Portugal collection profile

All companies are obliged to publish their balance sheets and accounts on an yearly basis (usually financial such as Balance Sheet and P&L must be filed by mid-July each year) which are then available to be consulted, and this data is fairly reliable.

Allianz Trade allocates each company a grade reflecting its financial health and how it conducts business. Grades represent a core of our knowledge and analyses, and help clients identify and avoid risk. Data is continuously monitored to offer the most up-to-date information to support management decisions.

Liability for business debts is determined by legal structures, which are described as follows:

• Sole Proprietorship (Empresário em Nome Individual) is available for small businesses managed by an individual and for which no commercial structure is necessary. In this case, the owner is liable for all business debts. 
• Two or more individuals may also share ownership and responsibilities through Partnerships (Sociedade em Nome Coletivo), in which case the partners may be jointly and individually liable for the actions of the other partners. Limited Liability Partnerships (Sociedade em Comandita) may alternatively offer limited liability to the partners.
• Private Limited Liability Companies (Lda) represent the great majority of businesses in Portugal because they require no minimal capital funds while the partners’ liability is limited to their contribution. Public Limited Companies (SA) are rather used for larger structures willing to divide their capital (at least EUR 50,000) into tradable shares. In these entities, the shareholders’ liability is limited to the value of their shares.
• Foreign companies may alternatively settle in Portugal through Branch Offices which provide no liability limitations to the foreign parent company. Representative Offices (escritório de representação) may also be set up but these cannot generate cash. Joint Ventures may take the form of any legal structure listed above, but incorporation is not necessary (a contract drafted for this purpose would suffice).

The legal system in Portugal is based on Civil Law, which means that the rules are codified while the courts’ decisions only have a limited law-creating effect. County Courts have general competence to deal with claims in first instance (Tribunais Judiciais de Primeira Instância), but they are normally divided into specialized divisions to deal with specific commercial (Tribunais de Comércio), employment (Tribunais de Trabalho), maritime (Tribunais Marítimos) or criminal matters (Tribunais Criminais). Commercial Courts are available in several points of the country.

In parallel, disputes involving public actors must be brought before the administrative courts. Appeal proceedings would then take place before one of the country’s five Courts of Appeal (Lisbon, Oporto, Évora, Coimbra and Guimarães) and the Supreme Court of Justice (Lisbon).

EU rules entitle creditors to charge a flat EUR 40 fee to cover their costs, but additional collection costs may be claimed to cover reasonable fees in excess of this sum (lawyers, recovery agencies, etc.) during legal proceedings.

Retention of Title clauses aiming at retaining ownership over goods until the related invoice has been paid in full are admissible in Portugal, under Civil Code (Article 409), provided that they are clearly emphasized in the contract and that the agreement has been registered (for real estate, cars, planes or boats). Having said this, the clauses are not applicable in most business-to-business transactions where the goods are to be transformed and incorporated into a new product.

The most common payment methods are as follows:

• Swift bank transfers are becoming increasingly popular as they are fast, secured, and supported by an increasingly developed banking network internationally and domestically. Export transactions should nonetheless be guaranteed through an Export Credit Insurance policy, which helps minimize the risk of sudden or unexpected customer insolvency. Allianz Trade’s worldwide network of risk offices monitors the financial well-being of customers and grants them a specific credit limit up to which clients may trade and claim should something go wrong. 
• Alternatively, Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) constitute reliable guarantees even though they are not frequently used in Portugal. 
• Irrevocable and confirmed Documentary Letters of Credit (a debtor guarantees that a certain amount of money is made available to a beneficiary through a bank once certain terms specifically agreed by the parties have been met) may also be considered.
• Alternatively, it is advisable to negotiate payments in advance or down payments, but these may be perceived as a lack of trust. 
• As in many countries, checks, bills of exchange and documentary credits would increasingly be used as debt recognition titles rather than as payment means. If left unpaid, these would indeed make the debt certain and undisputed, thus giving access to fast-track proceedings aiming at obtaining an enforceable Payment Order against the debtor.

Having said this, the judicial administration in Portugal is heavy and case settlement is an overly time-consuming exercise. As a result, amicable settlement should always be considered as an immediate alternative to lengthy and costly legal proceedings. As a matter of fact, having collection specialists may help negotiate payment instalments and tends to be extremely efficient, as domestic businesses fear the loss of commercial relations more than facing lawsuits.

In all circumstances, legal dunning ought to start with a registered Demand Letter recalling to the debtor’s obligation to pay the principal together with late payment interest (as contractually agreed or taking a legal rate as a reference) within eight days. It is also wise to verify whether the debtor company is actually undergoing an insolvency procedure: the company would then be registered in the Trade Register (Registo Comercial) or within the Official Journal (Díario da República II serie).

When the debt is certain and undisputed (i.e. when a debt recognition title may be provided) Payment Order fast-track electronic proceedings (Injunção) may be requested from the court. In addition, when the debtor company has assets in other EU Member States, a European Payment Order procedure facilitating the recovery of undisputed debts (under Regulation EC No 1896/2006) may furthermore be triggered. In this case, the demanding party may request the Council Court to issue an Order to Pay which will then be enforceable in all European Union countries (except Denmark) without exequatur proceedings.

The Acção Declarativa is otherwise the main procedure when a claim is disputed and cannot be solved amicably. Once the claim is filed with the court and the debtor is notified, they may file a defence within 30 days. Failure to pay or to reply, however, would entitle the court to deliver a default judgment in favor of the creditor. When the claim has been duly proven and determined through written statements and an oral phase, the court may then order damages, strictly as requested by the demanding party (not more).

When going legal, the parties must always be represented by a lawyer registered in the Portuguese Law Bar Association, and all relevant documents must be translated in Portuguese. Since legal proceedings in Portugal are long, arbitration or a foreign forum should be considered, as both arbitral awards and EU decisions are fairly enforceable by domestic courts.

All documents that would help prove the claim such as correspondence (email or other), contracts, purchase orders, invoices, checks, letters of credit and receipts. As court representation must be done through a lawyer, power of attorney is also required in case of court or arbitral files.

Commercial claims must normally be brought to court within 20 years (prazo de prescrição ordinário). This time limit is considered a strict matter of substantive law (no margin), but may be extended if any fact justifies interrupting the lapse of this legal term.

Provisional measures may help preserve the creditor’s interests pending a final decision, insofar as the courts may order the provisional attachment of the debtor’s assets (freezing orders, asset repossession orders, etc). In this case, the debtor retains property over its assets but loses the faculty to dispose of them as long as the proceedings continue. The courts may also render injunctive or declaratory measures to protect the creditor’s rights. As a general rule, provisional orders would however only be granted provided that the claimant has demonstrated the immediate necessity of doing so. In emergency situations, the court may render its decision ex parte (i.e. in the absence of the debtor), as it deems appropriate. In certain circumstances, the courts may also qualify provisional measures as final and binding awards, in which case the debtor must initiate a formal lawsuit to obtain a revision of the decision.

Decisions rendered in first instance may be brought to the Courts of Appeal provided that the claim value exceeds the jurisdictional limit (Valor da alçada) of the first instance court. This limit is defined by law and varies depending on the type of court and case (currently EUR 5,000 for first instance courts). Decisions rendered in second instance in excess of EUR 30,000 may be appealed to the Supreme Court of Justice, but only on legal grounds (incorrect interpretation, failure to state reasons, failure to observe procedural requirements, etc.). 
According to the Dupla Conforme rule, decisions rendered in first instance and confirmed in second instance cannot be brought to the Supreme Court of Justice.

A judgment is normally enforceable as soon as it becomes final (i.e. when all appeal venues have been exhausted). If the debtor fails to satisfy the judgment, it is possible to request compulsory enforcement (juízos de execução) of the decision before the enforcement courts through Attachment Orders, giving access to the debtor's bank account and Garnishee Orders allowing payment of the debt to be obtained from a third party owing money to the debtor.

Obtaining a decision in first instance could take around one year, whereas obtaining a final and enforceable decision in Portugal could take up to two years, depending on the complexity of the case. Enforcement proceedings can be very quick but it depends on the existence of assets, or on the difficulty of identifying the assets to apprehend and sell.

Domestic courts would generally need more time to deal with claims involving foreign parties, particularly because documents would then be translated, while foreign witnesses might have to be heard.

As a general rule, the defeated party would usually be required to pay part of the successful party’s costs, but amounts remain at the court’s discretion.

It is difficult to provide an overall estimate of court fees because these would depend on the complexity of the file and on the various procedures to be undertaken. Bailiff’s fees are determined according to a specific table. The Bar Association rules do not allow contingent no-win-no-fee arrangements but mixed fee arrangements (low fixed fees and success fees) may be considered.

As a result of the difficulty of domestic courts to deliver timely decisions, use of Alternative Dispute Resolution methods is growing since an Arbitration Law came into force in March 2012, as a means to increase judicial response to litigation needs while limiting the courts’ caseload.

Mediation involves the nomination of a mediator who is given responsibility for helping the parties reach a compromise. In other words, the mediator has no authority to decide on the behalf of the parties and cannot bind them with a decision. An agreement is only binding if a written settlement agreement is signed by the parties at the end of the mediation. The mediator really acts as a facilitator to settlement.

Arbitration involves the parties agreeing to rely on an independent and impartial third-party arbitrator, who is given authority to settle their dispute on their behalf. The arbitrator’s decision is binding on the parties. 
As an out-of-court settlement method, ADR can be cost-effective, generally reduces delays, allows preservation of confidentiality and offers a binding decision which may then be enforced before the courts if necessary. When international transactions are involved, international arbitration may also be considered. In all situations, a specifically drafted provision must be included in the parties’ contract.

Alternatively, Portugal is a signatory to the Rome I Regulation on the law applicable to contractual obligations, which stipulates that the parties to a contract may, by mutual agreement, choose the law applicable to their contract, and select the court that will have jurisdiction over disputes. Therefore, foreign traders may alternatively agree to solve their business disputes in a foreign forum (i.e. under a foreign law or before a foreign court). Domestic courts may however retain exclusive jurisdiction over mandatory rules of Portuguese law, or if the chosen foreign law is deemed incompatible with Portuguese public policy.

It is essential that the agreement be characterized by an international connection (for example, one party has elected domicile in another country, or the place of execution is located abroad), and that a jurisdiction clause is specifically drafted for this purpose.

Foreign decisions are enforceable in Portugal but patience may be required and various circumstances may apply. On one hand, decisions rendered in an EU country would benefit from particularly advantageous enforcement conditions. Apart from EU Payment Orders which are normally enforceable directly in domestic courts, the two main methods of enforcing an EU judgment in Portugal are by the use of a European Enforcement Order (EEO, as provided under Regulation EC No. 805/2004) when the claim is undisputed, or by registering the judgment under the provisions of the Brussels I Recast Regulation (1215/2012).

If the judgment qualifies as an uncontested claim, it can be enforced directly (i.e. without registration) by use of an EEO provided that the debtor has identified assets in the country. A European Small Claims Procedure (as provided by Regulation EC 861/2007) aiming at eliminating intermediate steps may similarly be relied upon while enforcing decisions up to EUR 5,000.

If the claim is disputed, the procedure for registering an EU judgment with domestic courts is relatively simple. The judgment holder must apply to the relevant court for the judgment to be registered and provide the court with, among other documents, an authenticated copy of the judgment, a certified translation and, if interest is claimed, a statement confirming the amount and rate of interest at the date of the application and going forward. Once the judgment has been registered, it can be enforced as if it were issued by domestic courts (according to the Recast Regulation EC 1215/2012, an exequatur procedure is no longer required from January 2015).

On the other hand, judgments rendered in foreign countries outside of the EU would normally be recognized and enforced on a reciprocity basis provided that the issuing country is party to a bilateral or multilateral agreement with Portugal drafted for this purpose. In the absence of reciprocal arrangements, exequatur proceedings would take place before domestic courts. As a general rule, foreign judgments cannot be reviewed on the merits of the case, but the courts would deny admissibility where the foreign decision is neither final nor enforceable in the issuing country, deemed incompatible with domestic public policy or with decisions rendered by domestic courts, if the defendant has not benefited from a due process of law, if the foreign court has awarded punitive damages, etc. 

Portugal is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, therefore its domestic courts ought to recognize and enforce awards rendered through international arbitration proceedings.

Insolvency in Portugal is a matter of cash flow and balance sheet alike. Portuguese Insolvency Law (Insolvency and Recovery Code, as approved by Decree Law No 53/2004 of March 2004) originally provided a single insolvency proceeding (processo de insolvência) aiming at obtaining payments through negotiation or liquidation. However, further reforms conducted in 2012 and 2018 introduced more efficiency in supporting companies in financial difficulty. The Directive (EU) 2019/1023 on preventive restructuring frameworks, insolvency and discharge of debt was transposed into law in 2022 through Law No 9/2022 of 11 January. It provides for preventive restructuring schemes available to debtors in financial difficulties (with probability of insolvency), aimed at preventing insolvency and ensuring the debtor's viability. The objective is to achieve a legal framework (which in part already existed in Portugal).

The Law 8/2018 has established an Extrajudicial Regime for Reorganization of Companies (RERE) which runs under the terms of the Commercial Registry Office. It allows a debtor, which is in a difficult economic situation or in a situation of imminent insolvency, to negotiate and obtain a restructuring agreement with one or more of its creditors.

1. Objective of RERE: The RERE aims to facilitate the restructuring of companies facing financial difficulties but still viable, allowing them to negotiate restructuring agreements with their creditors outside of court. This can include debt renegotiation, extension of payment deadlines, or other financial adjustments that enable the company to regain financial health.
2. Voluntary Participation: Participation in the RERE is voluntary and depends on the agreement between the debtor and its creditors. The process is initiated by the debtor, who must demonstrate that they are in a difficult economic situation or at imminent risk of insolvency.
3. Percentage of Liabilities: Essential creditors must represent at least 15% of the company's total liabilities. This percentage is established to ensure that the most significant creditors, in terms of financial impact, are involved in the restructuring process.
4. Confidentiality: Negotiations under the RERE are generally confidential, which can help protect the company's reputation while seeking a solution to its financial difficulties.
5. Facilitation by the Commercial Registry: The process is facilitated by the Commercial Registry, which can assist in formalizing the agreements reached between the debtor and the creditors.
6. Legal Impact: The agreement reached through the RERE can have legal effects similar to those of a court-approved insolvency plan, provided that all relevant creditors agree to the terms.
7. Flexibility: The RERE offers flexibility in negotiations, allowing the parties involved to tailor the terms of the agreement to their specific needs.

Debt negotiation under the 2004 law placed a company facing financial difficulties under the control of a court-appointed administrator under the request of the debtor, their creditors and the Public Prosecutor (Ministério Público). The court designated a Creditors’ Committee to approve potential insolvency plans but the scheme only had limited impact.

Since April 2012, a ‘revitalization’ procedure (Programa Especial de Revitalização, or PER as provided under Law 16/2012) allows companies in financial distress to initiate recovery and debt relief negotiations with their creditors. The transposition of Directive (EU) 2019/1023 introduced some changes to this regime in order to reinforce the PER efficiency, clarifying and simplifying some aspects. Already in the initial requirement, the company presents a proposal for the classification of creditors, according to the nature of the respective credits, in guaranteed, privileged, common and subordinated creditors. Now, the Law specifies the contents of the requirement and the provisional judicial administrator is obliged to submit to the court a supported opinion on if the plan presented has reasonable chances to avoid the insolvency of the company. A moratorium halts all enforcement proceedings for four months to preserve the debtor while the parties attempt to reach a compromise. A relevant change is that declaration of insolvency will only take place after non-approval or non-ratification of the PER if the company, after being heard, does not oppose to it. Therefore, although the goal of the PER procedure is still to ensure the ultimate satisfaction of the creditors, more flexibility has been introduced to increase rescue opportunities.

Liquidation takes place by apprehending and selling all assets of the debtor company. This procedure is made by a court representative, an insolvency administrator, through public auctions or electronic platforms. Recent legislative amendments have set a deadline for the submission of the liquidation plan to ensure a faster conclusion of the process.

Priority rules normally apply as follows while distributing the proceeds of the sale of the debtor’s assets: 

• - secured debts benefiting from priority rights,
  - preferential debts benefiting from general privileges (workers, Social Security, state),
  - common debts
  - subordinated claims (which can be satisfied only once all debts have been repaid)

Under the current regime, creditors who finance the activity of the company by providing it with capital for its revitalisation benefit from a credit on the insolvency estate, which is paid before all other claims on the insolvency. In the majority of the cases it is difficult for common creditors to recover part of their debts. In domestic transactions, the declaration of insolvency allows recuperating the VAT on debts not covered by credit insurance policies.

Liquidators are normally entitled to request the courts to cancel suspect transactions deemed harmful to the creditors and diminishing, frustrating, obstructing, endangering or delaying the satisfaction of creditors in bankruptcy proceedings. A suspect period starting four years before the commencement of the proceedings is applicable.

Insolvency proceedings in Portugal, as in many countries, may be time consuming and could require from two years (on average) to nine years for the most complex cases.

All documents that would help prove the claim such as correspondence (email or other), contracts, purchase orders, invoices, checks, letters of credit and receipts. As court representation must be done through a lawyer, a power of attorney is also needed in case of court or arbitral files.