrence of said fact or the knowledge thereof shall a) Inform the CMVM and the company holding the participating interest of said fact and b) Inform the entities described in the previous paragraph of those situations that determine the granting to the participant of voting rights inherent in securities belonging to third parties. - If the communication duties are not met, some sanctions can be applied. Fines can be applied, as well as accessory sanctions. In any case, the infringer is not released from fulfilling the obligation, if this is still possible. - Shareholders Shareholders with holding of 10% or more of the share capital may demand, upon writing, information concerning issues relating to the company. The information cannot be refused if, in the requirement, the shareholder states that the information envisages to determine the responsibility of the company s corporate bodies (Article 291 of the Commercial Companies Code). - employees - Not applicable - third parties The information concerning the transfer of assets may acceded by the legal and financial consultants of the relevant company s. Usually, they enter into a confidentiality agreement to enforce the nondisclosure of confidential information. Page 26 of 124

27 As a summary of the duties described above we have the following: - supervisors Bank of Portugal: Before the acquisition occurs and in the 15 days following the acquisition of the qualified participation. Securities Commission: After (if one of the parties is a Public Company) - shareholders Before or after, depending the moment when the information is required to the company. - third parties Before or after, depending the moment where the services are to be rendered. d) Sanctions When a transfer of assets has occurred, some sanctions may be incurred. Please find a brief description of the possible sanctions foreseen in the Portuguese legal system. - under Insolvency Law - Please be advised that Decree-Law no 199/2006 has transposed Directive 2001/24/EC of the European Parliament and of the Council of 4 April 2001 on the reorganisation and winding up of credit institutions. - According to this Decree-Law the winding up of a credit institution may be compulsory or voluntary. Page 27 of 124

28 - Where a voluntary winding up occurs, Any project of a voluntary winding-up of a credit institution shall be communicated to the Bank of Portugal with at least 90 days. Notice from the date of its effectiveness (article 5.º, number 2 of Decree-Law 199/2006 and article 35-A, number 1 of RGICSF). - A compulsory winding up occurs only where the authorization of the concerned bank is revoked (article 5.º, number 2 of Decree-Law 199/2006). In these cases the rules contained in the Insolvency Code shall apply (article 8.º, number 1 of Decree-Law 199/2006). - The cancellation of the authorization has the force of an insolvency declaration (article 8.º, number 2 of Decree-Law 199/2006), but it has to be homologated by a judge in order to determine its legality (article 9.º, number 1 of Decree-Law 199/2006). - After this occurs, the judge, upon proposal of the Bank of Portugal, shall appoint a legal liquidator or a liquidation commission (article 10.º, number 1 of Decree-Law 199/2006) According to Insolvency Law, when a company cannot fulfil its due obligations it must present herself before Court in order to file an Insolvency Procedure (Article 3, number one of the Insolvency Code). It must be emphasized that the Insolvency Code, in article 16, number 2 determines that the provision set forth in such code do not hinder the framework set forth in special legislation concerning financial collateral agreements. The framework concerning financial collateral agreements is the result of the transposition of Directive 2002/47/EC, which was made by Decree-Law no. 105/2004, of May 8. According to the current legislation, an insolvency is wilful when the debtor or its directors, as consequence of its conduct, have created or augmented the consequences of the insolvency in the previous 3 years before the insolvency procedure is filed. Page 28 of 124

29 Moreover, all acts performed in the four previous years to an insolvency procedure can be terminated in order to allow that the assets subject to those acts can be affected to the assets belonging to the bankruptcy assets ( massa insolvente ) article 120, number 1 of the Insolvency Code. Additionally, please be advised that the Portuguese Insolvency Law foresees that the parties of an agreement, namely transfer of assets, cannot foresee that an insolvency is (i) a condition subsequent attributed to the one of the parties or (ii) grant to that counterparty a indemnification right. If this happens, the clause shall be considered null and void. (article 119 of the Insolvency Code) - under Civil Law As a result of an illegal insolvency, that is, (i) an insolvency unduly required or (ii) an insolvency occurred as a result of wilful or negligent acts performed by the company s directors, civil liability rules may apply. In fact, persons considering to be entitled to an indemnity must prove that the following conditions are met (article 483, number 1 of the Portuguese Civil Code): i) act performed by the companies mangers; ii) the act must be unlawful, that is, it must breach an right or a legal interest granted to the claimant. iii) Existence of a damage; iv) Existence of a causal link between the damage and the conduct of the company s director. The rules relating to civil liability are developed under Company Law, namely in what concerns the procedures required to enforce the company and/or its manager s liability. Page 29 of 124

30 These general rules apply in what concerns the liability of a company manager and/or director in what concerns its liability before a company s shareholder or third parties. - under Company Law i) liability before the company In what concerns companies groups, the members of the corporate bodies must adopt, in what concerns the group, the diligence required in what concerns the management of its own company (article 72 of the Commercial Companies Code). The managers or the directors of a company are liable before the company for the acts or omissions performed in a manner the legal and contractual duties that the managers and/or directors are obliged to, except if they can prove that have not acted with negligence when practiced such acts. Nevertheless, the liability is excluded if the manager and/or director prove that has acted in an informed way, free of any personal interest and according to criteria of corporate rationality. We can define this criteria as business judgment rule, that is an actuation according to the regular business criteria governing similar companies. Moreover, the managers and/or directors shall not be considered liable for the damages emerging of a corporate resolution in which they voted against the approved resolution. In this case, the manager and/or director may attach to the minute its voting declaration in the five days following the approval of the resolution. This right can also be exercised by a writing addressed to the company s supervisory bodies, whether before a public notary or the Commercial Registrar. Page 30 of 124

31 When a manager and/or director does not exercise this opposition right, it shall be considered jointly liable in what concerns the acts he could oppose. In any case, the liability of a manager and/or director to the company does not apply in what concerns resolutions approved by the company s shareholders, namely in shareholder s meetings. ii) Liability before the company s shareholders Independently of the damages individually suffered, the company shareholders may enforce the directors liability. In order to do so, the shareholders, jointly or grouped with other company s shareholders, must represent at least 1% of the company s share capital or 2% of the company s share capital if the company is a public company (article 77 of the Commercial Companies Code). iii) Liability before the company s creditors The managers and/or directors of a company are liable before their creditors when, as a result of the negligent breach of their contractual and legal duties the company s assets become insufficient to satisfy the company s creditors (article 78 of the Commercial Companies Code). This liability cannot be excluded even if the act or omission is based in a corporate resolution approved by the company s shareholder general meeting. If an insolvency occurs, these rights can be exercised by the administrator of the insolvency proceeding. iv) Liability before the company s employees If the conditions set forth in ii) and iii) above, the company s managers shall be jointly liable with the company and the company s which are in a group or dominion relationship, in what concerns Page 31 of 124