The New Legal Regime For The Conversion Of Unsubordinated Credits Into Capital

Author:Ms Carolina Meireles and Catarina Santinha
Profession:PLMJ
 
FREE EXCERPT

Law No. 7/2018 was published on 2 March and created a legal regime for the conversion of unsubordinated credits into capital in commercial companies, or companies adopting a commercial form, incorporated under the Laws of Portugal.

 The new law entered into force on the day after its publication and clearly aims to provide an extrajudicial mechanism for the conversion of credits into capital ("Conversion"), enabling, on the one side, the companies that are in a difficult financial situation, but are still economically viable1, to strengthen their equity and, on the other side, certain of their creditors - unsubordinated - to convert their receivables (unlikely to be recoverable) over these companies into registered capital.

  1. THE (LIMITED) SCOPE OF THE NEW REGIME FOR CONVERSION OF CREDITS INTO CAPITAL

    The legislator starts by limiting the application of this new regime "to credits held over a commercial company, or a company adopting a commercial form, incorporated under the Laws of Portugal".

    In this positive delimitation by our legislator, it results that the regime now created only applies (i) to credits held over a commercial company or company adopting a commercial form, excluding, as such, civil-law partnerships or legal persons of a different nature, and (ii) provided their registered office is located on Portuguese territory, thus excluding all commercial companies established under other jurisdictions.

     On the other hand, the following are explicitly excluded from this new Conversion regime:

    Credits held over insurance companies, credit institutions, finance companies, investment firms, publicly-traded companies and state-owned companies, as defined under Decree-Law 133/2013, of 3 October, as amended by Laws 75A/2014, of 30 September, and 42/2016, of 28 December; Credits held by public entities, with the exception of state owned companies, which for the purposes of using this new conversion mechanism must previously obtain authorisation from the member of Government responsible for the area of finance and comply with the rules and principles applicable to the state owned companies; and Credits over companies with a turnover lower than EUR 1,000,000.00 (one million euros), according to the last year-end approved accounts. II. THE CONVERSION PROCEDURE

    (i) Initiative for Conversion - proposal by the company's creditors

    Under the new law, the legislator grants creditors the initiative of the Conversion procedure, preventing debtor companies from - at least directly - taking the initiative of proposing to creditors the...

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