Coronavirus (COVID-19) related moratorium on corporate and retail loans in Portugal

1. Description of the legislation

1.1 Is there a moratorium on loans legislation implemented in your jurisdiction?

Yes.

1.2 If no: Are there any ongoing discussions regarding a potential introduction of such measures?

Not applicable.

1.3 What is the name of the relevant legislation (the “Relevant Act”)?

Decree-Law n. 10-J/2020 of 26 March 2020.

1.4 What is the duration of the measures (period of moratorium)?

Moratorium period applies to finance contracts (as defined in the Relevant Act, namely including loans, leasing, factoring) that are valid and in place on the date of entry into force of the Relevant Act, up to 30 September 2020.

1.5 Does the legislation provide for an extension of the period of moratorium?

No. But the Relevant Act is drafted in a way that at any time Government, by way of amendment, may extend the moratorium period.

1.6 Is the moratorium mandatory, or can each borrower opt out should they wish to simply continue payments, or opt in if they want to be protected by the moratorium?

Moratorium is mandatory for financial institutions but not for obligors that benefit from an opt in right.

2. Parties and agreements affected by the Relevant Act

2.1 Is the moratorium available for both corporate and consumer loans?

Moratorium is available for corporate loans, but with exceptions defined in the Relevant Act. Loans for the acquisition of shares or other securities are excluded from moratorium. Consumer loans are also excluded.

2.2 Who are the affected Lenders?

Any lender operating in Portugal will be affected.

2.3 Does it make a difference whether loans are granted by a foreign entity and governed by foreign law?

Loans granted and finance contracts executed outside of Portugal by foreign entities will not be affected by the moratorium.

3. Impact on the loan agreements

3.1 Is there a cut-off date with respect to loan agreements to which the Relevant Act will apply (e.g. not applicable to loan agreements entered into after the cut-off date)?

The Relevant Act will apply to finance contracts that are valid and in place on the date of entry into force of the Relevant Act up to 30 September 2020. However, in order to benefit from the moratorium, borrowers may not have defaulted payment obligations for more than 90 days as of 18 March 2020 with the financial system, may not have outstanding debts to the Tax Authorities or the Social Security, be insolvent or under judicial enforcement proceedings.

3.2 Does the moratorium apply to principal only, or also to interest and/or fees?

Moratorium applies to principal, interest and any payment obligations arising out of the finance contract affected by the moratorium.

3.3 Will the maturity of the loan automatically be extended by the moratorium period?

Yes.

3.4 Are repayments and interest which have become due and payable under the contract before the Relevant Act has come into force covered by the moratorium?

No. Please note, however, that there is strong pressure to extend to moratorium to cover obligations that have fallen due prior to the coming into force of the Relevant Act. On the other hand, some banks have been, on a bilateral basis, extending the moratorium to cover some of the payment obligations.

3.5 Will lenders be able to terminate a loan due to an event of default other than non-payment (e.g. breach of financial covenants)?

Yes. The Relevant Act is totally silent on this and therefore termination due to events of default other than non-payment could technically occur. Please note however that there is strong pressure to extend the moratorium to apply to acceleration or termination due to certain events of default, such as breach of financial covenants.

Antonio Payan Martins
Nuno Pena
Partner
Lisbon