These assets may be the object of security, usually in the form of mortgages or pledges over assets or credits/rights allowing the lenders to be paid from the proceeds of sale of the assets or from the credits subject to security.
However, the appropriation of assets used as security is generally forbidden, , except under specific legal regimes that expressly allow for such appropriation. These exceptions are subject to the conditions outlined within those regimes, notably the Commercial Pledge Law (Decree-law no.75/2017, of 26 June) and the Financial Collateral Law (Decree-law no. 105/2004, of 8 May, as amended, which implemented the Directive on Financial Collateral Arrangements).
If so, what is the procedure – and can such security be created under a foreign law governed document?
As a rule, the creation of in rem security over assets or rights located in Portugal must be subject to Portuguese law as the law governing such assets or rights, which follows the general rule under Rome I Convention. Although alternative or mitigated approaches may be admitted for certain types of assets, they are seldom used in practice, namely taking into consideration applicable perfection formalities and impact on enforceability.
i. real property (land), plant and machinery
Security over real property (such as land, real estate property and surface rights) and moveable assets subject to registration (such as vehicles, ships, and aircraft) is typically created through mortgages (hipoteca). Mortgages encompass fixtures, improvements, and accessions to the property. According the Portuguese Civil Code, in the case of mortgage over factories, the security may also cover machinery and other moveable assets relevant for the plant’s operations but which are not part of the property itself.
Mortgages are created via a public deed executed before a Notary Public (a certified private document is also legally valid but not commonly used). For mortgages over factories and machinery, an inventory of the machinery and other relevant moveable assets must be included in the mortgage deed and recorded in the property registry.
Registration of mortgages is a condition for their validity and ranking is evidenced by the priority of registration. To such effect, it is usual to apply for a prior registration submission of the mortgage, so as to ensure senior ranking.
ii. equipment
Without prejudice to the above, security over moveable assets such as equipment is created by means of a pledge (penhor de coisas).
For the pledge to be effective, the pledgor is required to deliver or confer possession of the asset to the beneficiary or to a third party. As an exception to this rule, pledgors are allowed to maintain possession of the assets pledged for the benefit of banks, provided that the pledge is created under an authenticated agreement.
iii. inventory
Inventory may be regarded as moveable assets, in which case please refer to the answer above.
Although less used in practice (and to some extent disputed amongst scholars), in the case of inventory contained in business/commercial premises, a pledge may also be created over the business as a whole (penhor de estabelecimento commercial), therefore including the moveable assets held and used for business activity (as well as certain contracts and rights).
iv. receivables
A pledge over receivables is created as a pledge of rights or credits (penhor de direitos).
The creation of this pledge must comply with the form and publicity requirements applicable to the transfer of the pledged receivables and notice must be served to the debtor of the receivable. Certain types of receivables – namely credits arising from financial instruments and cash deposited in bank accounts – may be subject to financial pledge, assuming compliance with the Financial Collateral Law’s criteria.
Another common method for managing receivables is the assignment by way of security (cessão de créditos com escopo de garantia), transferring ownership of the receivables to the beneficiary as the fiduciary holder. The requirements and formalities applicable to the assignment vary by credit type, and debtor notification is mandatory.
Receivables generated by immoveable assets (property) and moveable assets subject to registration may also be subject to assignment of income (consignação de rendimentos), pursuant to the Portuguese Civil Code. The assignment of income is subject to registration and must be created by means of a public deed executed before a Notary Public (certified private document also being possible but seldom used, as detailed above). When the relevant receivables arise from immovable assets (for example, rents of real estate assets) the tenure of the assignment shall not exceed 15 years.
v. shares in companies incorporated in Portugal
Security over the share capital of companies registered in Portugal is created by means of a pledge (penhor) and often extend to the rights inherent to the share capital (such as voting rights).
over shares of limited liability companies by shares (sociedades anónimas, S.A.) must be recorded in the share certificates (for physically represented shares) or in the relevant account (for book-entry shares and in the company’s share registry book.
In limited liability companies by quotas (sociedades por quotas, Lda.), pledges must be created in writing and registered in the commercial registry certificate. The company’s consent is also necessary.
While the Financial Collateral Law governs pledges over shares (given that shares qualify as securities), it doesn’t extend to quotas. However, pledges over quotas can be established under the Commercial Pledge Law, offering a comparable regime for appropriation rights. However, this regime does not replicate the insolvency protections afforded to financial collateral (addressed below in our answer to question no. 18).