In order to promote the restructuring of the companies and the simplification of the insolvency procedure, the Council of Ministers has approved the sixth amendment to the Insolvency Code.
This proposal creates a prior insolvency procedure aimed at restructuring companies in economic difficulties or eminent insolvency by way of an out-of-court arrangement with the debtor's creditors: the recovery procedure.
During the recovery procedure, the negotiations may not exceed 3 months, period during which the pending enforcement actions against the debtor are suspended.
If the parties do not reach an arrangement during that period, the procedure will terminate if the debtor is not insolvent after conclusion of the negotiations. Otherwise, the interim insolvency administrator appointed by the court will request the court to order the insolvency to be effective within three business days.
If the parties, with the approval of the majority of the creditors, reach an arrangement for the debtor's recovery, the recovery procedure will be concluded in a short period of time after being sanctioned by the court.
The arrangement will bind all the creditors, including those which are not party to the agreement, provided that the compliance with the legislation on settlement of debts to the Tax and Social Security Authorities and some safeguard conditions of the minority creditors are ensured.
Concerning the insolvency procedure, the proposed revision intends to simplify the formalities and proceedings by reducing deadlines (for instance, the deadline for the debtors present themselves to the insolvency is reduced to 30 days) and some stages (for instance, the incident qualifying the insolvency will be only applicable when there is evidence that the insolvency status was committed with intent) and by adapting the procedure on a case by case basis. In some cases, the court may waive to convene the assembly of creditors, for the appraisal of the report, and in other cases, it may decide to suspend the assembly of creditors for more than once during a maximum period of 15 days.
Concerning the simplification of the formalities, the insolvency procedure will be noticed at the internet site "CITIUS", which will replace the prior notification made in the official gazette "Diário da República".
On the other hand, the proposed revision intends to strengthen the liability of the debtor and management bodies when they are intentionally liable for the insolvency condition and to reinforce the organizational powers of the court concerning the procedure.
The proposal also defines the scope of powers and liability of the insolvency administrator.
As part of the compliance with administrative cooperation policy adopted within the European Union in the field of taxation, the Portuguese Government has updated its list of countries, territories and regions subject to a clearly more favourable tax regime through the approval of the Ministerial Order number 292/2011, of 8 November.
This Ministerial Order changed the Ministerial Order number 150/2004, of 13 February, which approves the list of countries, territories or regions subject to a clearly more favourable tax regime, following the implementation of the mechanisms provided not only by the Council Directive 77/779/EEC, of 19 December, but also by the Council Directive number 2008/55/EC, of 26 May.
Both of these Directives aim to strengthen the mutual assistance by the competent authorities of the Member States, especially in what is concerned with direct taxation, taxes on insurance premiums, recovery of claims relating to certain contributions, rights, taxes and other measures.
The main point of the updated list of countries, territories or regions subject to a clearly more favourable tax regime is the exclusion of the Republic of Cyprus and the Grand Duchy of Luxembourg.
Formerly, holding companies towards the Luxembourg Law (Law of July 31, 1929 and Grand Ducal Decision of 17 December 1939, nowadays repealed) were covered by the initial list of countries subject to a clearly more favourable tax regime.
The scope of this measure will be increased if the provisions contained in the Proposal for 2012 Budget Law - which sets a general worsening of the applicable regime to relations between resident companies and companies with headquarters in the so called "tax heavens": (i) there will be not possible to deduct the expenses with the payments to entities subject to a preferential tax regime when the taxpayer knows their destination, especially in case of special relationships between the taxpayer and the beneficiary or the intermediate entity, and, (ii) the corporate tax rate applicable to the income obtained or arising from these entities will increase to 30%; (iii) personal Income tax rate shall be of 30% on the investment income paid to, or received from, offshore-entities.
In this context, we should also mention Council Directive 2011/16/EU, of 15 February, on administrative cooperation in the field of taxation which provides the reinforcement of the mutual assistance obligations between tax administrations of all member states of the European Union. Portugal shall bring this Directive into force through the laws, regulations and administrative provisions from 1 January 2013.
© 2011 Macedo Vitorino & Associados
As part of the compliance with the Financial Assistance Program, the Portuguese Government passed Decree Law No. 106-A/2011, on the 8th phase of EDP's re-privatization and Decree Law No. 106-B/2011, on the 2nd phase of the privatization of REN, the energy grid company.
Both aim to lessen the weight of public debt in the economy, to strengthen the presence of investors in the Portuguese market and to diversify the sources of financing of domestic companies. The Portuguese Government believes that despite the sale of all shares in EDP and REN, the existing regulatory and supervision tools are sufficient to safeguard public interest in the energy sector.
The sales shall be conducted by Parpública and will refer to a percentage of the shares representing 21.35% of EDP's share capital and up to 51% of REN's share capital. Three distinct types of sales shall be used, each with different purposes:
(i) Direct sale to investors who will become reference shareholders to capture industrial investors, particularly, electricity or natural gas network operators, and financial investors with the perspective of stable long term investment. The criteria for selecting the investors include the price, the submission of a strategic project, the absence of conditioning factors and the compliance and financial capacity of buyers. If so determined, for a maximum period of 5 years, the shares acquired may not be sold, encumbered nor be subject to agreements on voting rights;
(ii) Direct sale to financial institutions to strengthen and diversify the ownership structure of the companies and to commit the financial institutions to carry the subsequent distribution of shares; and
(iii) Public offer in the domestic market with the objective of promoting the liquidity of the capital, allowing the acquisition of shares by the companies' workers.
The degree of preference given to these arrangements is not the same in both companies: In the case of EDP, operations will preferably be conducted through reference shareholders' direct sales and the other methods shall not be applied, unless necessary. In the case of REN, the three types of sales will be used.
Under the regulations now approved, it is up to the Council of Ministers to decide on (a) the total amount of shares to sell in each of the selling arrangements; (b) to approve the specifications, criteria and method of price determination; (c) the identification of financial institutions to whom the shares will be transmitted, where applicable; as well as (d) the amount of shares to be offered to the public and workers.
© 2011 Macedo Vitorino & Associados
In compliance with the bail-out programme agreed by the Portuguese State and the IMF/EU/BCE, in which it was agreed to set the general principles of out-of-court proceedings for restructuring of companies, the Council of Ministers approved, by way of resolution, the general principles of out-of-court proceedings for debtors' recovery on October 25, 2011.
This resolution establishes as general principles, among others, the following:
(a) Negotiation in order to obtain a settlement which allows the effective recovery of the debtor;
(b) Cooperation between the parties in order to grant the debtor a "standstill period", during which the debtor may obtain all relevant information and make any proposals in order to solve their financial situation;
(c) Creditors must refrain from introducing new judicial proceedings against the debtor and must suspend the pending lawsuits and the debtor must refrain from adopting measures which may harm creditors;
(d) The proposals for debtor recovery should be based on a realistic and consistent business plan, containing information regarding the steps to be adopted by the debtor in order to overcome their financial situation; and
(e) In case additional funding is granted to the debtor, the remaining credit should be guaranteed by the parties.
These principles constitute one of the measures of a reform, which is expected to be soon adopted, as to companies' restructuring proceedings.
These principles are included in a wider set of measures for the recovery of companies in economic and financial difficulty situation without the companies having to resort, at least initially, to insolvency proceedings.
It is therefore expected that the Portuguese Insolvency Code ("CIRE") is amended in order to introduce new rules for approval of restructuring plans negotiated out-of-court and the current conciliation proceeding with the IAPMEI be reviewed accordingly.
As adopted in other countries, such as the case of the UK schemes of arrangement, it is anticipated that these measures may promote effective out of court proceedings, which, in our opinion, might pass by convening with the creditors agreements, with the voting majority specified in the CIRE, and since approved by a court, with the same enforceability of the decisions taken in insolvency proceedings.
By this way, it would be opened the possibility of reducing the amounts of the debts and the share capital of companies in economic and financial difficulties by way of an alternative mechanism without having to resort to insolvency proceedings.
© 2011 Macedo Vitorino & Associados
The new regulations for the energy sector, approved by Portuguese Government, transpose into national law Directive No. 2009/72/EC and Directive No. 2009/73/EC laying down the common rules for the internal market in electricity and natural gas, respectively.
The two Directives are part of the so-called Third European Union Energy Package, whose main objectives are to increase competition, enhance the efficiency of the regulatory authorities and increase the investment to benefit of consumers of electricity and gas natural.
The set of measures now adopted change the organizational framework of the national electricity system of Decree-Law No. 78/2011 of 20 June, and the organizational framework for natural gas of Decree-Law No. 77/2011 of 20 June.
Firstly, the licensing requirement to commercialize natural gas and electricity is replaced by a registration at Direcção Geral de Energia e Geologia. As a consequence, it is expected the warranties which were associated with the license to be waived.
Secondly, in order to strengthen competition among operators in the energy market, the new energy regulation reinforces the discipline of separation of production and commercialization activities and operation of networks transport activity.
Towards this objective, the operator of the distribution network belonging to vertically integrated undertaking and serving a number of clients over 100,000 must now draw up a compliance program which sets out the measures to be taken to ensure that discriminatory and anticompetitive conduct is excluded.
Thirdly, the consumer's rights are enhanced, namely the change of supplier, that must now be effected within three weeks. Other important change is that consumers may allow access to their current supplier's consumption data by other suppliers, without any charge.
The new energy regulation also sets out the obligation on suppliers to provide information to consumers, for example, about their consumption, at any time, without any charge.
The directives and the new energy regulations agreed in the need to provide protection to vulnerable customers, mainly on the prices issues. However, neither the directive nor the new law established specific measures to ensure such protection.
Finally, the enlargement of the powers of regulatory authorities is made, mainly by competition control and protection of consumers.
1. Property taxation
The measures established in the MoU in this respect include measures applicable to personal income tax and to property taxation. In this regard, principal payments under loans granted for housing purchase will not be deductible as from January 1, 2012 and the tax deductibility of rents and mortgage interest payments under such loans will also be limited.
Property taxation should be gradually focused on Real Estate Tax (IMI) and not on Real Estate Transfer Tax (IMT).
Temporary exemptions of IMI in connection with owner occupied dwellings should be substantially reduced and the rates of IMI applicable to vacant or non rented property should be increased.
For purposes of bringing taxable value of property close to market value by the end of 2012, rules on property valuation should be reviewed by the end of the third quarter of 2011.
Residential properties should be subject to evaluation every three years while commercial properties should be evaluated on an annual basis.
2. Rental market
The New Urban Lease Act Law (NRAU) should be amended by the end of 2011 in order to (i) broaden the conditions for renegotiation of open-ended residential leases, (ii) limit the possibility of transmitting the lease contract to the first degree relatives, (iii) reduce the prior notice for termination of leases for landlords, (iv) provide for an extrajudicial eviction procedure for breach of contract, aiming at shortening the eviction time to three months, and (v) phasing out rent control mechanisms.
3. Licensing procedures for renovation works
In this respect, the MoU establishes that new legislation must be approved until the end of the third quarter of 2011 to, among others, (i) simplify administrative procedures for renovation works, safety requirements, authorisation to use and formalities for works that benefit and enhance property's quality and value, (ii) simplify the rules for temporary re-location of tenants of buildings being renovated, and (iii) allow landlords to terminate the lease contracts in case of major renovation works (affecting structure and stability of the building) with a maximum of 6 months prior notice.
4. Conclusion
Until now, Portuguese housing market has favoured the purchase of housing based on bank financing and construction of new buildings in detriment of rental contracts and renovation and conservation of the existing buildings, particularly in the cities. Although the exact terms of implementation of certain measures included in the MoU are not yet known, it appears that Portuguese housing market will be required to adjust its model to be increasingly focused on investment in existing buildings.
The tools to implement such adjustment are the changes to property taxation, the incentives to rental contracts and the simplification of licensing procedures for renovation works.
© 2011 Macedo Vitorino & Associados
Portugal agrees three-year bail-out programme
The Portuguese Government announced that the IMF, the ECB and the European Commission reached an agreement with Portugal regarding the bail-out programme for the next three years (2011-2014).
The draft MoU disclosed today details the general economic policy conditions for the granting of financial assistance to Portugal leaving open the amount of the bail-out facility, which is expected to be around €80,000 million.
The draft MoU includes the following measures, among others:
Tax measures. The MoU sets out targets for the reduction and limitation of tax allowances and benefits for income tax purposes, the movement of certain goods and services from the reduced and intermediate VAT rates to higher ones, the increase of taxes on property, cars and tobacco and the introduction of electricity excise taxes.
Financial Sector. The Bank of Portugal (BdP) will direct all banking groups to reach a core Tier 1 capital ratio of 9% by end-2011 and 10% at the latest by end-2012. In the event that banks cannot reach the targets on time, the Government may inject equity, by using resources provided under the programme (up to EUR 12,000 million).
SOEs. To reduce costs further than the 15% reduction in operational costs, the Government will review the scope of the services, apply tighter debt ceilings from 2012 onwards and prepare a comprehensive assessment of a tariff structure to reduce the levels of subsidisation.
Public-private partnerships. The Government will perform an assessment of at least the 20 most significant PPP contracts, which should review the possibility of renegotiating these contracts, and avoid engaging in new PPPs projects.
Privatisations. The privatisation programme will be reviewed until March 2012. During 2011, the Government will pursue a rapid divestment in public sector companies, EDP and REN, subject only to market conditions, and privatise TAP.
Labour market. In addition to the changes to the unemployment insurance benefits, the Government will implement a reform in the severance payments in open-ended contracts, which will be aligned with those of fixed-term contracts, and introduce adjustments to cases for fair individual dismissals.
Energy and gas markets. The draft MoU contemplates a full liberalisation or the markets by January 2013. For new contracts in renewables and co-generation, the feed-in tariff should be reduced. For existing contracts, the Government will assess the possibility of renegotiating the feed-in tariff.
Housing sector. The Government will broaden the conditions for renegotiating open-ended residential leases and provide for an extrajudicial eviction procedure for breach of contract.
Competition. The Government will eliminate the special rights of the State in private companies (golden shares) by July 2011.
© 2011 Macedo Vitorino & Associados
This information is provided for general purposes only and does not constitute professional advice. If you have any question on a matter of Portuguese law you should contact a lawyer licensed to practice law in Portugal. If you are a client of Macedo Vitorino & Associados please contact your usual contact partner or any of the lawyers listed in the contacts section.
In November 2010, the Court of Justice of the European Union has decided the "golden share" of the Portuguese State in Energias de Portugal SGPS SA ("EDP") contravenes the European Union ("EU") rules.
This ruling was not, however, novel, as the Court of Justice had already decided in a similar sense regarding the "golden share" of Portugal Telecom SGPS SA ("PT").
The "golden share" grants the Portuguese State voting rights on key matters on the managing and controlling of EDP, including mergers, divestitures or relevant changes in shareholders' powers.
Repeating the merits of the PT case, the Court of Justice held that the exercise of those special rights arising from the "golden share" by the Portuguese State constitutes an unjustified restraint on the free movement of capital and the right of establishment under the Treaty on Functioning of the EU.
According to the Court of Justice, the influence of the Portuguese State in the management and control of EDP may discourage direct investments from operators of another Member States, which are abstained from participating in the management and control of the company.
In 2008, the European Commission had decided in the same sense.
Further to the ruling of the Court of Justice, the European Commission has announced that it will ask the Portuguese Government on the status of this matter, including the measures adopted by the Portuguese State in order to comply with the EU rules, as stated in the case law of the Court of Justice.
The Portuguese State had an indicative deadline of two months from the publication of the ruling of the Court of Justice to make known the adopted measures, which did not occur or the European Commission has considered the proposed measures were not satisfactory taking into account the content of its latest announcement.
The Portuguese Government has already reacted to the announcement of the European Commission and forwarded the resolution of the current situation to the shareholders of EDP.
However, in case the Portuguese Government does not take the necessary measures to eliminate the "golden share" in EDP, the European Commission may decide to begin other infringement proceedings against the Portuguese State.
Given the fact that there is a previous ruling of the Court of Justice on this matter, it is likely that the time resolution of new proceedings could be faster.
In case the Portuguese Government reiterates not to accept the decision of the Court of Justice, it may be subject to pay copious fines for each day of failure to comply with the ruling of the Court of Justice.
© 2011 Macedo Vitorino & Associados
Ordinance No. 142/2011 of 6 April approves the National Natural Gas Transportation Regulation ("Rules"), amending the previous legislation, approved by Decree No. 390/94 of 17 June.
The Regulation establishes the technical and safety conditions to be met in the design, construction, operation, infrastructure maintenance and placement out of service of the National Natural Gas Transportation Network ("RNTGN"), with the aim of ensuring adequate flow of natural gas, interoperability with networks to which they relate and safety of people and property.
The RNTGN has application in:
(a) Pipeline transportation of natural gas in diameter equal or superior to 100 mm and whose operating pressures are higher than 20 bar; and
(b) Pressure regulating stations belonging to the national gas transmission network.
The gas transported must be non toxic and non corrosive, in compliance with ISO 13686, or a technically equivalent standard. Natural gas should be transported at a temperature compatible with the infrastructures of transport and can never exceed the temperature of 120ºC.
The quality management system of pipelines to transport natural gas must be based on the specifications of EN ISO 9000 or a technically equivalent standard.
A classification system for local implementation of the pipes takes into account: (i) the population density, (ii) the nature, extent and purpose of the buildings, constructions and works of art therein, (iii) the intensity of rail traffic, road transport and (iv) the future allocations provided in the various planning instruments.
As part of security measures and protection of pipelines, stand out, among others, the establishment of the control area of activities of third parties, reliance on the authorization of the RNTGN responsible technician to perform works ranging from the bondage of the pipeline, a minimum distance of 35 m from any inhabited building (75 m in case of buildings open to the public or that present particular risks) and comply with a minimum depth of 0.8 m.
Technical requirements are also set for the pressure regulation points, the pipes, the materials of the various components of the pipeline and the conditions of operation and maintenance, including mandatory periodic inspections ranging between six months to two years, according to the type of inspection and the area of the location of the infrastructure.
© 2011 Macedo Vitorino & Associados
1. Amount of share capital
Under the Portuguese Companies' Code, private limited liability companies (sociedades por quotas) are required to have a minimum share capital of €5,000 (five thousand euro). Each share (quota) must have a nominal amount of at least €100 (one hundred euro).
Pursuant to the provisions of Decree law no. 33/2011, of 7 March 2011, which shall enter into force on 6 April 2011, the amount of share capital of private limited liability companies, including single shareholder limited liability companies, may be established by the shareholders in the incorporation documents without any limitation, i.e. it will be equal to the sum of the shares (quotas) of the shareholders. In addition, the minimum nominal amount of each share (quota) is reduced to €1 (one euro).
These provisions shall, however, not apply to companies subject to specific regulations, such as holding companies, to companies which incorporation is subject to specific government authorisation nor to public limited liability companies (sociedades anónimas).
2. Subscription and payment
Also as of 6 April 2011, the share capital of private limited liability companies may be subscribed and paid up by the shareholders at the date of incorporation or until the end of the company's first financial year.
The financial year of a company shall, in principle, begin on 1 January and expire on 31 December of each year, unless the articles of association establish otherwise.
Each shareholder shall, nevertheless, be required to subscribe and pay within the above mentioned period at least an amount equal to the minimum nominal amount of the share (€1 (one euro)) and to state in the incorporation documents whether the such amount has been subscribed and paid up at the date of incorporation or will such payment occur until the end of the financial year. In this case, the shareholders will be required to state that they have already subscribed and paid up the above mentioned amount in the first shareholders' assembly taking place after the first financial year has expired.
It should be noted that in companies where the shares exceed the minimum nominal amount of €1 (one euro), shareholders may defer payment of the remainder of the share capital for a period of 5 years.
3. Conclusion
Upon the entering into force of these new regulations, which shall occur on 6 April 2011, it will be possible to incorporate a two shareholder private limited liability company with a share capital of €2 (two euro), which may be subscribed and paid up until the end of the financial year. The traditional perspective of the share capital as creditors' guarantee is changing and companies will probably seek to obtain reliable information on the counterpart's assets as well as additional security before entering into a contract with such a company.
© 2011 Macedo Vitorino & Associados