Debt collection in Portugal

The debt collection procedure in Portugal begins with an assessment of the nature of the debt, the documents confirming the obligation, the correct identification of the debtor, the existence of security, the correspondence between the parties and the likelihood that the debt will be disputed. If the debtor is a Portuguese company, it is also important to verify its commercial registration details, current company certificate, management structure, registered address for notices, known enforcement proceedings and possible signs of restructuring, payment arrangement or insolvency.

The initial review should not be limited to the debtor’s apparent solvency. It should also consider whether there are enforcement cases that ended without full payment, public information on restructuring procedures, payment arrangement procedures or insolvency proceedings. These details help determine whether the creditor should start with negotiation, a payment order procedure, ordinary court proceedings, enforcement proceedings or insolvency proceedings.

If the debtor continues to operate, has working communication channels, shows no serious signs of insolvency and the debt is properly documented, it may be reasonable to start out-of-court debt collection. At this stage, the creditor’s goal is to obtain voluntary payment, acknowledgement of the debt, a payment schedule, return of goods, set-off, transfer of debt or another commercially acceptable settlement.

Communication with the debtor should begin with a formal notice and continue through documented negotiations, a settlement proposal and preservation of evidence. The notice and further communication should clearly state the amount claimed, the legal and contractual basis of the debt, the payment deadline, the debtor’s position and the legal consequences of refusing voluntary settlement.

An out-of-court attempt does not need to remain open for a predetermined period. Its usefulness can usually be assessed from the debtor’s conduct: whether substantive replies are provided, payment proposals are actually followed by performance and the parties are moving toward a workable settlement. Persistent silence, an unequivocal refusal to pay or repeated promises without concrete action may indicate that the informal stage has run its course and that the case should be assessed for the next appropriate recovery step.

Before starting court proceedings, the creditor must determine the applicable limitation period. In Portugal, the ordinary limitation period is 20 years, but the law provides special periods depending on the nature of the claim. A five-year period may apply to certain periodic payments, interest, rent and other claims specified by law, while a two-year presumptive period may apply to certain categories of claims, including some supplies, accommodation, food services or professional services. Therefore, the limitation period should not be determined only by whether the debtor is an individual or a company, but primarily by the type of claim being pursued.

Agreements intended to change statutory limitation periods are invalid, and the legal effects of limitation usually depend on the interested party raising the defence. The limitation period may be interrupted by service of court documents, judicial notice expressing the creditor’s intention to exercise the right, or acknowledgement of the debt by the debtor. Tacit acknowledgement is relevant only when it follows from facts that clearly show recognition of the debt. After interruption, a new limitation period begins to run.

Portuguese law provides for court debt collection through ordinary court proceedings and through a payment order procedure when the statutory requirements are met. The choice of procedure depends on the amount of the claim, the contractual basis of the debt, the quality of written evidence, the likelihood of opposition by the debtor and the need to obtain an enforceable title.

Ordinary court proceedings begin with the filing of a statement of claim before the competent court. After the claim is admitted, the court serves the defendant or the debtor being sued and prepares the case for examination on the merits. After receiving the summons and a copy of the statement of claim, the defendant generally has 30 days to file a defence. If the defendant is duly served and does not file a defence, the facts alleged by the claimant may be treated as admitted, without preventing the court from making its own legal assessment.

If the defendant files a defence, the court may schedule a preliminary hearing. At this stage, the court may attempt conciliation, define the subject matter of the dispute, examine procedural objections, correct deficiencies in the presentation of facts, organise the issues of evidence and prepare the case for the final hearing. A preliminary hearing may be omitted when the law allows it or when the conduct of the case does not require this stage.

After the preparatory stage, the judge schedules the final hearing. During the final hearing, the court hears the parties where applicable, examines the evidence, carries out the admitted evidentiary steps and closes the discussion of the case. After the final hearing is closed, the case is submitted to the judge for judgment, which should be delivered within 30 days.

The judgment of the court of first instance may be challenged by appeal before the competent higher court. An ordinary appeal generally depends on the value of the case, the loss suffered by the appealing party and the situations in which the law allows an appeal regardless of those criteria. The general time limit for filing an appeal is 30 days from notification of the decision, but it may be reduced to 15 days in urgent proceedings and in certain separate appeals provided by law. If the appeal concerns the reassessment of recorded evidence, an additional statutory period may apply.

The appeal must contain submissions and conclusions explaining why the appealing party asks for the decision to be amended, annulled or revoked. In debt collection cases, an appeal may concern findings of fact, application of law, assessment of evidence, nullity of the judgment, the amount awarded, interest, court costs or other material parts of the decision.

A decision of the court of appeal may be further challenged before the Supreme Court when the statutory requirements are met. This further appeal may be admissible, among other cases, where the court of appeal decides on the merits of the case or brings the proceedings to an end, as well as in special situations involving legal relevance, particular social relevance or conflict with previous case law on the same fundamental legal issue.

In addition to ordinary appeals, Portuguese civil procedure provides special remedies in specific situations, including review and mechanisms intended to ensure uniform case law. These remedies do not replace an appeal or a further appeal to the Supreme Court, but they may be relevant in exceptional cases after ordinary remedies have been exhausted or the decision has become stable.

The payment order procedure applies to claims for payment of sums arising from contracts when the amount does not exceed 15,000 euros. For claims arising from commercial transactions, the special late payment regime may allow this procedure to be used for higher-value claims, provided that the statutory requirements for transactions between businesses or between businesses and public entities are met.

The procedure begins with the filing of the prescribed application, and where a legal representative is involved it is normally submitted electronically. The debtor is then notified to pay the claimed amount and the court fee advanced by the creditor within 15 days or to file an opposition. If the debtor does not file an opposition, the application is given enforceable effect and may be used as the basis for enforcement proceedings. If the debtor files an opposition, the dispute is transferred for court examination under the applicable procedural form.

In cross-border disputes within the European Union, the creditor may consider the European payment order procedure where the claim is a civil or commercial monetary claim, is not contested by the debtor and has a cross-border element. This procedure allows the creditor to obtain a payment order that may be enforced in another European Union Member State under the applicable European regime.

For lower-value cross-border claims, the European small claims procedure may be relevant. It applies to civil and commercial disputes where the value of the claim does not exceed 5,000 euros. The procedure is designed to simplify and accelerate the recovery of smaller claims between parties located in different European Union Member States and allows the decision to be recognised and enforced in another Member State without a separate declaration of enforceability.

If the creditor already has a foreign court judgment and intends to enforce it in Portugal, it is necessary to determine whether a European or international regime allows direct recognition. Outside such regimes, foreign judgments concerning private rights generally require recognition and confirmation in Portugal. After recognition, the judgment may serve as the basis for enforcement against bank accounts, assets, receivables or shares of the debtor located in Portugal.

After the judgment becomes enforceable, or after the creditor obtains another enforceable title admitted by law, the creditor may initiate enforcement proceedings. Enforceable titles may include court judgments, payment order applications with enforceable effect, authenticated documents in which the debtor acknowledges the debt, negotiable instruments and other documents provided by law.

In enforcement proceedings, the creditor’s claims may be satisfied through attachment of bank accounts, receivables, income, movable assets, immovable assets, securities, company shares or other property rights. Attached assets may be subject to forced sale, and the proceeds are used to pay the debt, interest, court costs and other recoverable amounts.

The income generated by attached assets during the period between attachment and forced sale may also be relevant where this is compatible with the nature of the asset and the enforcement procedure. Identifying bank accounts, real estate, vehicles, receivables from third parties and company shares in advance increases the practical effectiveness of enforcement proceedings.

If the debtor shows signs of insolvency, the creditor should assess whether to participate in insolvency proceedings or request the opening of such proceedings. In Portugal, insolvency arises when the debtor is unable to meet due obligations or, in certain cases, when liabilities clearly exceed assets measured under the applicable accounting standards.

Before choosing the strategy, it is useful to check public information on restructuring procedures, payment arrangement procedures and insolvency proceedings. A restructuring procedure may indicate an attempt to preserve the business activity of a company, while a special payment arrangement procedure may be relevant for debtors that do not operate as commercial businesses. These procedures may affect the timing, priority and method of the creditor’s action.

In insolvency proceedings, creditors submit their claims for recognition and payment according to the order established by law. If the debtor’s assets are not sufficient to pay all creditors in full, it is necessary to review transactions carried out before the opening of the proceedings that may have reduced the debtor’s assets or impaired the creditors’ chances of recovery.

The law allows harmful transactions to be challenged for the benefit of the insolvency estate where such transactions harmed creditors and were carried out within the relevant statutory periods. Particular attention should be paid to gratuitous transfers of movable or immovable assets made within two years before the opening of insolvency proceedings, the creation of security for pre-existing obligations within six months before the opening of the proceedings and transactions with persons especially connected to the debtor.

As a result of challenging such transactions, the assets or their value may return to the insolvency estate, increasing the possibility of satisfying creditors’ claims and covering the costs of the insolvency proceedings.

If you need support with international debt collection in Portugal, our team can analyse the debt documents, verify the debtor’s status, choose the appropriate recovery procedure, prepare a strategy for out-of-court settlement, court proceedings, the payment order procedure, enforcement proceedings, insolvency or enforcement of a foreign judgment. Contact us to assess the most suitable recovery path for your case.

26.07.2024

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