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WHAT ARE THE MAIN LEGAL PROCEEDINGS TO COLLECT A DEBT IN PORTUGAL?

The most common debt collecting legal proceedings applicable in Portugal are as follows:

Ordinary proceeding
The ordinary proceedings in the first instance can be divided into declarative proceedings and enforcement proceedings. In a declarative proceeding, the court decides on the merit of the litigation between the parties. In an enforcement proceeding, the court enforces a judgment or an enforceable title such as a cheque.

Declarative proceeding 
After a claim is submitted to the court, it is served to the defendant. The service is generally carried out by registered mail. When it is shown to be impossible to serve the complaint via registered mail, the service is instead made through direct contact. The defendant then has 30 days to present his reply, where he can defend himself by alleging procedural objections, arguing that facts are not true, or stating other facts. The defendant may also file a counterclaim. However, it must be connected with the main claim or with the defence against the main claim. After written allegations are made, the judge calls for a pre-trial hearing. At the final hearing, the witness testifies, and other proofs are taken. The final hearing ends with the court's decision about contested facts, and those remain unproven. If the defendant thereafter does not pay the amount he is required to pay within the term of the judgment, it is up to the creditor to start enforcement proceedings.

Enforcement proceeding 
An enforcement proceeding begins with an application whereby the plaintiff identifies his credit, the debtor, and assets to be apprehended. Depending on the title and the amount to be enforced, there may be a service of execution or an immediate seizure of the debtor's property. If there is a seizure and if there is a real guarantee, other creditors are served so that they can claim their credits. The next phase is the sale of the property in order to pay the creditor. All execution acts such as service, attachment of property or earnings, sale, and payment are made by an execution agent. The Judge has control over the execution, which means that he can always verify the legality of the execution agent's acts.

Special procedures 
In addition to the basic procedures, there are several special procedures in Portuguese law, as in the case of the order of payment ("injunção"). Through a simple procedure, a creditor can obtain a writ of execution against his debtor. This procedure is not limited to small claims but is eminently suited for those. This proceeding starts by completing a given form. Then, the Court's Secretary sends a demand letter requesting the debtor to pay the debt. The defendant has 15 days to oppose for payment served. In the case of the difficulty of tracing a debtor, it also entitles the creditor to fast-track proceedings. If the debtor fails to oppose or does not dispute the request to pay, the Court's Secretary himself allows the immediate enforcement. The average timeframe required to obtain an execution order is two to three months. But, if the request to pay is disputed by the debtor, it has to be then submitted to the judge's appreciation, and it can take about one year or more to be judged.

Court costs 
Court costs of the civil law procedure are determined by the Court and not subject to any negotiation. Generally, all costs depend on the amount of the outstanding principal and interests. There is a range of different fees that can apply during a procedure depending on monies outstanding.

Insolvency
The insolvency proceedings in Portugal can be initiated by the debtor or by creditors. If the debtor initiates a legal proceeding, he should give in details of his assets, details of the claims and of the creditors, and a report stating the leading cause to the initiation of the proceedings of insolvency. If it is a creditor that initiates the proceeding, he should give in details about the credit as well as present to the court any facts that should presume the debtor is insolvent. The insolvency proceeding is characterized by having two distinct phases: a declaratory phase and an enforcement one. The declaratory phase aims at the declaration of the insolvency of the debtor. The enforcement phase consists of the execution of the assets of the debtor, the apprehension and liquidation of the goods, the identification of the liabilities, and the payment to the creditors. The declaration of insolvency could also have criminal consequences. It is also possible that after the declaration of insolvency, the creditors attempt to arrange through court the recovery of the company. If the recovery is the measure to be taken, all enforcements stop at once. A certain period is given so that the company tries to recover from is financial situation. Normally, creditors agree on a plan of payment of the existing debts with the forgiveness of the interests and part of the principal debt. If, during this period, the company does not pay according to this plan, creditors can claim the company's insolvency.

Reorganization
Since 2012 another procedure was approved. It is the Special Corporate Revitalization Procedure (Processo Especial de Revitalização - PER) proceeding. The proceeding consists mostly of 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. Under this proceeding, the role of the court is just to confirm that the process is legally valid. In each case, the creditor must claim its credits in 30 (general insolvency proceeding) or 20 days ("processo especial de revitalização") after publication in the Official State Gazette.

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WHAT IS THE MOST COMMON FORM OF SECURITY TAKEN OVER REAL ESTATE IN PORTUGAL?

There is three standard security taken over real estate: voluntary mortgage, retention of title and seizure. Concerning mortgage, it should be formalised through public deed or by a certified private document. To produce its legal effects, a mortgage must be registered at the land registry office. As for the retention of title, it should be incorporated using a duly authenticated contract or public deed and is also subject to registration at the land registry office so it can be used against any third parties. Finally, a seizure is done through a lawsuit and is not subject to specific conditions. The mortgage is by far the most widely used security.

WHAT IS A PLEDGE?

A Pledge is a security for an obligation to ensure that payment will be made by selling some specific assets of the debtor. Under Portuguese law, a pledge (penhor) may be created over cash or fungible securities. To be valid, a pledge depends on delivery of the asset or assets to the creditor or the third party as a trustee or bailee. There are two types of pledge: civil and commercial. A commercial pledge is a pledge between entities or individuals subject to the regulations of the Commercial Code. These will be individuals with the capacity to carry out commercial acts or entities that engage in commercial activities. In general, the requirements for a civil pledge are somewhat stricter than those for a commercial pledge. A civil or commercial pledge may be used depending on the status of the parties. In practice, a civil pledge is more likely to be used.

I FOUND THAT THE PROPERTY I PURCHASED HAS DEFECTS, WHAT CAN I DO NOW?

Every consumer purchase is covered by a mandatory legal guarantee. As long as you are a consumer, no seller can claim otherwise. Legally, the property must not suffer from any defect which has a negative impact on its value or which renders its regular use impossible. If these warranties are breached, the consumer can choose between repair, replacement, refund or a price reduction. However, the buyer must notify the seller of defects within one year of their discovery. If the property is newly built, the purchaser will also benefit from a five-year warranty period. According to Art. 1225 of the Civil Code, the seller is liable for damages in respect of certain defects during five years, if he has also constructed, repaired or modified the building.

Corporate tax rate reduction

The State Budget for 2015 lowered the corporate income tax rate to 21% (it was 23%). Corporate tax is a tax levied on profits derived by both resident and non-resident entities. This decrease corresponds to a loss of tax revenue of around EUR 200 million. The aim is to create conditions to attract foreign investment. It is important to note however the adding of the state tax (between 3% and 5%, depending on the amount of taxable income) and the municipal surcharge (up to 1.5%) wich give a real tax rate of around 25%.

NUMBER OF NEW COMPANIES RISES

Business formation with new businesses having been started in Portugal went up in 2017. Over 3,687 new companies were registered in Lisbon (14.5% more than in 2016), while Porto registered 7,107 new firms (5% up on the previous year). On the other hand, business failures in Portugal fell 12.7% in 2017 compared with 2016 to 6,284, while the number of new companies being set up rose 9.1%, to 40,465. Lisbon and Porto saw the highest number of bankruptcies – 1,683 and 1,330 respectively, but these were still 2.4% and 15.4% lower than in 2016.