Proceedings / Effects of Registration

Can judicial decisions opening insolvency proceedings be registered in the Land registry in accordance with your legislation?

If affirmative, what effects do these registrations produce?

In Portugal before the Executive Law 282/2007 dated 07/08 (which modified the Insolvency Proceeding Code approved by Executive Law 53/2004 18/03) the judicial decisions opening an insolvency proceeding and the appointment of the insolvency practitioner were registered in the civil registry service or in the mercantile registry, depending on whether the debtor was a person or a company.

The seizure of immovable property has always been registered in the Land Registry services. The seizure can be based on an attachment or other judicial order over the immovable.

The insolvency is a universal foreclosure or enforcement process the aim of which is to pay the creditors by selling the debtors assets that have been seized for that purpose.

In what concerns land registry, the inscription of the insolvency proceeding aims to publish the seizure of the immovable.

Before the Executive Law 116/2008, 04/07 (which followed the above referred Executive Law 282/2007) the registered “fact” in the land registry was, precisely, the seizure or freezing of the immovable in the insolvency proceeding.

From 2008, the judicial decision opening insolvency procedure continues to be registered in the Civil and Mercantile Registry but it is also registered in the land registry according to article 38th paragraph 3 of the Insolvency Procedure Code and to article 2nd , paragraph 1, n).

However, the reason for this register still is to publish and to make effective (opposable) against third parties the seizure of the assets. Therefore, the insolvency practitioner when requesting the register of the insolvency proceeding in the land registry, must indicate the assets that have been seized in the proceeding.

According to article 92nd paragraph 1 n) of the LRC and article 38th paragraph 4 of the Insolvency Proceeding Code, the register of the insolvency proceeding can be done even before the decision of opening insolvency is res judicata. In this circumstance, it is entered as a provisional inscription.

A provisional inscription is also made a when the immovable owner is not the debtor (article 38th paragraph 5 of the Insolvency Proceeding Code), followed by the same procedure as the attachment or other seizure (article 92nd paragraph 2 a) and article 119th of the LRC).

In our national system the legitimacy to request any register is established in article 36th of the Land Registry Code. Any person related to the legal contract or fact submitted to register can request the entry. According to article 39th of the LRC lawyers and notaries also have legitimacy to request.

Nevertheless, the LRC establishes who is obliged to request the register and in the insolvency proceeding – the insolvency practitioner is the person obliged to do it (article 8-B paragraph 3 c) of the LRC).

The effects produced by the registration of the decision opening the insolvency proceeding are, primarily, those arising from the presumption of truth established in article 7th of the LRC, and its opposability against third parties (article 6th of the LRC).

If the debtor disposes of or encumbers the asset, the act is not effective in relation to the insolvent estate – article 81st paragraph 6 of the Insolvency Proceeding Code. The regime is the same as the one stated in article 819th of the Portuguese Civil Code for the disposition, encumbrance or lease of assets that have been attached in the foreclosure proceeding.

In what concerns land registry, a sale undertaken by the debtor will be a definitive register. However, when the same immovable is sold through the insolvency proceeding, this acquisition will prevail over the sale undertaken by the debtor, thus respecting the priority principle (article 6th and article 34th paragraph 4 of the LRC). The purchaser buying directly from the debtor will need to demand in the insolvency proceeding to be refunded, in accordance with the unjust enrichment rules.

In Portugal Land Registries are interconnected with other Registries (Civil, Mercantile and Vehicles), however the use of the information contained therein must respect the principle of appeal (or request). If the interested party does not require the use of that information, in general, the Registrar cannot use it (article 41st of the LRC), except in the circumstances determined by the law.

Nevertheless, with regards to insolvency proceeding, the point in discussion is related to the effects of the registration in the Civil or Mercantile Registry. According to the Insolvency Proceeding Code the debtor cannot sell or encumber any of the seized assets from the date of the insolvency decision. Differently from what is stated in article 819th of the Portuguese Civil Code for the foreclosure proceeding, the registry rules in the insolvency proceeding are not excepted from the substantive rules.