Friday, May 27 2022

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Security and enforcement

In the Portuguese context, the financing of new assets generally follows the traditional scheme of credit against a security on the asset. Thus, the security plays a key role both in the negotiation and in the execution of the asset financing contract. The most common security required by lenders is, without a doubt, a mortgage on the asset, but the security package can also include other instruments such as a pledge over shares of ship-owning companies. , a pledge on bank accounts, the assignment of profits or receivables and instruments of lien. Currently, Portugal is not a party to any convention relating to security interests in air, rail and maritime assets (such as the Convention for the unification of certain rules relating to maritime liens and mortgages, adopted in Brussels on 10 April 1926, and the Convention on Maritime Liens and Mortgages, adopted in Geneva on 6 May 1993).

i SecurityShipping

Portuguese law provides for a specific and mandatory framework in terms of sureties on ships which, among other aspects, establishes a list of 15 credits benefiting from a privilege of priority rank (Article 578 of the Commercial Code); and establishes that the shipbuilder and the maritime salvage have the right to retain the ship as security for the payment of credits arising from its construction and maritime salvage (article 25 of Legislative Decree 201/98, of July 10 (DL 201/98 ) and article 14 of Legislative Decree 203/98, of July 10). This imperative framework prevails over all provisions provided for in the asset financing contract and its respective security package.

According to this specific framework, namely the provisions of the Commercial Code, there is a specific regime for mortgages on ships which differs from the general framework for mortgages provided for by the Civil Code. Indeed, the mortgagee benefits from a privilege of priority rank, which prevails (even in the event of insolvency of the mortgagee) over the privileges of priority rank provided for by the Civil Code and all other laws (article 574 of the Commercial Code ); and retention rights subsequently constituted (article 750 of the civil code). In this regard, DL 92/2018 introduced some reforms to the regime of mortgages on ships.9 On the one hand, the parties are now authorized to designate the law applicable to the mortgage, which must be indicated at the time of registration, accompanied by the delivery of a copy of the relevant legislation. On the other hand, article 21, n° 6 provides that the purchaser of the mortgaged goods can only exercise the right to extinguish the mortgage (provided for in article 721 of the Civil Code) if the exercise of this right guarantees the mortgagee full payment of all rights and charges resulting from the mortgage contract.ten Notwithstanding, still in application of the aforementioned special regime, the legal costs and the pecuniary compensation for the maritime salvage have priority over the mortgage creditor’s credit (Article 578, paragraph 1, paragraph 2, of the Commercial Code).

Aeronautics and railways

Portuguese law does not grant specific priority ranking privileges to entities that finance the acquisition of air or rail assets. Thus, the position of the lender − if security is constituted on the aircraft or the rolling stock − results from the general framework provided for by the Civil Code.

Indeed, Portuguese law grants the Portuguese State, the autonomous region of the Azores and the company managing the airports only a priority lien on the aircraft as a guarantee of the payment of the fees due for the operation of the companies flights at Portuguese airports; and administrative fines imposed for violation of the framework governing non-scheduled transport services (Article 46 of Legislative Decree 254/2012 of November 28, as amended, Article 30 of Regional Legislative Decree 35/2002/A of November 21 and Article 38 of Legislative Decree 19/82 of January 28, as amended).

According to the general rules, the claims of the hypothecary creditor are ranked in priority over the claims guaranteed by a lien of priority ranking subsequently constituted; and claims held by entities benefiting from a lien on the aircraft (articles 686, 750 and 758 of the Civil Code).

In practice, aircraft are generally acquired under a leasing contract. Typically, the parties enter into a sale-leaseback agreement: the air operator negotiates the construction and acquisition of the asset, purchases it and oversees the import process; then registers the plane and resells it to the financial backer. Subsequently, the operator is granted the use of the property under a leasing contract (the duration of which may not exceed 30 years11). In many cases, financing is provided by several financiers (acting as a consortium) in order to mitigate the economic risk of the transaction.12

ii Application

A secured creditor can enforce security through legal action against the debtor, which may include interim relief (i.e. arrest), primary declaratory action, and finally enforcement proceedings in which the property is sold through the court. The merits of the dispute may be decided in accordance with the laws of another jurisdiction if private international law leads to the exclusion of Portuguese law (for example, in the event that the parties have validly chosen the law of another jurisdiction to govern the financing or the security relationship).

It is generally specified that after the breach of contract, the hypothecary creditor may take possession of the secured property without producing a claim if the parties have entered into an agreement by which the hypothecary creditor undertakes to request an updated estimate of the property (in accordance with a procedure defined by the parties); and repay the amount corresponding to the difference between the value of the asset and the amount of the debt. Indeed, it is said that the rules prohibiting self-execution only apply if the procedure is not agreed with the mortgagor and cannot be controlled by this entity (otherwise its rights are not compromised) .

iii Arrest and judicial sale Expedition

Portugal has ratified the Convention for the Unification of Certain Rules Relating to the Seizure of Sea-going Vessels, adopted in Brussels on 10 May 1952 (Brussels Convention). The seizure of a ship is governed by the Brussels Convention when the creditor is the holder of a maritime claim within the meaning of Article 1 of the Brussels Convention (namely a credit secured by a mortgage); and the vessel is present in Portugal and flying the flag of a Contracting State.13 The nationality or the address of the owner of the vessel or his residence are therefore irrelevant.

The Brussels Convention can only be applied when at least one of the two elements (the flag of the vessel or the domicile of the applicant for seizure) has no link with Portuguese jurisdiction (Article 8(4)).

The Brussels Convention regulates the seizure of the ship to which the credit relates (ship at fault), when the debtor is the shipowner or the charterer or when a third party is debtor of a maritime credit linked to this ship; and the seizure of another ship (sister ship) belonging to the person who, at the date of the establishment of the credit, is the owner or charterer of the ship to which the credit relates, or debtor of a maritime credit, unless The injunction seeks the coercive enforcement of credits referred to in Article 1(1)(o), (p) or (q) of the Brussels Convention.

For a ship to be seized under this international instrument, a simple claim of the right of maritime credit is sufficient; it is not necessary for the plaintiff to produce evidence for the procedure, nor to allege and prove the risk of loss of the guarantee represented by the good (periculum in mora) (Articles 3 and 5 of the Brussels Convention).

If the case does not fall within the scope of the Brussels Convention, the Portuguese Code of Civil Procedure (CPC) will apply. In this circumstance:

  1. the applicant must allege and present evidence of the relevant facts, including the right to credit and the grounds for granting the interim measure (fumus boni iuris), the risk of loss of the bond and the admissibility of the seizure of the vessel (articles 365(1), 368(1), 391(1), 392(1) and 394 of the CPC);
  2. if the legal conditions are met, the arrest is pronounced by the court without hearing the defendant (article 393(1) of the CCP); and
  3. the ship can be seized even if it undertakes a voyage (article 9, paragraph 1, of DL 201/98).

The Brussels Convention and the CPC provide similar provisions:

  1. the plaintiff can request seizure even if he has no security (mortgage) on the vessel;
  2. other vessels belonging to the debtor may be seized, even if they have not been given as security; and
  3. the applicant may be liable for all damages resulting from the arrest in the event that the measure is deemed unjustified (this liability is governed by Portuguese internal rules).

If the arrest is granted, the property is judicially seized and physically apprehended. However, the hypothecary creditor may ask the court for the continuation of the operation of the ship until its judicial sale, if the hypothecary debtor expressly consents thereto, or, if this agreement is obtained, by providing sufficient security (articles 769 and 770 of the CPC).

Following the stop decision, the plaintiff must file a main declaratory action within 30 days to obtain a binding decision regarding his credit and the corresponding guarantee.

After obtaining a favorable decision in the main proceedings, the plaintiff must initiate enforcement proceedings to sell the vessel in court. The judicial sale is carried out by a bailiff, in accordance with the rules set by the CPP which provide for several modes of sale (sealed offers, public auctions and over-the-counter). The vessel is sold free of any encumbrances or encumbrances and normally “as is”.

If the debtor is insolvent, the sale of the property is governed by the Insolvency Code, like any other seized property for the insolvency estate.


If the aircraft was acquired under a financial lease agreement, article 21 of Legislative Decree 149/95, of June 24, authorizes the financial lessor to request the court to immediately seize and return of the leased property in the event of termination of the leasing contract (due, among other things, to a case of default attributable to the financial lessee).

The granting of the interim measure depends on:

  1. the termination of the contract having been pronounced by the lessor by written notification to the co-contracting party;
  2. the record of the contract having been expunged; and
  3. the court considering proven – prima facie – the event giving rise to the default, the non-delivery of the goods and the termination of the contract.

Once the apprehension has been ordered, the financial lessor is entitled to grant a third party the use of the property, in particular by concluding a sale-purchase, leasing or leasing contract.

If the aircraft is owned by the airline, legal action (declaratory action or enforcement proceedings) must be brought to recover the debt (by judicial sale).


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