On 20 June last, the amendments to the Insolvency and Business Recovery Code introduced by Law 16/2012, of 20 April, came into force, which, among other things, set up a special debtor revitalisation process (PER for short) to comply with the goal established in the Memorandum between Portugal and the Troika with a view to creating a swift and effective means of revitalising companies and individuals in difficult financial situations or facing imminent insolvency, rather than liquidating their assets from the outset.

The PER is intended to enable the debtor (company or individual) – who has not yet actually become insolvent – to enter negotiations with creditors in order to agree a revitalisation and recovery plan.

The process begins when the debtor and at least one of his creditors declare, by means of a written statement, their intention to enter negotiations leading to the revitalisation of the debtor through the agreement of a plan. The debtor then submits this declaration to the court, which will immediately appoint a provisional administrator, and the remaining creditors will be notified, either by the debtor himself or by publication on the Citius Portal, to submit their credit claims to the administrator within 20 days.

Once the time limit for submitting claims has expired, the provisional list of credit claims will be sent to the court by the provisional administrator within five days and published on the Citius Portal and may be challenged within the same period by the creditors. The judge will decide on the challenges made also within 5 days.

Afterwards, the debtor and creditors – all the creditors that decide to take part in the negotiations – have a period of two months, which may be extended for another month, to conclude the negotiations, and the debtor must provide the creditors and the provisional administrator all the necessary and relevant information to reach a transparent and equitable agreement, under penalty of liability for any losses caused.

It should be noted that the submission of a PER prevents any debt collection proceedings being filed against the debtor for the entire period of the negotiations and any similar actions that are already underway will be suspended and terminated once a recovery plan has been agreed and approved. In addition, any insolvency proceedings that were previously filed against the debtor, as long as no declaration of insolvency has been made, will be terminated once the revitalisation plan has been agreed and approved.

Where a recovery plan has been agreed unanimously during the negotiations, it will be submitted for the immediate approval of the judge, along with all the documentation which proves the agreement, and attested to by the provisional administrator, and the plan will take effect once it has been approved by the court.

If, on the other hand, a recovery plan is only agreed by a majority of the votes of the creditors during the negotiations, the debtor must submit the agreed plan to the court, which will decide to approve or reject it within 10 days, and the judge may include any credit claims that have been challenged if he or she considers that there is a serious likelihood that these credit claims will be acknowledged, if the issue has not yet been decided.

Finally, if the debtor and the creditors are unable to reach agreement or if the time limit for the conclusion of the negotiations (maximum 3 months) expires, the negotiations will be terminated.
In the latter case, the provisional administrator will prepare a reasoned opinion on the solvability of the debtor and in the event that it supports a finding of insolvency, this should be declared by the judge within three days. In cases where the debtor has not yet become insolvent, the PER extinguishes any and all effects, namely those regarding the suspension of debt collection and insolvency proceedings.
As a final note, the PER may also be initiated by the debtor himself filing an extrajudicial recovery agreement signed by the debtor and by creditors with at least a majority of the votes, along with all the necessary probative evidence, and the process will then move on to the appointment of a provisional administrator and the notification of any other creditors of the debtor.

Let us hope that this amendment does indeed provide another resource for this kind of revitalisation process to ensure both the solvability of individuals and the continuity of companies that are in extremely difficult economic and financial situations.

Eliana Varalonga