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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
Page 2 of 124 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 € 20.000.000.000,00 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.
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Part I - National regulation ... 5
1. Summary ... 7
2. Scope ... 8
3. Conditions and sanctions ... 16
a) Authorisation ... 16
c) Counterpart for the asset transfer ... 20
a) Compulsory counterparts and guarantees ... 22
b) Financial capacities of the transferor and the transferee ... 22
c) Information and transparency ... 23
d) Sanctions ... 27 e) Third parties ... 34 Supervisory authorities ... 34 Minority shareholders... 36 Creditors ... 36 Employees ... 37 Deposit holders ... 37 Member State ... 39
f) Private international law ... 39
Part II -Evaluation of potential solutions ... 41
1. Transfers from the parent company to the subsidiary or from the subsidiary to the parent at arm’s length: ... 41
Proposal n°1 ... 41
2. Transfers from the subsidiary to the parent company (in preferential conditions) ... 46
a) Prior and overall agreements ... 46
Proposal n°2: ... 46
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Proposal n°3 ... 51
c) Liability of the parent company for the subsidiary’s debts ... 53
Proposal 4 ... 54
d) Improving transferability transfer through the introduction of a new concept of "banking group"... 59
Proposal n° 5 ... 59
Proposal n°6 ... 63
e) Other solutions ... 63
ANNEX A National regulations relevant in assets transfers between banks part of a same banking group ... 66
B) Notice 12/92 of the Bank of Portugal ... 77
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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 crisis1.
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 6 of 124 - The Commercial Companies Code (―Código das Sociedades Comerciais‖,
hereinafter), which contains the basic aspects and rules concerning commercial companies2.
- 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 estates3, 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.
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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 8 of 124 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 9 of 124 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 10 of 124 - 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.
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-- 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 12 of 124 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 13 of 124 - 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 14 of 124 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 15 of 124 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.
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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 by-laws.
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 17 of 124 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 18 of 124 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 19 of 124 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 sub-paragraph.
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.
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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.
Page 21 of 124 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.
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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: € 1.250.000.
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 23 of 124 securities, Portuguese law foresees several creditor’s preferential claims7, 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.
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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 25 of 124 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.
Page 26 of 124 - 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 non-disclosure of confidential information.
Page 27 of 124
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 28 of 124 - 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 29 of 124 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 30 of 124 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 31 of 124 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 32 of 124 credits arising from employment contracts due for more than 3 months (article 378 and 379 of the Labour Code).
- under Banking Law
As a complement to the previous rules, the legal framework foresees that the credit institutions must ensure, in all the activities that they perform, high levels of technical competence, ensuring that its corporate organisation works with the human means and materials adequate to guarantee its quality and efficiency (article 73 of RGICSF).
Moreover, the managers must:
a) Act with diligence, neutrality, loyalty and discretion and with a conscious respect of the interests which they manage. These duties apply to the relationships between its clients as well as between other institutions (article 74 of RGICSF);
b) act in its functions with the diligence required to a diligent manager, acting according with the principle of risks distribution and the security of the applications, having also in consideration the interest of the depositors, the investors and all the creditors and clients of the credit institution in general (Article 75 of RGICSF).
These general rules must be coordinated with the specific dispositions concerning insolvency contained in the legal framework for the credit institutions.
In fact, whenever a credit institution cannot fulfil its obligations or is exposed of the risk of not fulfilling its obligations, them members of its management or supervisory bodies must communicate immediately that situation to the Bank of Portugal.
If the corporate bodies do not make the aforesaid communication, there is a personal duty impending over its members in order to communicate the insolvency risk.
Page 33 of 124 This financial imbalance usually implies the fall of the own funds to a level inferior to the minimum mandatory level or the failure to accomplish with the liquidity or solvency ratios. In these cases, the Bank of Portugal can determine the following recovery measures (article 141 of RGICSF):
a) Submission, by the relevant institution, of a recovery plan; b) Restraints to the rendering of certain activities;
c) Restraints to granting of credit and the application of funds in certain assets, namely in operations involving its affiliates or the holding company of those affiliates;
d) Restraints to reception of deposits, attending to its types and its remuneration interest rate;
e) Imposition of the implementation of special provisions; f) Forbiddance or limitation to dividends distribution;
g) Subjection to previous authorisation of the Bank of Portugal relating to certain operations or acts;
Please be advised that the implementation of the aforesaid measures does not prevent the application of fines to the relevant credit institutions neither the commencement of judicial proceedings against the credit/institution and/or the members of its corporate bodies.
- under Criminal Law
Portuguese Criminal Law foresees some crimes relating to facts concerning insolvency. Among all, it assumes a major position the crime of fraudulent insolvency. In fact, according to the Portuguese Criminal Code, the debtor that with intention to harm its creditors (article 227 of the Criminal Code):
a) destroys, damages, makes useless or disappears part ot its assets;
b) fictitiously diminishes its assets, concealing materials, claiming fictitious debts, recognizing fictitious credits, prompting third parties to present such credits or by any means simulates a patrimonial situation inferior to reality, namely through inexact accountancy, fake balance sheets, destroying or concealing
Page 34 of 124 accountancy documents or trough the non-organisation of its accountancy;
c) artificiously creates or aggravates losses or diminishes profits; or d) buys, in order to postpone the bankruptcy, assets through credit
facilities aiming its sale or its use as a payment with a lower price comparing with the current one [for such assets]
shall be punished with an imprisonment penalty or with a fine not exceeding 600 days if the insolvency situation occurs and its recognized in a judicial proceeding.
e) Third parties
Supervisory authorities
RGICSF foresees, mainly, the role of Portuguese supervisory authorities (―Home Supervisory Authority‖) due to the fact that applies, mainly, to the activity of credit institutions in Portugal.
Nevertheless, in what concerns consolidated supervision, the Bank of Portugal shall be competent to perform its supervision if a financial company has its head office in Portugal and if the holding company of credit institutions with head offices in Portugal and other member states of the European Union.
The credit institutions having its head office in Portugal, but whose holding company has its head office in another member state of the European Union shall be under the supervision of the host supervisory authority.
If a credit institution whose holding company is a credit institution or a financial company having an head office located outside the European Union, it must determined if the holding company is subject to a supervision similar to that made by the Bank of Portugal. If this does not occur, the rules concerning the consolidated supervision made by the Home Supervisory Authority apply.
Page 35 of 124
In what concerns the transfer of assets, the supervisory authorities shall act according to the rules referred in paragraph C above.
In what concerns the solvency ratios, Directive 2006/48/EC and Directive 2006/49 EC were transposed to the internal legal framework. Therefore, credit institutions must comply with the general rules described in the Legal Framework for the Credit Institutions and with the framework foreseen in the Decree-Laws that transposed the Directives.
The requirements and solvency ratios, as well the calculation of the credit institutions own funds are developed by the notices of the Bank of Portugal, namely Notice 12/92, that you may find attached as Annex A to this report.
Please be advised that according to the general principles of Companies Law directors of a company must a avoid transfers that may create an Insolvency proceeding.
Nevertheless, if this happens, the Bank of Portugal may impose recovery measures in order to avoid the bankruptcy of a credit institution. In these exceptional circumstances transfer of assets may be subject to previous authorisation by the Bank of Portugal.
Please be advised that if branch of a foreign institution is operating in Portugal and if the solvency ratios are not met or the requirements concerning qualifying holdings are not met, the Bank of Portugal shall inform the Home Supervisory Authority in order to take the appropriate measures concerning the branch operating in Portugal (article 53 of RGICSF).
If appropriate measures are not taken, Bank of Portugal, after informing the Home Supervisory Authority, may implement all measures considered adequate in order to prevent all irregularities. Moreover, it shall also inform the European Commission of the measures taken.
Page 36 of 124
Notwithstanding the measures referred in the previous paragraphs, the Bank of Portugal, if urgency occurs, may, ex officio, implement urgency measures, and, as soon as possible, it shall inform the Home Supervisory Authority and the European Commission.
Minority shareholders
Shareholders with a 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 determining the responsibility of the company’s corporate bodies. This information can be required before or after the transfer of assets.
If this information is not disclosed or if the disclosed information is presumably false, the shareholder is entitled to obtain a judicial enquiry.
Minority shareholder may try to obtain the annulment of the resolutions taken. Except as otherwise foreseen in the company’s by-laws, resolutions concerning transfer of assets are taken by the Board of Directors. The board of directors resolutions’ are null in the following cases (article 411, number 1 of the Commercial Companies Code):
a) they were taken in a non-convoked Board of Directors, unless all directors where present or have voted by correspondence, if that’s allowed by the company’s by-laws;
b) the resolution’s content is not subject to a Board of Directors resolution;
c) the resolution’s content goes against mandatory legal rules or the public policy;
Minority shareholders can enforce a judicial proceeding enforcing the Director’s liability, as well as the Company’s liability;
Page 37 of 124
In what concerns creditors, there must be made a distinction, whether there is an Insolvency Proceeding ongoing or not.
If there is no Insolvency Proceeding filed, the transferor and the transferee must analyse the transfer of assets in order to evaluate if it can create an Insolvency situation, i.e., a situation where a company cannot fulfil its obligations.
If an Insolvency Proceeding is already filed, the transfer of assets is subject to authorisation by the legal liquidator. Moreover, if we are dealing with a Bank and there are recovery measures being implemented, the transfer of assets may be subject to the previous authorisation of the Bank of Portugal.
Employees
Employees can enforce judicial proceeding in order enforce the liability of the company and its managers in what concerns credits arising employment contracts due for more than 3 months. Company’s which are in a group or dominion relationship are also jointly liable for these credits (articles 378 and 379 of the Labour Code).
Deposit holders
Directive 94/19/EC was transposed to Portuguese legal system through amendments to Legal Framework of the Credit Institutions.
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 relationship with the participant credit institution are not covered by this Fund (article 165, item f) of RGICSF).
Page 38 of 124
The Fund is mandatorily participated by the following institutions (Article 156, number 1 of RGICSF):
a) Credit institutions with its head office in Portugal, duly authorised to receive deposits,
b) Credit institutions with its head office in a country not located in a Member State of the European Union, in what concerns the deposits received via its affiliates in Portugal, except if those deposits are covered by a guarantee system in its home country considered equivalent by the Bank of Portugal, and without prejudice to eventual agreements in this issue;
c) Until December 31, 1999, the credit institutions referred in Annex III of Directive 94/19/EC, in what concerns the deposits received via its affiliates in Portugal.
The Fund guarantees, for each deposit holder, the reimbursement of deposits until the limit of € 25.000 (article 166, number 1 of RGICSF).
Besides the Deposit Fund Guarantee, there is also an Investor Indemnification Fund in order to indemnify investors acting with certain securities and financial instruments, which cannot be satisfied by the financial intermediary. This System guarantees credits until the maximum amount of € 25.000.
Besides these Guarantee institutions, there is no specific regulation concerning the deposit guarantee in case of a transfer of assets in another Member State.
If a transfer of assets including deposited funds occurs, the deposit insurer or guarantor does not have to be notified. The Fund only acts when the deposits in a credit institution are unavailable, i.e., the credit institution goes into a crisis situation.
Deposit holders (including deposit holders of the transferor) can enforce a judicial proceeding enforcing the Director’s liability, as well
Page 39 of 124 as the Company’s liability if the Company does not reimburse the deposit.
Member State
According to Portuguese law, Member States do not have any right or obligation concerning assets located in another Member State, unless they are the owners of such assets or unless they have a right impending over such assets.
f) Private international law
In what concerns the applicable law, it must be stressed out that Portugal has adhered to the Convention on the Law Applicable to contractual obligations opened for signature in Rome on 19 June 1980 (―Rome Convention‖), which states that any law specified by this Convention shall be applied whether or not it is the law of a Contracting State.
In fact, Rome Convention has a universal aim, once it applies even if the applicable law despite that law belongs or not to a contracting state.
Moreover, this Convention shall apply in Portugal to contracts made after the date on which this Convention has entered into force with respect to that State.
As a general principle, a contract shall be governed by the law chosen by the parties.
To the extent that the law applicable to the contract has not been chosen by the parties, the contract shall be governed by the law of the country with which it is most closely connected. Nevertheless, a severable part of the contract which has a closer connection with another country may by way of exception be governed by the law of that other country.
If the subject matter of the contract is a right in immovable property or a right to use immovable property it shall be presumed that the contract is
