In April 2012 a new set of measures was inserted in the Portuguese Insolvency and Business Recovery  Code (CIRE) creating what is known as the “special revitalization process” (PER).

The aim of this set of rules, inspired by Chapter 11 of the United Sates Bankruptcy Code and in line with the concerns expressed by the European Commission in its proposal to modernise current European insolvency rules, was to introduce a new scheme more focused on the recovery of the debtor and the maintenance of the troubled business as a going concern, rather than the typical bankruptcy proceedings approach which priority is the protection of creditors’ rights in the liquidation of a company.

Although it is still the wishes of the creditors that govern the revitalization process, the scheme represents a change of paradigm, as the ultimate goal is not the winding-up and sale of the  business but its restructuring, under the assumption that a business being unable to meet overdue obligations does not necessarily imply that it is not economically viable or cannot recover financially.

The process consists mostly in a simplified conciliation procedure involving the debtor and his creditors under the assistance of an interim administrator appointed by the court, with the purpose to reach agreement on a recovery plan, which shall thereafter be approved by the court. Creditors can freely decide upon the contents of the plan, the role of the court being just to confirm that the process is legally valid.

This scheme speeds up the lengthy insolvency process and ensures a more effective compromise among all interests involved.

Once the opening of the process has been accepted by the court and an interim administrator has been appointed by the judge, the debtor shall invite all his creditors, by registered letter, to participate in the negotiations, that shall be concluded within sixty days.

Nevertheless, any creditor has the right to claim his credit within 20 days from the announcement of  the opening of the revitalization process and the appointment of the interim administrator in the court on-line portal CITIUS.

The recovery plan shall be deemed approved, although still subject to the confirmation of the court, if, in a poll in writing where creditors representing at least one third of the total debt with voting rights must participate, it is accepted by a majority of more than two thirds of the expressed votes including more than 50% of the subordinated credits (excluding abstentions).

The recovery plan, once confirmed by the judge, is binding on all creditors, even those who have not been part to the voting.

Like in other bankruptcy proceedings the nomination of an interim administrator by the court causes the automatic stay of all eventual executions and collection attempts, which, however, will be retrieved if the recovery plan is refused by a majority of creditors or the declaration of insolvency is rejected by the court.

The special revitalization process, using simplified and swift proceedings and giving a leading role to the creditors, was expected to make settlements more effective and to enable businesses to recover faster.

However, one year of experience in the application of these rules shows that informality and quickness of procedures may not be limitless.

In a recent decision of the Court of Appeal of Coimbra (P.3327/12.5TBLRA-B.C1) it was ruled that although the special revitalization rules impose on the debtor an obligation to communicate in writing to all his creditors the opening of the negotiation procedure and that any creditor may claim his credit in the time limit of 20 days starting with the notice of the opening of the proceedings and the appointment of the interim administrator on the CITIUS portal, the citation of known creditors domiciled outside Portugal shall not ignore the procedures provided for in international conventions to which the country is a party.

According to the court, despite the fact that insolvency proceedings are considered urgent and that article 9, 4 of the insolvency code states that with the publication of the announcements relative to any acts of the process in the way set out in the code (including on-line announcements in the court portal) all creditors will be deemed validly summoned, even those to whom the law requires different forms of notification and communication, the special nature of these rules does not prevail over international conventional law.

Therefore, the citation of known creditors which are resident in other EU Member States shall observe, in any case, the conditions set out in Regulation (EC) No 1393/2007 of the European Parliament and the Council and the right of creditors to claim their credits is not precluded if these rules have not been met.

Likewise, to creditors not resident in a EU country the Hague Convention of 15 November 1965 on the service abroad of judicial and extra-judicial documents in civil or commercial matters may be applicable.

António Alfaia de Carvalho