The pandemic caused by COVID-19 has uncovered all the difficulties that some companies were already experiencing to maintain their activity and business in the market. The confinement decreed by the Portuguese Government, combined with treasury difficulties and the impossibility of recourse to credit or any further State supports, led to the closing of many companies. The fact that the companies’ executive bodies were not informed about the mechanisms that would have allowed to restructure their companies, may have also contributed to that outcome.
In this article, the Commercial and Corporate Law Department of Belzuz Abogados – Sucursal em Portugal will address the Extrajudicial Recovery Procedure (“RERE”), which allows the debtor in a difficult economic situation or imminent insolvency to negotiate with their creditors in order to reach a Restructuring Agreement aimed at its recovery.
This regime has some advantages that are worth to point out, such as its voluntary nature, in which the parties can subject to RERE, the negotiations leading them to enter into a Restructuring Agreement or, in alternative, negotiate outside that procedure and only subject to RERE, the Restructuring Agreement. Moreover, the procedure is extrajudicial and confidential, therefore decreasing the impact of the social stigma arising from the advertising that comes from a recovery procedure.
Under this procedure, the debtor can summon all or some of his creditors, for the purpose of reaching such Restructuring Agreement. In case the parties choose to subject the negotiations to RERE, the debtor and the creditors who represent at least 15% of the unsubordinated liabilities, can sign a Negotiation Protocol and register this protocol by the Commercial Register Office.
The parties are free to decide the content of this Protocol; nevertheless, some mentions are mandatory, such as the identification details of the debtor, the creditors that are participating and their respective representatives in the scope of RERE, the maximum period agreed for the negotiations (which cannot exceed three months), the identification of the total liability, the responsibility for the costs arising from the negotiation process, an agreement stating that no executive or insolvency proceedings are filed against the debtor, the agreement’s date and the parties’ attested signatures.
The Negotiation Protocol should also be accompanied by the commercial registration certificate and the by-laws of the debtor, accounting documents for the last three fiscal years, a declaration stating liability details and the list of all judicial and arbitral proceedings to which the debtor is a party.
After the Negotiation Protocol is archived, the debtor cannot exercise particularly relevant acts, unless this was set forth or agreed with the creditors. On the other hand, the creditors cannot release themselves from their obligations before the maximum period set forth for negotiations has elapsed.
Insolvency proceedings requested by a creditor that is involved in the Negotiation Protocol will be immediately suspended, in case the insolvency has not yet been declared. The parties can also agree to the automatic termination of executive actions filed against the debtor by the creditors in the Protocol. It is also worth to mention that this agreement is only binding on creditors which are part of the negotiation and have signed the protocol.
After the negotiations, the Restructuring Agreement will be prepared, with its content freely set by the parties. The Agreement must then be deposited by the Commercial Registation Office. This Agreement and its content are confidential and will only be effective from such date.
This procedure is different from the Special Revitalisation Process (“PER”), which is a public judicial procedure, as opposed to RERE, where the Negotiation and Restructuring Agreement are generally confidential. Moreover, PER is binding on all creditors, regardless of their participation in negotiations or their claiming of credits, contrary to RERE, where only creditors who have participated are obliged before the contents of the Restructuring Agreement. Similarly, debt collection and insolvency proceedings are terminated when the PER is approved, while with the RERE, the procedural effects concerning declaratory or executive proceedings or injunctions only affect the credits included in the Restructuring Agreement. As to insolvency proceedings, only those filed against the debtor by any entity that is part to the Restructuring Agreement are terminated.
The Commercial and Corporate Law Department of Belzuz Abogados S.L.P. – Sucursal em Portugal is widely experienced in providing legal assistance in company restructuring, both judicially or extrajudicially, namely by analysing and advising on the procedure that best suits the characteristics and interests of each company.
Belzuz Abogados SLP
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