9.1.1 Would the airline be required to file for insolvency protection?
It is mandatory to do so in the period of 30 days from the date of awareness of the insolvency. The company is considered to be insolvent if is unable to meet its obligations due. Portuguese law establishes a legal presumption of the situation of insolvency three months after general failure to comply with certain obligations, e.g., payment of tax debts, payment of social security, payment of debts arising from an employment contract, payment of rentals of any type of lease or instalments of the purchase price or loan repayments secured by a mortgage on the debtor’s business premises or head office. With the declaration of insolvency, the company directors will lose their powers to manage and to dispose assets of the insolvent which will be assumed by the insolvency administrator.
9.1.2 Do the available forms of insolvency protection in the Relevant Jurisdiction involve the appointment of either an officer of the court or a specifically court appointed official to take control of the Airline (an Insolvency Official) while in insolvency protection?
Yes, after the insolvency is declared, the court appoints an Insolvency Administrator empowered to manage the company in order to obtain the satisfaction of creditors through an Insolvency Plan (based mainly in the company’s recovery) or through Liquidation (sale of assets of the insolvent ).
Besides the insolvency process, there is also a special restructuring process aiming the recovery of a company that is in a “difficult economic situation” or in a “situation of imminent insolvency” to establish negotiations with the creditors. This process also involves the appointment of a Provisional Insolvent Administrator which will have to authorize certain “particularly relevant acts”.
9.1.3 Does the Insolvency Official have authority to negotiate and reach agreement with the Owner in relation to matters such as the payment of unpaid rent, continuation or termination of the Lease and repossession of the Aircraft without the need for court approval?
Yes. The declaration of insolvency does not suspend the lease contract where the insolvent is the lessee. However, the Insolvency Administrator may terminate the contract by giving with 60 days notice in advance. There is no need for an authorisation of the court but the Insolvency Administrator acts are supervised at any time, with the possibility of removal and replacement of an Insolvency Administrator.
9.1.4 Does the commencement of insolvency protection involving the appointment of an Insolvency Official in the Relevant Jurisdiction have the effect of prohibiting the Owner from taking the following actions to enforce the lease after commencement of such protection:
- applying any security deposit held by the Owner against any unpaid amounts due under the Lease? Yes. Once the insolvency is declared by the Court, the assets of the insolvent are all frozen with the insolvency estate. This means that the Owner will have to claim the credit within the insolvency proceedings. Please note that, as general rule, the security deposit is not a security in rem and for that reason it create contractual rights between the parties. The provisions of the Lease relating to the deposit would be relevant and might impact on the conclusions above.
- accepting payment of rent or other lease payments from:
- (i.) the Airline? After the insolvency is declared, the Insolvency Administrator is empowered to manage the company and it is he who must make any payments.
- (ii.) a guarantor? No.
- (iii.) a shareholder? No.
- giving notice of default under the lease? No.
- obtaining a judgment or arbitral award for unpaid lease payments? No. Any credit against the insolvent company should be claimed within the insolvency proceedings.
- giving notice to terminate the leasing of the Aircraft? After the insolvency is declared, Portuguese law only prevents the Owner to terminate the contract based on unpaid rents or financial deterioration of the lessee.
- exercising rights to repossess the Aircraft? This question will depend on whether the Insolvency Administrator decides to perform of the contracts or decides to terminate the contract. If it is decided to perform the contract, it is not possible to recover the Aircraft; on the other hand, if it is decided to terminate the contract, the Owner can exercise his rights to repossess the Aircraft immediately.
9.1.5 Can the commencement of Insolvency Proceedings have retrospective effect in relation to any such actions taken before commencement? If so, for what period can there be a look back?
Yes. Pursuant to Portuguese Insolvency law, the Insolvency Administrator can void or claw back detrimental acts to the insolvent within the two years prior to the date of initiation of proceedings. Acts or omissions that diminish, frustrate, make difficult, endanger or delay the settlement of creditors are deemed detrimental. Additionally, some acts are assumed to be detrimental, without admission of evidence to the contrary (none of which can be found in the structure of the transaction, however).
9.1.6 Is there, either under law or as a matter of practice in the Relevant Jurisdiction, a period of time within which the Insolvency Official will either “adopt” the lease and pay rent and other lease payments as an expense of the insolvency or “reject” the lease and permit the Owner to enforce such rights as it may have under the lease?
The Insolvency Administrator may terminate the contract by way of 60 days prior notice. There is no specific time limit to do so but in practice Insolvency Administrators tend to take such decisions as soon as possible. In case the Insolvency Administrator decides to the perform the contract, the credits resulting from the contract that have already become due before the insolvency is declared shall be ranked as ordinary unsecured claims; the credits that have become overdue after the insolvency is declared are priority claims on the insolvent’s estate. Please note that the costs of the insolvency shall be paid firstly and before any claim in the insolvency.
9.1.7 If the lease is “adopted” will the Insolvency Official also pay any unpaid lease payments due as at commencement of the insolvency protection?
Please see 8.1.6 above.
9.1.8 If not or if the lease is “rejected”, would the Owner’s claim for any outstanding sums rank equally with other ordinary unsecured creditors of the Airline?
Yes. Please see also 8.1.9.
9.1.9 Are there certain types of preferred creditors whose claims will rank above claims of the Owner?
As regards the rank of credits in an insolvency proceedings, it is important to distinguish between: (i) costs of the insolvency, i.e. the credits arising out of the insolvency situation (e.g. costs of the insolvency proceeding, payment of the insolvency administrator´s fees, any n “super priority” debt created after the declaration of insolvency); and (ii) claims in the insolvency, for example all the credits over the insolvent with a patrimonial nature or secured by assets included in the insolvent´s estate.
The costs of the insolvency shall be paid firstly and before any claim in the insolvency.
The Insolvency Administrator shall rank the claims in the insolvency respecting the following order of priority: (i) specific preferential credits; (ii) secured credits; (iii) general preferential credits; (iv) ordinary unsecured credits; and (v) subordinated credits.
9.1.10 If the Aircraft is in the possession of a person other than the Airline at the commencement of Insolvency Protection of the Airline, for example an independent maintenance facility, will such person be entitled, under the laws of the Relevant Jurisdiction, to assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline?
No, because the Aircraft is owned by Owner until the end of the lease and the person in possession of the Aircraft would be unable to assert a lien over a good that is the property of a third party to the Lessee/bailee relationship.
9.1.11 Is a person other than the Airline, for example an airport authority, entitled under the laws of the Relevant Jurisdiction to seize possession of the Aircraft after commencement of Insolvency Protection and assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline.
No, all creditors have to follow the insolvency proceedings and, as above, the Aircraft is owned by Owner until the end of the lease.
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