Practical Guide To International Debt Collection in Portugal

Practical Guide

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Portugal

Is there a minimum amount to start a legal action?

In Portugal, there is no legal requirement of a minimum amount to initiate legal proceedings to obtain debt collection.

However, it is important, in this context, to mention that, in certain cases, the amount of the debt may not justify the immediate use of a judicial procedure, because the procedural and judicial costs may be of a much higher amount than the amount of the debt on which payment is intended to be collected. In these cases, it is important to take into account that there are other procedures that can be adopted before going to court.

Will the amount due condition the type of procedure?

The appropriate legal procedure for recognition of a debt and its collection depends on the amount of the debt.

In the case of debts of an amount equal to or lower than €15,000 there are two types of procedures that can be adopted, which legal regime is provided for, in Portuguese law, in the Decree-Law No. 269/98, of September 1st:

  • Special Lawsuit for Compliance of Pecuniary Obligations Emerging from Contracts (Ação Especial para o Cumprimento de Obrigações Pecuniárias Emergentes de Contratos - AECOP);
  • Injunction (Injunção).

The Special Lawsuit for Compliance of Pecuniary Obligations Emerging from Contracts, also known as AECOP, is a simple and quicker judicial procedure aimed at low-value debts (equal to or less than €15,000). In this procedure, there is no specific form required for the initial petition filed by the creditor or the eventual defense filed by the debtor. If the amount of the debt is less than or equal to €5,000, the parties don’t need to be represented by a lawyer.

In the petition, the creditor should briefly state their claim and the respective arguments. The debtor is summoned to file an opposition within 15 days, if the value of the lawsuit does not exceed the jurisdiction of the lower court, or within 20 days, in other cases.

If the debtor, once notified, does not file an opposition, the judge, with the value of a condemnatory decision, grants executive power to the petition, except in specific and properly justified cases.

If the debtor files an opposition, the procedure follows its terms, and a trial hearing takes place within 30 days.

An Injunction is a legal procedure with the purpose of giving executive force to a request aimed at demanding the compliance of pecuniary obligations arising from contracts with a value not exceeding €15,000, with the advantages of being quicker, simpler, and cheaper than judicial procedures.

The injunction request is filed directly by the creditor or by their lawyer, with the secretary of the court of the place of performance of the obligation or with the secretary of the court of the debtor's domicile. It can also be filed electronically.

Within 5 days, the debtor is notified to, within 15-20 days (depending on the claimed amount), pay the creditor the requested amount or to file an opposition to the claim. If, after being notified, the debtor does not file an opposition, an enforceable formula will be attached to the injunction request.

If the debtor files an opposition presenting their defense, the case is transferred to a court, and a Special Lawsuit for Compliance of Pecuniary Obligations (AECOP) is initiated.

In the case of debts of an amount higher than €15,000, the only procedure that can be adopted to collect the debt is to file a lawsuit.

This is a judicial procedure that may take longer and is considerably more expensive, in which both parties will have the opportunity to present their arguments, to discuss an agreement, and to participate in the trial, gathering evidence, and appointing witnesses.

Is it mandatory to send a warning letter before taking legal action to collect a debt?

Before initiating a judicial procedure, although it is not a mandatory procedure, it is customary and advisable to send a warning letter to the debtor, granting a certain period of time to pay the debt. Although there is no rule that establishes a specific form of warning letter, it is always safer to send the letter by registered mail with acknowledgment of receipt.

The warning letter must contain some essential elements such as: (i) the identification of the parties; (ii) the explanation of the origin of the debt and its amount; (iii) the indication of a period for payment of the debt; and (iv) a warning of the consequences arising from the non-payment of the credit, which usually is the communication of the decision to seek legal action if the debt is not paid within the period of time indicated in the warning letter.

Normally, it is advisable that the warning letter be prepared and sent by a lawyer, considering its importance as evidence if it is eventually necessary to seek legal action to collect the debt.

What are the best practices for creditors to increase the possibility of recovering the debt?

In order to increase the possibility of debt recovery, it is important to collect evidence that demonstrates the existence of a commercial relationship between the parties, as well as the origin of the credit, such as all communications and agreements between the parties, the contract celebrated by the parties, invoices, orders of the services or assets provided, documentation of all the payments made by the debtor, and the identification of witnesses who have relevant knowledge to help prove the existence of the debt, among others.

It is also important for successful debt recovery, that the creditor is attentive to the debtor's economic and financial situation, to see if there is a possibility of filing for their insolvency, having, within the scope of the insolvency procedure, an opportunity of debt recovery.

It is important for the creditor to have at their disposal all means that will allow them to know the dimension and location of the debtor's assets, in order to understand the probability of recovering the debt.

How can a foreign creditor start a procedure for international debt collection in Portugal?

In order to get the help of a lawyer, in the attempt to take legal action, it is necessary to have a power of attorney, so that the lawyer can intervene in court on behalf of the client in the case in question.

Portuguese law identifies, in Article 40 of the Code of Civil Procedure, the cases in which the representation by a lawyer is mandatory, being that there are exceptional cases in which the representation by a lawyer is not mandatory, although support from a lawyer is always recommended before seeking legal action.

In order to initiate a judicial procedure, a judicial fee must be paid. A judicial fee corresponds to an amount that each party involved in the judicial procedure must pay as compensation for the provision of judicial services.

The amount of the judicial fee is established according to the value and complexity of the lawsuit. The amount of the judicial fees is provided, in Portuguese law, in the Litigation Costs Regulation (Regulamento das Custas Processuais). Under Portuguese law, both natural and legal persons are obliged to pay judicial fees.

In certain cases, when the parties want to ensure the good relationship that exists between them, the recourse to alternative dispute resolution methods may be justified, such as, for example, mediation/arbitration. In Portugal, there are Consumer Conflict Arbitration Centres, which resolve disputes through mediation, conciliation, and arbitration procedures at lower costs than judicial proceedings in court.

Which documents are necessary for the debt collection in Portugal?

In an attempt to collect a debt, it is important for the creditor to have, in their possession, elements of evidence that can prove the existence of the debt.

In order to prove the existence of the debt, any evidence not prohibited by law is allowed, including, but not limited to, all communications and agreements between the parties, the contract celebrated by the parties, invoices, orders of the services or assets provided, documentation of all the payments made by the debtor, and the identification of witnesses who have relevant knowledge to help prove the existence of the debt.

While some evidence should be presented when filing the petition or initial request, other evidence can be presented at a later time, such as, for example, witnesses and documents that, due to certain circumstances, could not be presented with the initial petition/request.

In this context, it is important to stress that, in the Portuguese legal system, the principle of free assessment of evidence by the Court, foreseen by article 607, number 5 of the Code of Civil Procedure, applies.

What happens after the first demand for payment?

After sending a warning letter, one of three things can happen: (i) the debtor could pay the debt; (ii) the debtor may not take any action, making recourse to the judicial system to collect the debt inevitable; or (iii) the debtor could propose a payment agreement, in which the parties enter into negotiations to reach a compromise favorable to both parties.

If legal action has already been taken to collect the debt (in the case of debts of an amount higher than €15,000), the debtor may accept the payment of the debt, making it possible to conclude an agreement between the parties, regarding the terms of the payment of the debt, before the trial hearing, and this agreement is then ratified by the judge. If the debtor files an opposition, the procedure follows its terms, and there will be a trial hearing, after which the judge will decide.

In the case of debts of an amount equal to or less than €15,000, there are, as we have already seen, two types of procedures that can be adopted:

  • Special Lawsuit for Compliance of Pecuniary Obligations Emerging from Contracts (Ação Especial para o Cumprimento de Obrigações Pecuniárias Emergentes de Contratos - AECOP);
  • Injunction (Injunção).

In the Special Lawsuit for Compliance of Pecuniary Obligations Emerging from Contracts, also known as AECOP, when the debtor, notified, does not file an opposition within the legal term established for that purpose, the judge, with the value of a condemnatory decision, grants executive power to the petition, except in specific and properly justified cases. If the debtor files an opposition, the judicial procedure follows its terms, and a trial hearing takes place within 30 days.

In the Injunction, the debtor is notified to pay the creditor the requested amount or to file an opposition to the claim within 15 days. If, after being notified, the debtor does not file an opposition, an enforceable formula will be attached to the injunction request. If the debtor files an opposition to the injunction request, presenting their defense, the case is transferred to a court, and a Special Lawsuit for Compliance of Pecuniary Obligations (AECOP) is initiated.

Can interim measures be taken?

It is important for the creditor to be informed about the debtor's current economic and financial situation so that it is easier to understand the probability of recovering the debt.

In some cases, when there is a justified fear that someone else will cause a serious lesion that is hardly repairable to their right, they may require a protective order to ensure the effectiveness of the threatened right (Articles 362 and following of the Portuguese Civil Procedure Code). The protective order is of an urgent nature, so the procedure is quicker than a normal judicial procedure.

The creditor who has a justified fear of losing the guarantee of their debt may apply for the seizure of the debtor's assets, provided for in Article 391, paragraph 1 of the Portuguese Civil Procedure Code).

If, for any reason, the recovery was not possible, is there any other action that the creditor could take to write off such debt in their accountancy?

The creditor should be able to write off such debt in their accounts if they have documentary evidence that they have tried to collect the debt, but such collection was not possible. In Portugal, to write off from a tax perspective normally requires a court document stating that the enforcement of the debt was not possible or stating that the debtor was declared insolvent.

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