Up Again Portugal: Governance

Corporate

1. What are the key topics that boards should focus on to ensure proper discharge of their duties as directors, as their businesses return to work following a lockdown?

The first concern is being thoroughly informed about the national and international context of COVID-19, particularly the markets where the business is operating; information is widely available, and directors have a legal obligation to be act duly informed (business judgment rule).

Observation of government regulations, guidelines and recommendations needs to be ensured at two levels:

  • operational – that is, the specific actions applicable to the business types, such as hospitality, distribution or construction
  • towards employees – that is, specific actions to ensure health and safety in workplaces

Ensure compliance with updated timeframes for the filling of taxes, internal meetings and other legal and regulatory obligations.

Also, and because as the situation evolves a return to work may be reversed with very short notice, boards need to keep their options open regarding measures that were implemented during the lockdown.

2. Should boards adopt particular governance practices in this context?

Return to work is at this stage a mixture of pre-lockdown and lockdown governance practices. As such, governance practices adopted pre-lockdown should be kept until full restoration of regular practices, such as non-presence meetings.

3. To what extent are boards being encouraged to take into account corporate purpose and values in the context of COVID-19 and a return to work?

The Portuguese government is encouraging companies to keep teleworking beyond the general return to business and to adopt it more widely.

Restructuring

4. Your company is facing liquidity issues as a result of COVID-19:

a. What are the repercussions for continuing to operate your company?

Creditors may take enforcement actions against companies that face liquidity issues. Nonetheless, and considering the widespread difficulties, it is not likely that hard enforcement will occur in the next couple of months.

Self-application for insolvency will prevent the filing or continuation of enforcement actions.

b. Do you have to file for insolvency if your company cannot pay all its debts as they fall due?

Directors have a legal duty to file for insolvency if the company is not able to pay its debts. Nevertheless, the deadline to comply with such duty is currently suspended, and other options, such as debt restructuring also need to be considered prior to insolvency.

c. Are there any steps that should be taken to minimise the risk of your actions as director being challenged?

As a rule, directors are under an obligation to avoid any actions that are likely to reduce, frustrate, hinder, jeopardise or delay payments due to creditors.

Subject to the “business judgment rule,” directors should avoid any actions that might:

  • damage or endanger the company’s assets;
  • artificially create or worsen liabilities and losses, in particular, by means of damaging transactions; or
  • manage the company in a way that would foreseeably lead it to insolvency.

d. Will your company be wound up if you fail to make payments when due?

Breach of financial commitments may allow creditors to file for insolvency proceedings.

Insolvency proceedings are considered an urgent proceeding, and so formalities are not suspended during the COVID-19 restrictions.

Nonetheless, creditors benefiting from additional payment deadlines are not entitled to apply for insolvency if the payment due date occurs during the extension period.