Security over Collateral. PORTUGAL Morais Leitão, Galvão Teles, Soares da Silva & Associados

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1 Security over Collateral PORTUGAL Morais Leitão, Galvão Teles, Soares da Silva & Associados CONTACT INFORMATION Filipa Arantes Pedroso Filipe Lowndes Marques Morais Leitão, Galvão Teles, Soares da Silva & Associados Sociedade de Advogados, R.L. Rua Castilho, n.º Lisboa Can assets be charged, liened and/or encumbered in your jurisdiction? Please insert any exemptions, if any. In Portugal, according to the Civil Code, as a general principle, the liability of the debtor is limited to its own assets. The assets of the debtor are the common security of his creditors and the value thereof is equally distributable among them, unless there are lawful causes of preference among the creditors. The granting of specific types of security depends on various aspects, such as the nature of the asset over which the security is granted and the nature of the secured obligations which put the creditor in a privileged position in relation to common creditors. The possession of a right in rem over one or more of the debtor s assets is what generally distinguishes the secured from the unsecured creditor. The creditor acquires rights in rem over one or more of the debtor s assets in order to secure performance of an obligation. The unsecured creditor has no claim to a specific asset, merely the right to sue for his money and to invoke the processes of the law to enforce a judgement against the debtor. All forms of security in rem, whether contractual, legal or judicial, confer on the secured creditor at least two basic real rights: the right of pursuit; and the right of preference.

2 The secured party can follow the asset(s) into the hands of any third party and is entitled to the product of the sale of the asset(s) so as to satisfy the debt due to him in priority to the claims of other creditors. 2. In your jurisdiction, under what circumstances may security arrangements be subjected to choice of law and/or choice of forum clauses (does it matter, whether the security itself is located abroad and/or governed by foreign law [e.g. a pledged claim])? What is the market practice in your jurisdiction? Is there a treaty on this in your jurisdiction, whether bilateral or multi-lateral? Are there any requirements for enforcement in your jurisdiction? In Portugal, in accordance with several legislative instruments, with different scopes of application, it is possible to establish jurisdiction clauses in the agreements entered into by the parties, provided that some requirements are met. First of all, in accordance with our Code of Civil Procedure, it is possible for the parties to agree which shall be the court to have jurisdiction to settle any disputes which may arise in connection with a particular legal relationship, provided that there is a relevant interest and does not conflict with the exclusive competence of the Portuguese Courts. There are various categories of proceedings in which the Portuguese courts have exclusive jurisdiction. These include proceedings relating to real property, insolvency, recovery, validity of incorporation, nullity or dissolution of companies, validity of entries in public registers and enforcement upon assets located in Portugal. However, whenever there is a more specific instrument in which Portugal has entered into, such as the Convention of Lugano, of 16 th of September of 1988 or which is binding to Portugal as member of the European Union, such as Regulation (EC) no 44/2001, 22nd December 2000, such instrument prevails over the Code of Civil Procedure. Where applicable, those instruments displace Portuguese domestic jurisdiction rules so long as Portuguese Courts do not have exclusive jurisdiction. The court of a particular country may have jurisdiction to entertain a claim but it is for its own conflict of law rules to determine by which law the matters in issue are to be decided, namely, if a choice of law by the parties, in accordance with the Rome Convention (prevailing over domestic rules) will be given effect. Such convention shall apply to contractual obligations in any situation involving a choice between the laws of different countries and it requires that such chosen law be applied, whether or not it is the law of the Contracting State, without prejudice to the application of mandatory rules of law. Without prejudice to the above, it is important to highlight and conclude that the granting of security over an asset located in Portugal, has, as a general principle, to follow Portuguese Law, as foreseen by the Civil Code (the applicable law, regarding rights in rem, is the lex rei sita), and by the Code of Civil Procedure, Regulation (EC) no 44/2001 and the Lugano Convention, which establishes that there is exclusive competence of the courts of a state over proceedings relating to: rights in rem over immovables located therein; enforcement over the assets located therein; proceedings over the validity of the rights subject to registration, among others. Therefore, whenever there is exclusive competence, it is for the jurisdiction to apply its own conflict of law rules to determine under what law the matters in question are to be decided, and such

3 rules, as above mentioned, lead to the application of Portuguese law when the assets are located in Portugal. It is for the lex fori to determine the conditions and extent to which a choice of law by the parties will be given effect. Accordingly, when the assets subject to security are located in Portugal, such security can not be governed by foreign laws. In other cases, where we are in the presence of a security granted over rights with a relevant connection with Portugal, it is also advisable to grant such security in accordance with Portuguese law, as, normally the security has to be enforced in Portugal. 3. In your jurisdiction, are floating charges or security over the overall assets of an entity accepted, and if so in what terms? Floating charges, as provided in Common Law jurisdictions or the security over the overall assets of an entity by means of a single act are not valid in Portugal. In Portugal, a lender who wishes to extent his security to cover new property acquired by an entity must grant new security, as such property is not automatically attached to the prior security constituted over the asset(s) existing prior to that acquisition. Similarly, the possibility of someone taking security over all of a company s assets is not recognized, as above mentioned, by means of a single act. The parties may constitute different types of security over the different types of assets belonging to the debtor but they do not have the contractual freedom to grant security different from those categorically established by the legislator. The numerus clausus is one of the main characteristics of security in rem in Portugal. Furthermore, it is not possible to grant security over an uncertain object. For the security to be to be valid and existing, it has to be constituted over a certain object. In conclusion, despite not having a floating charge instrument or a security that by itself covers all the assets of an entity, there are several types of security, provided for in Portuguese law, that can in effect secure the assets of the entity. The closest we have to floating charge is the pledge over commercial establishment, which is further explained below in 4 (p). 4. In relation to the following types of assets, please explain in your jurisdiction the types of security that can be created or granted, if the security requires any type of registration or perfection requirements, an estimate of cost (including applicable taxes and any other duties/ costs) and timing for granting such security, and any special considerations regarding the asset type: In relation to costs, the granting of the security as explained below involves in certain cases costs which, with the exception of stamp duty, are not material. Stamp duty is in principle applicable only to acts, deeds, documents or events occurred in Portugal. Notwithstanding, the Stamp Duty Code has a series of rules that extend its application to a series of events, notably on financial transactions executed or performed outside Portugal by Portuguese parties. Stamp duty is charged on the issuance of mortgages, security, sureties and pledges (unless ancillary to a contract already subject to stamp duty) at a rate of 0.04% per

4 month or 0.5% or 0.6% on the amount involved, depending on whether the term for repayment is less than 1 year, less than 5 years, and 5 or more years respectively. (a) Aircraft; Aircraft are movable assets subject to registration, i.e., that until their registration at the National Institute for Civil Aviation ( Instituto Nacional de Aviação Civil - INAC ) the owner can not sell or charge such property. Security over aircraft, as they are movable assets subject to registration, must be taken as a mortgage, which has to be registered at the National Institute for Civil Aviation ( Instituto Nacional de Aviação Civil - INAC ) in order to be effective not only in relation to third parties but also between the parties. The need for registration is based on publicising the mortgage to creditors to prevent them from giving the debtor credit without knowing the status quo of his assets. Such registration is constitutive of the security, i.e., without it the security is not valid. Mortgages constituted over such assets must be granted by private written document. The mortgage does not prevent the debtor and owner of the property from selling or charging such asset, as the usual effect of the aircraft mortgage registration is its validity against subsequent purchasers of the aircraft from the owner. Nevertheless, it is possible to agree that the mortgage credit is due the moment that the property is sold or charged. The priority of registered mortgages ranks according to the date of registration and, if registered on the same day, they rank equally. (b) Bank Accounts; Bank accounts may be subject to a pledge. This pledge is characterized by the consignation of certain bank deposits to the payment of certain obligations, being the depositor prohibited from using such deposit while his debt has not been paid. Usually such pledge permits the financial institution, on the due date, to be paid by debiting such account. It is also possible to structure the pledge over the balance of the account, thereby allowing the debtor to make movements before the maturity date. The parties have contractual freedom to choose the form they want to adopt to constitute the pledge, and the credit institution where the bank account is opened must be notified, judicially or extrajudicially, of the granting of this security or has to accept it in order for it to be effective. This method of perfection is essential as to give notice of it to third parties. Without prejudice to the above, the pledge over bank accounts, in some particular cases, is ruled by a special law, Decree Law no 105/2004, of 8th May, which results from the transposition of Directive 2002/47/EC, of 6 June, on financial collateral arrangements. Such law lays down a regime applicable to financial collateral arrangements which must satisfy several requirements, of which the most important is that the collateral taker and the collateral provider must each belong to the categories referred in article 3, which most importantly, state that the grantor must be a company granting security in favour of a credit institution. The advantage of this financial pledge, as it is called, is that the creditor may make his the balance of the account upon enforcement.

5 (c) Animals, Crops (in ground and severed) and Timber; Animals, crops and timber are movable assets, over which, in accordance with our Civil Code, it is possible to grant a pledge, in particular, a pledge over things. Nonetheless pledges over these types of assets are not usual in our jurisdiction. Usually, in this type of security, the creditor takes possession of the debtor s assets as security until payment of the debt, i.e., there is the delivery of the object subject to the security to the creditor. Great significance is given to possession, for this is the principal indicium of ownership and consequently a good way to prevent fraud by the debtor on his other creditors who might be led to lend money on the strength of the debtor s continued ownership of the assets in question. However, the legislator came to the understanding that the tradio of the things given as pledge was, in some occasions, inconvenient. It was often as inconvenient to the creditor to hold the asset as to the debtor to lose it; and if the asset was needed by the debtor in his business, as it frequently was, for the purpose of generating income from which to pay the debt, a pledge was out of question. Therefore, the Civil Code provides a way of substituting such physical possession by a constructive possession. Instead of delivering the thing(s) to the creditor, the debtor may deliver the documents conferring the right of exclusive use to the creditor or to a third party. Without prejudice to the above, there are certain types of pledges, ruled by special legislation, where the dispossession of the assets given as security can be merely symbolic, similarly to the constructive dispossession referred above as the market pledge provided in the Commercial Code for pledges granted in commercial transactions - and where such dispossession is not necessary but the signatures on the document must be authenticated as the pledge given as security for credits of financial institutions provided in Decree Law , of 17 August of This type of pledge does not require any perfection method, i.e., the parties have total freedom to choose the form they want to adopt as to constitute the pledge (subject to the exceptions above). Furthermore, it is important to highlight that the possibility of granting a pledge over a universality of things, universitas facti, i.e., a plurality of corporal things of the same kind regarded as whole, such as a herd of cattle, is not unanimous in our doctrine. Such understanding is justified by the different interpretations of the article which establishes that the object of the pledge must be a certain thing. However, even if it is considered to be impossible to constitute a pledge over such universality, it is always possible to constitute a pledge over the singular things which compose that universality. (d) Equipment; Please see (c) above. Note particularly what is stated above in relation to the exceptions to the dispossession of the debtor. (e) Intellectual Property; In our jurisdiction Intellectual Property is essentially ruled by two Codes: The Industrial Property Code and the Copyright and Related Rights Code. The Civil Code subjects

6 both copyright and industrial property rights to these special regulations and states that its provisions can be applied on a subsidiary basis. Intellectual Property is the umbrella term used in Portugal to describe the various legal rights which protect creative and inventive ideas. The main Intellectual Property rights are trademarks, patents and copyrights. Such rights can be given as a guarantee by the granting of pledges. In what regards: Trademarks and patents: For the perfection of the pledge granted over such rights the only requirement is a document in writing and its registration with the Industrial Property National Institute ( Instituto Nacional de Propriedade Industrial INPI ). This registration is a condition of effectiveness vis-à-vis third parties. Copyrights: are subjective rights, which give their owner both the possibility to exercise the faculties or powers that are legally endorsed, and the possibility to demand respect of that right from all individuals. It is an exclusive temporary right. The right encompasses both personal (or moral) and economic elements, and only the latter ones can be transferred and therefore subject to pledge. If the pledge is constituted upon part of such economic content a document in writing with notarial recognition of the signatures is sufficient; if it is constituted upon the whole economic content, a notarial deed is required. There is no need to register security over copyrights. (f) Inventory; As we mentioned above in 3, in Portugal, we do not have floating charges. Therefore the constitution of a pledge over such assets raises some issues. The inventory, as it is made up of a group of assets, can be given as guarantee by the constitution of a pledge, in accordance with our Civil Code. However, the same Code requires that the pledge be constituted over certain things, being debatable whether such pledge, having as its object the inventory as a whole, is valid. It is arguable that new security may be required to cover the new assets added to the inventory. (g) Leases; The rents paid in the context of a Lease Agreement are normally given as guarantee by the granting of a consignation of rents. The consignation of rents is the attribution of the proceeds of certain real property as guarantee of payment. This security can only by granted by the person who has the right of use of such proceeds. The voluntary constitution of this security requires a deed or a will, if relating to real property and is normally subject to registration. The consignation of rents puts the creditor in a priority position in relation to the common creditors for the proceeds of the assets and permits the creditor of such pledge

7 to demand such proceeds even if the asset is transferred to a third party. However, the creditor does not have the right to execute the asset and its right does not remain after the judicial sale of such asset. It is also possible to grant an assignment in security over such rents, which is effective between the parties immediately and upon notification of the tenant, which means that the tenant will have to make payments directly to the creditor. (h) Mineral Interests, including Hydrocarbons; There is no specific regime applicable to these assets, nor a specific provision in the Civil Code. Nevertheless to the extent they may be classified as immovable assets, as a general principle provided in the Civil Code, they can be given as security by the constitution of a mortgage. For further particulars see below in (j). (i) Promissory Notes and Chattel Paper; In Portugal, there is some discussion whether these assets should be considered things or credits, and consequently, if they can be given as security by the constitution of a pledge of things or of a pledge of rights. Those who understand that the object of this pledge is the document itself, consider it to be a pledge of things, while those who consider the object of such pledge to be the credit right, qualify it as a pledge of rights. Despite its qualification, in either case, in accordance with our Civil Code, they can be given as guarantee by the constitution of a pledge. Besides this general provision of the Civil Code, the Commercial Code and, in particular, the Uniform Law for Bills of Exchange and Promissory Notes, provides that the constitution of such pledges is made by endorsement on the document. Such endorsement shall mention the following expression: value in pledge. With such endorsement, the pledgee, bearer of the debt security, is endorsed with the same rights as the pledgor, with the exception of the right to endorse the document to a third party. (j) Real Estate; Real Estate or immovable property encompasses land along with their fixtures (which must be permanently affixed to the land). In accordance with our Civil Code, when the object of the security is an immovable asset, security is granted in the form of a mortgage. The voluntary mortgage upon real estate requires a notarial deed or to be provided in a will, and must be registered in the Land Registry Office. The effects of the mortgage depend on its registration. Such registration is constitutive, i.e., without it the security is not valid. The mortgage does not prevent the debtor and owner of the property from selling or charging such asset, as the usual effect of the mortgage registration is its validity against

8 subsequent purchasers of the asset from the owner. Nevertheless, it is possible to agree that the mortgage credit is due the moment the property is sold or charged. The priority of registered mortgages ranks according to the date of registration and, if registered on the same day, they rank equally. The mortgagee does not have the right to take possession of the property in the event of default in payment of the secured obligation, but only the right to cause the judicial sale of the property and be paid with the proceeds of such sale. (k) Receivables (credit rights under contracts or invoices); Receivables are credit rights and therefore can be given as security by the granting of a pledge over such rights. According to the Civil Code, the object of a pledge of rights has not only to be a credit or other right unsusceptible of being mortgaged but such credit must also relate to a movable thing and susceptible of being assigned. Furthermore, the creditor must take possession of any documents evidencing the debt, and the party owing the debt must be notified, judicially or extrajudicially, of the constitution of this security or has to accept it in order for it to be effective. This method of perfection is essential as to give notice to third parties because in the pledge of rights, differently from the pledge of things, the debtor is not usually physically divested of possession. Moreover, it is important to highlight the issue of the pledge of future rights, as the rights subject to a pledge have to be certain or, at least, definable, in order to be given as security. It is also usual in Portugal, as an alternative or complementary to a pledge, to grant an assignment in security over the receivables, which has a similar regime to that of the pledge, with the exception that the assignment is valid between the parties prior to the notification of the obligor. (l) Rights under Contracts (excluding Receivables); Security is granted over these rights as set out in k) above. (m)shares (in book-entry and certificate form and other securities); The stock of a company can be given as security by the granting of a pledge. The main types of companies in Portugal are limited liability companies and private limited companies and depending on such qualification and the form of representation of their stock, whether they are book entry or certified, nominal or bearer, different requirements are necessary for the constitution of a pledge: A) Participations in a limited liability company ( Sociedade Anónima ) ( shares ):

9 Book-entry shares: the constitution, amendment and extinction of a pledge over such type of shares shall be registered in the account opened for those shares with a financial intermediary integrated in a centralised system or a single financial intermediary proposed by the issuer or the issuer or financial intermediary that represents it. Such registration requires prior registration in favour of the holder and can be proved by a certificate, issued by the registering entity. The pledge is carried out by an entry in the securities holder s account, indicating the amount of securities given as pledge, the obligation guaranteed and the beneficiary s identity. The pledge may be effected by an entry in the pledge creditor s account, when the accruing voting right has been granted to such creditor. If not otherwise agreed, the rights inherent in the pledged securities are to be exercised by the holder of said securities. The registration may be requested by the holder or creditor. Certified shares: The constitution, amendment or extinction of a pledge is carried out in accordance with the same legal procedures stipulated for the transfer of the ownership of securities. Bearer shares bearer shares are transferred by delivering the security to the transferee or to the custodian indicated by the same with the indication of the pledge written on the securities. Deposited shares - If the securities have already been deposited with the depositary indicated by the purchaser, transfer takes place by registration in the latter s account, effective from the date of application for the registration. Nominal shares- nominal securities are transferred by a declaration of transfer, written on the share certificate in favour of the transferee, followed by the registration in the share register book. The transfer comes into effect from the date of the request for registration with the issuer. It is also possible for the above pledges to be granted as financial pledges pursuant to Decree Law no 105/2004, of 8th May, if the grantor is a company. The advantage of this type of pledge is that, in an enforcement scenario, the creditor may take the shares for itself. B) Participations in a private limited company ( Sociedade por Quotas ) ( quotas ): The pledge of quotas must be made in writing and subsequently registered at the Commercial Registry Office. In certain cases, for the pledge to be effective against the company, the company has to give its consent. Without prejudice to the above, all pledges shall take effect against the company once it is informed in writing or it gives its express or tacit recognition thereof. (n) Vessels;

10 Vessels are considered movable assets subject to registration and for that reason, in accordance with our Civil Code, susceptible of being given as security by the constitution of a mortgage. The mortgage over vessels is specifically ruled in our Commercial Code. Its constitution shall be done in writing with notarial recognition of the parties signatures and shall be registered in the Commercial Registry Office. The mortgage, provided that it is registered, is valid against subsequent purchasers of the vessel from the owner and permits the mortgagee to be paid by the product of the sale of the vessel object of such guarantee. The mortgage does not prevent the debtor and owner of the property from selling or charging such asset, as the usual effect of the vessel mortgage registration is its validity against subsequent purchasers of the vessel from the owner. Nevertheless, it is possible to agree that the mortgage credit is due the moment that the property is sold or charged. The priority of registered mortgages ranks according to the date of registration and, if registered on the same day, they rank equally. There is a special legal framework for the mortgage of vessels in the Free Trade Zone of Madeira. (o) Vehicles; Vehicles are movable assets subject to registration. The registration of these assets is made in the Vehicle Registry Office and has the scope of identifying the owners and of giving publicity to the rights inherent to such vehicles. In accordance with the Civil Code, these assets can be given as security by the granting of a mortgage. However the Civil Code provisions are applied on a subsidiary basis to a specific Decree Law regarding the registration of vehicles, which establishes the regime applicable to the mortgage of such assets. The constitution of a mortgage over such assets shall be made in a document in writing and has to be registered in the Vehicles Registry Office. The main specialty of this mortgage is the possibility of requesting, in court, the apprehension of the vehicle, when the credit guaranteed is due and has not yet been paid. The apprehension of the vehicle is carried out by the court or by any administrative or police authority and the vehicle is deposited in favour of the court. The mortgagee, 15 days after the apprehension of the vehicle, can promote its judicial sale, in accordance with the procedures set out in the Code of Civil Procedure. Once the vehicle has been sold, the creditor will be paid by the product of such sale. (p) Business as an ongoing concern. As security over a business as an ongoing concern, Portuguese law foresees the pledge of the commercial establishment. This type of pledge grants in security an on-going business ( estabelecimento ) but it is arguable whether this scope captures all assets of a company, or rather just the commercial business. While popular as security for small financings, such as shops, it

11 is not usual to use this type of security for larger transactions or more complicated commercial entities. 5. Please explain briefly for each type of assets the procedure for enforcement (judicial and extra-judicial). Is it possible to enforce security governed by another jurisdiction? If yes, what is the procedure? The enforcement of the security mentioned above depends on the type of security which is given. As a general rule, the convention where the parties agree that the assets given as guarantee be delivered to the creditor when the obligations guaranteed are not fulfilled is prohibited. In relation to mortgages, the normal procedure is the enforcement of the security by means of attachment, i.e., the judicial apprehension of the asset given as guarantee of the obligation. Such procedure deprives the debtor of the right of use of the attached assets. The attachment is made by electronic communication to the competent Registry Office, this procedure being equivalent to a formal presentation to register, being the assets delivered to a custodian, normally an enforcement agent. The attachment confers the creditor the right to be paid with the product of the sale of such assets, with preference over other creditors, provided that there is no prior security in rem over the attached assets. In the case of a pledge of things, the creditor, from the moment the debt is due, has the right to promote the execution and as a result, be paid, with preference to the remaining creditors, by the product of its sale. If the parties agree, the sale may be made extrajudicially or the thing may be attributed to the creditor for the price established by the court, which if higher than the value owed, will be set-off by the creditor. The judicial execution involves the attachment, as described above, of the corresponding assets, and where the attachment is of movables not subject to registration, the attachment is made by the effective apprehension of the assets. Regarding the pledge of rights, in accordance with our Civil Code, the procedures established for the execution of the pledge of things is applicable with some adjustments. Normally the creditor or court will notify the obligor that the pledge has been enforced and that all payments must now be made to the creditor. To answer the second question, in accordance with Regulation no 44/2001 and the Lugano Convention, both prevailing over the Portuguese domestic jurisdiction rules, in proceedings concerned with enforcement, there is exclusive competence of the courts of the Member State/Contracting State in which the enforcement has been or is to be enforced, i.e, the place where such enforcement shall occur. As a general principle, the place for the enforcement of security constituted over assets, is the place of their

12 location, therefore, the Portuguese courts can not enforce security governed by another jurisdiction, if such assets are not located in Portugal. 6. Can a trustee or security agent be used in your jurisdiction, or must security be granted in favour of all lenders? Portugal does not favour fiduciary ownership. Trusts do not exist, except in the context of the legislation of Free Trade Zone of Madeira. As Portugal, in general, does not recognise the trust concept, the normal procedure, where security is given to a financial institution, is to include a specific provision in the security agreement stating that for the purposes of enforcing in Portugal such security, the security agent shall be considered the joint and several creditor (credor solidário) in accordance with, inter alia, art. 528 and ss. of the Portuguese Civil Code, together with each other secured party, in relation to any and all liabilities towards such other secured party. This means that it is crucial that the entity that is the security agent also be a lender at all times so that it is able to claim the whole debt in its own name (as a result of the application of the specific provision mentioned above). As the security is granted in the sole name of the security agent - i.e., not in the name of all the lenders, with the security agent acting as an attorney - there is a risk that if the security agent tries to claim the whole amount in his own name (because he would have to do that as sole beneficiary) while not being a lender, the borrower may defend itself by stating that the security is granted only to the security agent, and as he has no amounts owed to him as lender he has no legitimacy to claim the whole amount. 7. In bankruptcy or insolvency scenarios, what are the suspect periods, is clawback possible, and what other types of rights (tax debts, employees, etc.) have preference over security granted? There are several acts that can be qualified as disadvantageous to the insolvent estate, such as the diminishing, frustration, aggravation, putting in danger or delaying the rights of the creditors, performed within four years prior to the beginning of the insolvency proceedings. These acts or transactions may be attacked on behalf of the insolvent estate, once the insolvency proceedings have been started, but only if the third party had wrongful intent. Upon the declaration of insolvency, all transactions must be, in principle, entered into by the insolvency administrator. Therefore, the transactions entered into by the debtor after the declaration of insolvency do not bind the insolvent estate, being the latter entitled to return any moneys received from those transactions, according to the rules regarding unjust enrichment, unless those legal transactions are cumulatively: onerous, have been entered into with third parties acting in good faith prior to the registration of the judgement which declared the insolvency, and are not permitted to be attacked on behalf of the insolvent estate under the terms of article 120 of the Insolvency Code, i.e., they have been entered into during the suspect period but are not considered to be disadvantageous to the insolvent state, as defined above, and have not been entered into in bad faith.

13 Despite the above mentioned suspect period of four years, certain acts may be annulled on behalf of the insolvent estate even if they were not performed within such period, such as, among others: acts performed for no consideration within two years prior to the beginning of the insolvency proceeding; granting of security in rem by the debtor in relation to prior obligations within six months before the beginning of the insolvency proceedings; granting of security in rem simultaneously with the constitution of the guaranteed obligations within sixty days prior to the opening of the insolvency proceedings; payment of debts or other acts of extinguishing obligations during the six months prior to the beginning of the insolvency proceeding and such payment is considered unusual according to standard trade rules and the creditor was not able to demand payment; onerous acts carried out by the debtor within the year prior to the beginning of the insolvency proceeding in which the obligations assumed by the debtor significantly exceed those of the counterparty; reimbursement of shareholders loans made during the year before the beginning of the insolvency proceeding. other transactions carried out with wrongful intent, i.e., the knowledge that the debtor was in an insolvent situation, of the prejudicial nature of said act to the debtor s situation or that the insolvency proceeding had already been initiated. Without prejudice to special legislation, the general principle, regarding the order of priority of credits, is the priority of the guaranteed credits (credits which benefit from security in rem and special preferred credits e.g.: credits relative to judicial costs, inheritance taxes, real property tax, ) over the privileged credits (general preferred credits e.g.: credits relative to direct and indirect taxes, contracts of employment). After these, in the ranking are the common credits and only then the subordinated credits. 8. In your jurisdiction, can borrowers or guarantors subordinate their claims and if so in what terms? According to our Code for Insolvency and Recovery of Companies, Decree Law no 200/2004, of 18 August, creditors can contractually subordinate their claims, being paid only when other credits are fully satisfied by the insolvent estate. The following claims are always considered subordinated, except where they carry general or special creditors preferential rights, or are secured by security in rem which is not extinguished as a result of the declaration of insolvency: the claims of persons with a special relationship with the debtor such as the spouse, ascendants, descendants or siblings of the debtor or the shareholders, partners or persons who have been in a controlling or group relationship with the debtor; interest on non-subordinated claims arising after the declaration of insolvency, except for those covered by security in rem and/or by general creditors preferential rights up to the value of the assets in question;

14 claims which are subordinated by agreement between the parties; claims relating to services provided for no consideration by the debtor; claims in respect of shareholders loans. 9. What are the consequences of a transfer, assignment or novation of an underlying credit in your jurisdiction (is new security necessary, is the security automatically transferred, etc.) Where there is the transfer or assignment of an underlying credit, according to the Portuguese Civil Code, it is not necessary to constitute new security as, unless provided otherwise, the security granted prior to the transfer is assigned along with the credit itself to the assignee. In case of novation, i.e., the act of replacing an obligation to perform with a new obligation, as the old obligation is extinguished by novation, the security which assured the fulfilment of such obligation is also extinguished, unless expressly provided otherwise. The necessity of constituting or not new security is intrinsically connected to the existence or extinction of the credit after its transfer, as the security generally follows the credits to which they are attached. Therefore, if such credits no longer exit, the same occurs to the accessory security. 10. Can you have on top of a security in your jurisdiction, another layer consisting of an assignment of the collateral concerned conditional upon default by the debtor? When a pledge is granted over any rights, it is not usual (or arguably, valid), for the pledgor to also assign these rights in favour of the creditor conditional upon default. The argument is that once the rights are pledged, they can normally only be assigned with the pledgee s permission, so it does not make much sense for the pledgee, upon default, to be the holder of the pledge and also have the rights assigned to him. This could also be considered as a violation of the pacto comissório, i.e., the prohibition of a guaranteed creditor taking for itself an asset directly upon enforcement. 11. Are step-in rights lawful in your jurisdiction or does any action to take control require the creditors to go through a court process? In our jurisdiction step-in rights are lawful and usually provided for in typical project finance transactions. It is foreseen that the exercise of such rights will not require the intervention of the court, but these rights have yet to be invoked in a transaction and therefore there is as yet no precedent in relation to these types of rights.