Trade Alert - August 2016, Issue 32


The European Commission and Portugal reached an initial agreement on 23 August 2016 to the recapitalisation of the state-owned bank Caixa Geral de Depositos S.A. (the country’s largest lender) whereby Portugal will inject up to EUR2.7bn and Caixa Geral will sell EUR1bn in subordinated debt to private investors. The recapitalisation is intended to assist the bank to manage its portfolio of non-performing loans, and result in increased lending to aid Portugal’s struggling economy.  Click here for more information.

BES Update: Banco Espírito Santo, S.A. (“BES”), a subsidiary of Espírito Santo Group, was a Portuguese bank which went into bankruptcy in early August 2014.  The Bank of Portugal exercised its resolution powers by transferring certain assets and liabilities of BES to a newly created entity, Novo Banco, the “good bank”, with BES retaining certain excluded liabilities.  Under approval from the Bank of Portugal, Novo Banco received EUR 4.9bn from the government’s Resolution Fund

In addition to the on-going liquidation of BES, various litigation proceedings have been commenced following decisions on certain liabilities that remained at BES, or which were retransferred to BES.

Bond Litigation: The Bank of Portugal decided to return five Portuguese law governed senior unsecured bonds totalling EUR 2bn from Novo Banco to the “bad bank” BES in December 2015 in order to assist with the recapitalisation of Novo Banco.  Investors with bonds of equal rank, received unequal treatment.  The bonds are mostly held by institutional investors. This resulted in legal challenges, claims of discrimination and arbitrary action by bank regulators. At the time of publication, bonds with litigation rights are trading at around 27%, other BES issued bonds are trading at around 2%. For a list of affected ISINs, click here.

Oak Finance Litigation: Goldman Sachs International & Ors v. Novo Banco S.A. [2015] EWHC 2371 (Comm).  The claimants were successors to the rights of a Luxembourg SPV (Oak Finance) which made an English law governed loan of USD 835m to BESOn 22 December 2014, the Bank of Portugal decided that the Oak Finance Loan had not transferred to Novo Banco, on the basis that there was a risk that it was an “excluded liability”.  The claimants issued proceedings in England for repayment of the loan by Novo Banco and in Portugal against the Bank of Portugal to suspend the December decision and for judicial review of the December decision. Novo Banco disputes the jurisdiction of the English courts predominantly on the grounds that, due to the Bank of Portugal’s exercise of their powers as a ‘resolution authority’ under the Bank Recovery and Resolution Directive 2014/59/EU in the decisions made on 3 August 2014 and 22 December 2014, Novo Banco was not a party to the loan agreement. Lord Justice Hamblin ruled on 7 August 2015 that the English court could exercise jurisdiction in this case, on the basis that, inter alia, the Facility Agreement contained an exclusive jurisdiction clause in favour of the English courts.  The courts must now determine whether or not the loan was an excluded facility when, on 3 August 2014, assets and liabilities of BES were transferred to Novo Banco. Fountain Court chambers discuss the Novo Banco case and its legal significance in a LexisNexis case analysis.

Current Status of BES: On 13 July 2016, the European Central Bank revoked BES’s banking licence which triggered the requirement for filing for liquidation at the Commercial Court in Lisbon and effectively commenced the company’s winding-up process. BES’s liquidation is governed by the legal regime for Portuguese credit institutions and is commenced under numbers 1 and 2 of article 5 of Decree-Law no. 199/2006 of 25 October and by the Insolvency and Corporate Recovery Code (“CIRE”).

In this month’s Trade Alert, we highlight some of the key legal considerations regarding the claim filing process of BES and provide a short summary of the other insolvency processes in Portugal.


Creditors were urged to file their claims as soon as practicable and a deadline of 30 days (plus an extension of 5 days for publications (“éditos”)) was granted.  The deadline for filing claims is currently set as 30 August 2016

There is no standard claim form under Portuguese law.  Creditors can file in their home language, but it is recommended to file in Portuguese through local lawyers under Power of Attorney.  The claim will then be submitted to the Company’s liquidators.

Failing to submit a claim against the BES estate may create additional issues when claiming the “no worse off” compensation from the Portuguese Resolution Fund.

In addition, any subsequent claims filed (“verificação ulterior de créditos”) will be attached to the main liquidation proceedings and are subject to being challenged by other creditors, the debtor and the liquidators autonomously.

Please click here for Cadwalader’s BES “Questions & Answers” memorandum which provides further information regarding claim filing requirements.

Types of claim: Four types of claim exist in insolvency proceedings in Portugal; secured, preferential, subordinated and unsecured. Distributions are made to all eligible creditors that claimed within the insolvency proceedings in accordance with the priority rights under Portuguese law. 

Interest: Creditors are able to claim interest at the contractual rate up until the date of the declaration of insolvency, with any interest claimed subsequent to the declaration of insolvency being subordinated.  If there is no contractual rate of interest, creditors can claim default interest at the statutory rate (currently 7.00% per annum).

Clawback periods: Portuguese liquidators have a right to “clawback” acts performed in a period of two years prior to the commencement of the insolvency proceedings which are detrimental to the company and performed with bad faith.  There is also unconditional clawback (without bad faith) which allows the liquidators to challenge acts performed during certain periods of time prior to the insolvency proceedings.

Equitable Subordination: There is equitable subordination risk in Portugal.  Loans or payment deferrals with a maturity of over one year made by shareholders qualify as “suprimentos” and are subordinated on insolvency.

Additionally, shareholder claims that do not qualify as suprimentos but are granted by entities in a group or control relationship are also subordinated.

Portuguese Insolvency law defines control with reference to the Portuguese Securities Code, which provides that control is deemed to exist between a legal entity and a company when, regardless of whether the domicile or headquarters is located in Portugal or abroad, such legal entity is capable of exercising, directly or indirectly, a dominant influence over the borrower.  “Control” will always exist when a legal entity: (i) holds the majority of voting rights; (ii) may exercise the majority of voting rights, according to the terms of a shareholders’ agreement; or (iii) may appoint or dismiss the majority of the members of the board of directors or supervisory board. If you acquire a loan from a person that exercises control, it will be equitably subordinated on insolvency of the Portuguese debtor.

Costs: There is no right to claim for costs of enforcement (including legal action) in an insolvency proceeding in Portugal.

Transfer of a claim and Judicial recognition: Claims are assignable under Portuguese law, including all rights to vote.  The assignee of the claim would need to apply to the Court to be recognised as a party in the liquidation proceedings. It can take several months for a new holder to be formally recognised as the claimant in the Courts.

Court fees: Approximately EUR 100.00-300.00 to transfer a claim in Portugal.


Portugal updated its insolvency law in May 2012. Previously, the Portuguese Insolvency Act (the “Act”) was geared towards the winding-up of companies and there was no easy process for recovery or restructuring. However, since the Act has been modernised, Portugal’s insolvency law is now more aligned with a Chapter 11 style “rescue culture” and provides a potentially insolvent company with new roads to recovery.

Pre-Insolvency Proceedings

The Act provides for either court-monitored or out-of-court pre-insolvency proceedings in Portugal.

(a)        Court-monitored restructuring proceedings, named Special Revitalisation Process (Processo Especial de Revitalização, “PER”) was introduced by Act No. 16/2012, dated 20 April; and

(b)        Out-of-court pre-insolvency procedure, named SIREVE (Sistema de Recuperação de Empresas por Via Extrajudicial).

PER is a pre-insolvency in-court procedure whereby a financially distressed debtor (that is not yet in an actual state of insolvency, but which is perhaps imminent) may, under supervision of a Court appointed administrator (known as the “Provisional Judicial Administrator”), negotiate with creditors to agree a restructuring plan for a maximum period of three months to avoid insolvency proceedings.

The PER commences with a petition filed by the debtor together with at least one of its creditors before the relevant commercial court.  The debtor must file supporting documents with its petition, including, inter alia; a list of its creditors and amount of each claim, annual accounts, a brief summary of the status of the company, a list of assets and employees together with a signed statement confirming compliance with all conditions imposed for its recovery. All creditors have the right to participate in the proceedings and creditors who file claims, and those listed by the debtor, are entitled to vote on the restructuring plan.

Post-Insolvency Proceedings

The obligation to file for insolvency in Portugal lies with the company’s directors and is similar to English company law directors’ duties. The duty to file for insolvency has been reduced to thirty days in the revised Act, following the date that the director’s become aware (or should become aware) of the company’s insolvency. The debtor must apply to the Court for a declaration of insolvency which initiates the insolvency process.

For further information regarding the insolvency proceedings in Portugal, please see the attached article, authored by Gómez-Acebo & Pombo and published by Thomas Reuters in 2015.

For information regarding Portugal’s loan trading risks, please click here for a previous Trade Alert published in 2014.

Special Note:

Special thanks to Mafalda Barreto and Filipe Santos Barata  from Gómez-Acebo & Pombo who assisted with this Trade Alert.


Regulation 596/2014 of the European Parliament and of the Council of the European Union (the “Market Abuse Regulation”), which has directly applied in each EU member state from 3 July 2016, repealed and replaced the previous EU market abuse regime under the Market Abuse Directive.

One of the effects of the Market Abuse Regulation is that it has expanded the obligations on issuers whose debt securities are admitted to trading on markets that are classified as EU Multilateral Trading Facilities (“MTFs”) (i.e. EU markets where many debt securities are traded that are not EU “regulated markets”, such as the Luxembourg “Euro MTF” market and the Irish “Global Exchange Market”). In contrast, the regime under the previous Market Abuse Directive only extended to issuers with securities admitted to trading on EU “regulated markets”, such as the Main Securities Markets of the London, Irish and Luxembourg Stock Exchanges. 

This extension of the scope of the market abuse regime has resulted in new obligations on issuers (whether or not based in the EU) of debt securities admitted to trading on an MTF market, including those relating to: (a) the disclosure of inside information; (b) the maintenance of insider lists; and (c) the disclosure of senior managers’ transactions.


The Loan Syndications and Trading Association (“LSTA”) has been working in conjunction with its Liquidity Committee for the past two years on ways to improve settlement times in transactions. Delayed compensation for par/near par trades has previously been paid on a “no-fault” basis.  However, this position was increasingly at odds with the interests of all trading parties.  To balance respective parties’ interests and materially reduce settlement times, the LSTA announced a shift to a “requirements based” regime which has now been implemented into the standard documentation for LSTA trades. Beginning on 1 September 2016, if a buyer does not meet the basic requirements for a trade by T+6, then the buyer will forfeit all delayed compensation with respect to such trade.  From 1 November 2016, the timeline is reduced further and the basic requirements must be met by T+5.  The LSTA website provides updated documents for all members.

Cadwalader’s Evan Carter discusses the new “requirements based” regime in the attached memorandum.


Exiting Capital Controls

The Ministry of Finance and Economic Affairs recently announced the liberalisation on capital controls on 16 August 2016.  Subsequently on 17 August 2016, the Icelandic government presented a bill to Parliament regarding the next steps in the removal of capital controls in the country.  The proposals will allow individuals to buy real estate abroad and buy foreign currency for international trips, encouraging outward foreign direct investment with confirmation by the Central Bank.

The Central Bank of Iceland has analysed possible capital outflows following implementation. Bloomberg reported that outflows of between 40bn Kronur and 165bn Kronur could be triggered by the move.


Glitnir held its Shareholder Extraordinary General Meeting on 16 August 2016 in Iceland where Shareholders voted on proposed amendments to Articles 25.1, 25.5, 27 and 48 of the Company’s Articles of Association. The proposed amendments were duly passed by 97.73% of Shareholders voting at the meeting.  The meeting was attended by creditors representing 72.08% of Glitnir’s share capital.

A Noteholders’ meeting was held on the same day which was convened in accordance with provisions of Schedule 2 of the Deed of Issuance and Article 22.1 of the Terms and Conditions of the Notes. Noteholders voted on proposed amendments to the Terms and Conditions of the Notes, including changes to allow the Board of Directors greater flexibility when liquidating certain existing assets of the Issuer in order to achieve timely monetisation and subsequent distributions to investors.

The resolutions were passed by a vast majority of Noteholders (97.43% for changes to the Deed of Issuance) and the meeting was attended by Noteholders representing 70.93% of the remaining balance of the Notes.

Further information regarding the meetings can be found on Glitnir’s secured website.


Secondary market trading of Kaupthing New Notes and New Ordinary Shares via Euroclear continues to take place.  In general, there is now a standardised approach for agreeing the terms of trade in the form of Trade Confirmations.

Settlement of the Notes is mainly effected by delivery-versus-payment in Euroclear with the New Ordinary Shares being transferred via Share Transfer Forms submitted to the secure area of the Kaupthing creditor’s portal. Buyers are therefore bearing the risk of delay or refusal of share transfer by paying the Settlement Amount prior to confirmation that they are the registered holder of the assets.

  1. LBI EHF

On 25 August 2016, LBI published its financial information for Q2 2016.

This information is provided within 60 days of the relevant accounting period in line with the Terms and Conditions of the Bonds.

LBI will be hosting an investor call on 26 August 2016 at noon local Icelandic time.  Please see the LBI ehf website for further information.



The Italian Treasury has implemented the Italian Non-Performing Loan State Guarantee Scheme (“GACS”) by way of Ministerial Decree of 3 August 2016 which has been published in the Italian Official Gazette no. 188 of 12 August 2016 (pursuant to Article 13 of Law Decree no. 18 of 14 February 2016 (the “Ministerial Decree”) converted into law with amendments by Law no. 49 of 8 April 2016).

The implementation of the Ministerial Decree has concluded the legal framework for securitisations of Italian non-performing loans and provides eligibility for the GACS. Such new provisions include the following: (i) insertion of additional requirements for securitisation transactions; (ii) changes to securitisation transactions that require approval from the Italian Treasury; (iii) the State guarantee application procedure; and (iv) insertion of the circumstances in which the State guarantee would no longer be valid and effective.

For further information please click here for an article by law firm Chiomenti Studio Legale.

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Jodi Avergun is speaking at this ACI event on January 30 in Washington, DC.

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