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Establishes Measures Of Strengthening The Financial Soundness Of Credit Institutions Within The Scope Of The Initiative To Strengthen The Financial Stability And The Provision Of Liquidity In Financial Markets

Original Language Title: Estabelece medidas de reforço da solidez financeira das instituições de crédito no âmbito da iniciativa para o reforço da estabilidade financeira e da disponibilização de liquidez nos mercados financeiros

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Proposed Law No. 229 /X

PL 635/2008

2008.11.02

The present proposed law falls within the framework of the initiative to strengthen stability

financial, which integrates measures of deepening the duties of information and

transparency, of aggravation of the sanctionatory regime in the financial and augmentation sector

of the amount of coverage of the deposit protection schemes with institutions

of credit.

More recently, this initiative was developed with the approval of a scheme

extraordinary granting of personal guarantees of the State, with a view to creating the

conditions necessary for the restoration of liquidity in financial markets and, in that

measure, to ensure the smooth financing of the economy.

It is on this line, and in the context of a concerted effort within the European Union to

strengthen national financial systems in the face of the current financial crisis situation

international, which adopt measures to strengthen the financial soundness of the institutions of

credit with registered office in Portugal.

The similarity of measures adopted in other countries of the European Union, the present

proposed law creates conditions for credit institutions to strengthen their funds

own, allowing them to maintain support for the financing of the economy.

The constant regime of this Law has been defined having by reference the recommendations of the

European Commission on the matter, specifically the observance: i) of the character

temporary in public support; ii) of nature subsidiary vis-a-vis the strengthening of capital by the

shareholders; iii) of the commitment by the credit institutions supported in their effort

of capitalization with recovery plans; and iv) of the distinction of treatment between

structurally sound credit institutions of those that present problems of

solvency.

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This measure covers, as noted, solvent and solid credit institutions in light

of the applicable law and supervisory criteria, with the aim of making available to these

institutions public support that will allow them to be able to put them in a situation equitably to their

european counterparts, who benefit from similar measures, by conditions and

balanced counterparts.

On the other hand, the present measure has as its object to create a specific legal framework for

a direct public intervention in the processes of recovery and sanitation of institutions

of credit with levels of own funds lower than the legal minimums.

In both strands, the resource to public investment is carried out in accordance with

principles of proportionality, remuneration and guarantee of the capitals invested and of

minimization of the risks of distortion of competition.

The monitoring and enforcement of the implementation of the proposed measures competes with the Bank

of Portugal that elaborates, with maximum monthly periodicity, individual reports on

each of the credit institutions covered, referring them to the member of the Government

responsible for the area of finance.

Semestrally, the member of the Government responsible for the area of finance gives

knowledge to the Assembly of the Republic of the capitalization operations carried out and its

execution.

Thus:

Under the terms of the paragraph d) of Article 197 (1) of the Constitution, the Government presents to the

Assembly of the Republic the following proposal for a law:

Chapter I

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General Provisions

Article 1.

Subject

This Law sets out measures to strengthen the financial soundness of the institutions of

credit within the framework of the initiative for the enhancement of financial stability and

provision of liquidity in financial markets.

Article 2.

Modalities of reinforcement

1-The strengthening of financial soundness of credit institutions is carried out through

capitalization operations with recourse to public investment and can be carried out by:

a) The enhancement of the levels of own funds of the credit institutions that they meet

proper conditions of soundness and awound solvency according to the legislation

applicable;

b) The participation in the recovery plan and sanitation of credit institution that,

in accordance with Article 141 of the General Regime of Credit Institutions and

Financial Societies, present, or show risk of presenting, a level of

own funds, solvability or liquidity lower than the legal minimum.

2-The appeal to public investment is carried out in accordance, inter alia, with

principles of proportionality, remuneration and guarantee of the capitals invested and of

minimization of the risks of distortion of competition.

3-The modalities provided for in paragraph 1 have a subsidiary and temporary nature,

applicable to operations of capitalization of credit institutions to be carried out up to 31 of

December 2009.

Article 3.

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Subjective scope

They may benefit from capitalization operations provided for in this Law, the institutions of

credit that have registered office in Portugal.

Article 4.

Modes of capitalization

1-A capitalization may be carried out with recourse to any instruments or means

financial that allow the funds made available to the credit institution to be

eligible for own basic funds ( tier 1).

2-A The capitalization operation can be carried out, specifically, by:

a) Acquisition of own shares of the credit institution;

b) Increase in the social capital of the credit institution;

c) Other values, legal or statutorily admitted, representative of capital;

d) Contract of association in participation or contract of similar effects.

3-The increase in the social capital provided for in the b) from the previous number can be carried out

upon issuance of:

a) Preferred shares without vote and shares confering special rights;

b) Ordinary shares.

4-In the case of the capitalization operation being carried out through the issuance of shares

preferred without a vote, the right to the priority dividend referred to in Article 341 of the

Code of Commercial Societies is fixed by porterie of the member of the Government

responsible for the area of finance.

5-A The capitalization operation can, as yet, be carried out through the issuance of the

financial instruments referred to in the preceding paragraphs intended for the shareholders of the

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credit institution, the public or both, with firm outlet or warranty of placement,

in whole or in part, by the state.

6-It shall be the State authorized to take firm or to ensure the placing of the issuance of

financial instruments in the terms referred to in the preceding paragraph, without prejudice to the

possibility of resorting to a financial intermediary for the purpose.

7-On a proposal of the Bank of Portugal, duly substantiated, the operation of

capitalization can, still, be carried out by issuing bonds or other values

of debt, on the part of the credit institution, without subjection to the limit laid down in Article 349.

of the Code of Commercial Societies.

8-The obligations or other debt values to be issued under the preceding paragraph

may be convertible into shares, ordinary or preferred, or exchangeable by these,

on the initiative of the holders.

Article 5.

Advance on account of entries

The advance of financial means to the credit institution considers itself to be charged to the

realization of the obligation of entry in the event of an increase in capital and liberates the State from that

obligation to the applicable extent.

Article 6.

Right of preference in underwriting

Without prejudice to the provisions of the Code of Commercial Societies as to the possibility of

limitation or deletion of the right of preference, the time limit for its exercise in the framework of

increases in the capital of credit institutions carried out, within the framework of this Law, not

may be more than five days, counted from the publication of the advertisement in daily newspaper of

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major national circulation, the sending of the e-mail or the dispatch of the letter

registered to the holders of nominative shares.

Article 7.

Derogation from the duty to launch public takeover bid

1-The voting rights acquired by the State under this Act are not

considered for the purpose of the duty to launch general public takeover offer.

2-Do not be relevant to the effects of imputation of voting rights, nor to the duty of

launch of general public takeover offer, the agreements for the exercise of the right of

voting that have for purpose the binding of the society for the purpose of the realization of the

capitalization operations under this Act.

3-To the shares subscribed by the State, and as long as these remain in their title,

the provisions of Article 227 (5) of the Securities Code shall not apply,

initiating the deadline there on the date of the transmission of the shares to third parties.

Article 8.

Public disinvestment

1-Showing assured, by the credit institution, the maintenance of appropriate levels

of own funds, may the same acquire the participation of the State or reimburse the

debt values issued under this Act, in whole or in part, with observance

of the provisions of paragraph 3.

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2-The State may, likewise, without prejudice to any rights of preference, give in to

third parties, at all times, their participation in the social capital of the credit institution, or

to divest the debt securities issued under this Act, in whole or in part.

3-Public disinvestment is carried out, inter alia, in accordance with the conditions of

market and in such a way as to ensure the appropriate remuneration and guarantee of the invested capitals,

taking into account the objectives of financial stability.

Chapter II

Strengthening of Own Funds

Article 9.

Access and deliberations of society

1-Access to public investment for reinforcement of own funds depends on

request from the body of administration, with the consent of the supervisory body.

2-The body of administration can always make its access initiative conditional on

public investment of tenure conferred by the general meeting and will do so,

necessarily, if the measures to be taken depend, in whole or in part, on deliberation

of the general assembly.

3-The mandate given by the general meeting involves the allocation to the organ of

administration of the competence to, with the concordance of the supervisory body, take

all measures provided for in this Law, including increases in capital, without dependence

of statutory limits that may perhaps find themselves established.

4-The deliberations of raising capital in the framework of strengthening own funds are not

applicable the provisions of Article 87 (3) of the Code of Commercial Societies.

5-The deliberations provided for in the preceding paragraph shall produce immediate effect, without prejudice

of the need to come up with the record and to be entered in the commercial register.

Article 10.

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Form and scope of the deliberations of the society

1-A General assembly is convened specifically for the purpose provided for in paragraph 2 of the

previous article, with a minimum one-day notice, per advertisement published in newspaper

journal of major national circulation or by e-mail addressed to all the

shareholders.

2-A General assembly deliberates, for all the purposes set out in this Law, by a majority

simple of the votes present and without a requirement of a constitutive quorum.

3-The present article prevails over any legal or statutory provisions in

Otherwise.

Article 11.

Challenge of social deliberations

1-The social deliberations relating to matters covered by this Chapter are not

applicable the provisions of Article 397 (3) of the Code of Civil Procedure and presumed

always that of your suspension results very serious damage to the society.

2-A suspension of social deliberations of credit institutions adopted in the framework of the

reinforcement of own funds may only be required by shareholders who hold shares

corresponding to at least 5% of the social capital of the credit institution.

Article 12.

Application

1-Access to public investment for reinforcement of own funds depends on

application submitted by the credit institution interested in the Bank of Portugal,

duly substantiated and instructed with a plan to strengthen own funds.

2-The plan referred to in the preceding paragraph shall contain, in particular, the following

elements:

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a) Own fund enhancement objectives, with indication of evolution, composition

and structure of these own funds over the duration of the plan, as well as the

nature of the operations planned for it to be carried out;

b) Updated information about the heritage situation, as well as the ratios and

prudential indicators on liquidity, quality of assets and coverage of

risks;

c) Strategic programming of activities over the duration of the plan, including

possible changes in the structure of the group in which the institution falls, thus

as in the shareholdings, namely, not financial, held by the same, and

projections on the evolution of profitability, position of liquidity and suitability of

own funds;

d) Possible adjustments to be made to the system of socieage-government and the

risk management and control mechanisms, with a view to the pursuit of the

objectives of the plan.

3-Compete to the Bank of Portugal to carry out the analysis of the application, and shall refer, in the

maximum term of 10 working days, the respective proposal for a decision, duly

substantiated, to the member of the Government responsible for the area of finance.

4-In the proposal for a decision, the Bank of Portugal pronounces itself, specifically, on the

equity adequacy of the lending institution concerned and on the guarantees that the

same offers to pursue a sound and prudent business policy.

5-The Bank of Portugal may ask the interested credit institution for the elements and

additional information that is required to be necessary for the assessment of the application.

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6-The time limit referred to in paragraph 3 may be extended by equal period if the complexity of the

operation to justify it.

Article 13.

Decision

1-Compete to the member of the Government responsible for the area of finance, upon

dispatch, decide on the realization of the capitalization operation, its terms, conditions and

charges to be taken up by the interested credit institution.

2-In the weighting of the decision, the member of the Government responsible for the area of finance

takes into account, inter alia, the contribution of the interested credit institution

for the financing of the economy and the need for reinforcement of own funds.

3-A The decision referred to in paragraph 1 may also lay down the terms and conditions of the

public disinvestment, once the objectives of reinforcement of own funds are met.

4-A The decision referred to in paragraph 1 shall be taken within five working days,

extended by equal period if the complexity of the operation justifies it, without prejudice to the

faculty of devolution of application to the Bank of Portugal for clarification, in which case

the deadline is suspending.

5-The dispatching referred to in paragraph 1 may be modified in the light of the circumstances,

in particular in the event of a serious or systematic default of the charges assumed

by the credit institution.

Article 14.

Obligations of the credit institution

1-As long as the credit institution is covered by the public investment

for reinforcement of own funds shall be subject to the terms, conditions and charges laid down in the

dispatching provided for in paragraph 1 of the preceding Article, specifically, as regards:

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a) To the use of the means provided under the reinforcement of own funds, in

particular with regard to the contribution of the credit institution to the

financing of the economy, particularly households and small and medium-sized

companies;

b) To the adoption of principles of good societarium government, which may include reinforcement

of the number of independent administrators;

c) To the policy of distribution of dividends and remuneration of the holders of the organs

of administration and surveillance, as well as the possibility of introduction of

limitations to other compensations of which they benefit such holders,

regardless of the nature they review;

d) To the adoption of measures designed to prevent distortions of competition;

e) To the possibility of the further strengthening of the contributions to the funds of

guarantee of deposits;

f) To the adoption of mechanisms that allow to realize public disinvestment in

market conditions that guarantee adequate remuneration of the capital

vested, thereby ensuring the protection of the interest of taxpayers.

2-As long as the credit institution is covered by the public investment

for reinforcement of own funds, may, in the order provided for in paragraph 1 of the preceding Article,

be determined the non-application of Article 294 (1) of the Code of Societies

Commercials.

3-Are void the deliberations of the bodies of the credit institution that counteract the

commitments by this assumed in the terms of this article.

Article 15.

Responsibility

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The responsibility of the members of the administration and supervisory bodies for the

society, to with the partners and to the creditors by the practice of any acts to the

shelter of the provisions of this Chapter only exists in the case of dolo or serious fault of the

agent.

Chapter III

Public intervention in Recovery and Sanitation

Article 16.

Scope of the intervention

1-When a credit institution finds itself in a situation of financial imbalance,

by virtue of presenting a level of own funds, creditworthiness or lower liquidity than

legal minimum, the recovery and sanitation scheme provided for in Articles 139 and 139

following of the General Regime of Credit Institutions and Financial Societies.

2-Within the framework of the intervention programme provided for in Article 142 of the General Regime of the

Credit Institutions and Financial Societies, can the Bank of Portugal propose to

state cooperation in the sanitation of the credit institution, through the viabilization of

appropriate monetary or financial support, with recourse to the modes of capitalization

provided for in Article 4.

3-A concretization of the capitalization operation and the definition of its terms, conditions

and charges compete for the member of the Government responsible for the area of finance, upon

dispatch.

4-The dispatcher referred to in the preceding paragraph has on the subjects provided for in the article

14., and may, still, the State designate one or more members for the organs of

administration or oversight of the credit institution, with no need for compliance

of the statutory limit on the composition of those organs, applying to the scheme provided for in the

article 15 para.

Chapter IV

Final provisions

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Article 17.

Funding

Measures to strengthen the financial soundness provided for in this Law dispose of resources

obtained by appropriations from the State Budget and issuance of public debt to the limit of

four billion euros, which is in addition to the maximum amount provided for in Article 109 of the

Law No. 67-A/2007 of December 31 approving the State Budget Act to

2008.

Article 18.

Monitoring and surveillance

1-Without prejudice to the competence of the remaining entities endowed with inspective functions,

compete for the Bank of Portugal to monitor and scrutinise compliance with the obligations of the

credit institution established in the dispatches provided for in Articles 14 and 16.

2-A The implementation of the measures provided for in this Law shall be the subject of evaluation with

maximum monthly periodicity and includes the elaboration of individual reports on each

of the credit institutions covered, to refer to the member of the Government responsible for

area of finance.

3-Semestrally, the member of the Government responsible for the area of finance gives

knowledge to the Assembly of the Republic of the capitalization operations carried out in the

scope of this Law and its implementation.

Article 19.

Public interest

There being challenge under the Code of Procedure in the Administrative Courts

of any standards issued in implementation of this Law or of any acts carried out

in its scope, it is assumed that the adoption of cautionary measures concerning such standards

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or acts seriously damages the public interest, dismising the reasoned resolution

provided for in Article 128 (1) of the said Code.

Article 20.

Competition

1-Without prejudice to the international obligations of the Portuguese State it is not considered

concentration of companies the acquisition by the State of social or active participations

in credit institutions under this Act.

2-As long as the public intervention held under this Act is maintained, always

that the weighting susceptibility of relevant economic interests is planned,

for the purposes of the legislation applicable to the restrictive practices of the competition and the operations of

concentration of companies, they are compulsorily considered, for protection of interest

public, the urgency inherent in acting in the financial sector, the circumstances concerning the

risk and the patrimonial situation of credit institutions, namely, in respect of

creditworthiness and liquidity, and its implications on the stability of the financial system

Portuguese.

3-If the public intervention in the recovery and sanitation, provided for in Chapter III,

course an operation of concentration in which any of the conditions are met

provided for in Article 9 (1) of Law No 18/2003 of June 11, this transaction may

carry out before it has been the subject of a non-opposition decision by the

Competition Authority, not depending on the validity of the legal business carried out

within the scope of such an authorization, express or tacit operation, of that Authority.

Article 21.

Review

1-A This Law may be reviewed at all times, in particular if the conditions of

financial markets to justify it or if this is necessary for reasons of coordination to the

level of the Eurozone and the European Union.

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2-Without prejudice to the provisions of the preceding paragraph, the present law is reappraised on the deadline

maximum of six months.

Article 22.

References to the State

The references made in this Law to the State cover the companies whose capital is

fully owned, directly or indirectly, by the state.

Article 23.

Regulation

The member of the Government responsible for the area of finance defines, by portaria, the

procedures necessary for the implementation of this Law, namely:

a) The definition of the level of own funds of credit institutions to be reached with the

execution of the capitalization operations;

b) The setting of a minimum threshold for the priority dividend higher than that provided for in the

Article 341 (2) Code of Commercial Societies, in line with the value of

reference adopted at the European level;

c) The terms and possible additional elements of the own fund enhancement plan

provided for in Article 12 (2)

Article 24.

Extinguishing

The measures to strengthen the financial soundness of credit institutions extinguish themselves

when the public disinvestment is completed, within the maximum period of three years, that

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may, exceptionally and in the case of market conditions warrant it, go up to five

years, from the date of entry into force of this Law.

Article 25.

Articulation with the regime of guarantees

1-Access to public investment in the context of this Law is independent of the appeal

by the institution of credit to personal guarantees of the State pursuant to the Act No. 60-A/2008,

of October 20.

2-In the case of actuation of the guarantees in the terms provided for in the porterie that

regulates the law referred to in the preceding paragraph, the conversion of credit into social capital of the

credit institution is carried out in accordance with the provisions of the a) of paragraph 3 and in paragraph 4

of Article 4, and may the institution concerned shall be subject, in particular, to the obligations

of the points b) and c) of Art. 14 (1) and the designation of one or more administrators

provisional in the terms and with the powers provided for in Article 143 of the General Regime of the

Credit Institutions and Financial Societies, considering themselves to be assigned to the member of

Government responsible for the area of finance the competences assigned there to the Bank of

Portugal.

3-The provisions of this Law in matters of jurisdiction of the organs, of convocation

of general assemblies and social deliberations are applicable in the framework of the actuation

of the guarantees granted under the Act No 60-A/2008 of October 20 and respective

regulation, being the capital increase by credit conversion of the State

considered as an increase in cash capital.

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Article 26.

Entry into force

This Law shall come into force on the day following that of its publication.

Seen and approved in council of ministers of November 2, 2008

The Prime Minister

The Minister of the Presidency

The Minister of Parliamentary Affairs