Insolvency (insolvência)
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Insolvência is the situation of someone who cannot pay debts that have fallen due, and the court proceedings in which their assets are sold to pay creditors.
Under article 3 of the Insolvency Code (CIRE), a debtor is insolvent when unable to meet obligations that have fallen due. The debtor may be a person or a company.
Insolvency proceedings are a universal enforcement: they cover all the debtor's assets and all creditors. Their purpose is to satisfy the creditors, either through an insolvency plan or by liquidating the assets and sharing out the proceeds (CIRE article 1).
This differs from ordinary enforcement. In enforcement, one creditor seizes specific assets. In insolvência, all assets become part of the and are managed by the .
Example
Illustrative example: a person owes €200,000 to several creditors and owns a flat. They are declared insolvent. The insolvency administrator sells the flat for €150,000 and that sum is shared among the creditors in the order set in the proceedings.
In practice, at an auction
Insolvency properties are sold preferably by , but the law allows other methods (CIRE article 164). The conditions of each sale are in its terms of sale.
One point matters for let properties: a sale in insolvency proceedings does not deprive the tenant of the rights civil law gives them (CIRE article 109(3)). The Supreme Court of Justice has ruled that a lease signed after the mortgage does not lapse with this kind of sale (Ruling 2/2021). See .
A declaration of the debtor's insolvency can also interrupt an auction under way in enforcement proceedings.