Your Contractor Declared Insolvency - What to Do in the First 30 Days
Your contractor has declared insolvency. The work has stopped, you have already paid a significant portion of the budget, and now you do not know what to do. This is a scenario that happens with alarming frequency in Portugal, with over 2,000 insolvencies in the construction sector in 2024 alone, and every day that passes without action could mean losing legal rights you cannot recover.
This guide is urgent by nature. If you are in this situation, time is the scarcest resource you have. Every case is different, consult a lawyer immediately, but here are the steps you need to know now.
The legal framework: CIRE
Insolvency proceedings in Portugal are governed by the CIRE - Código da Insolvência e da Recuperação de Empresas (Insolvency and Corporate Recovery Code), Decree-Law 53/2004, with significant amendments by Law 9/2022. This is the legislation that defines the deadlines, procedures, and creditors' rights.
When a company is declared insolvent by the court, a formal process begins that follows defined stages. What is crucial to understand is that there are rigid deadlines which, if missed, mean the loss of rights. There are no exceptions for not knowing or for "not being informed in time."
The 30-day deadline: what it means and how to count it
This is the most important deadline you need to know. It is established in Articles 36 and 128 of the CIRE.
After the court's insolvency declaration, a period is set for creditors to file their credit claims. This period can be up to 30 days from the publication of the insolvency judgment. In practice, the judge sets the exact deadline in the judgment, and it can be less than 30 days.
There is an additional protection for creditors who were not directly notified: the deadline countdown may only begin 5 days after publication in the Diário da República (Official Gazette), giving more time to those who were not directly contacted by the insolvency administrator. But do not count on this extra time as a guarantee, act as quickly as possible.
If you do not file your credit claim within the deadline, you lose the right to be recognized as a creditor in the proceedings. This means that even if you are owed 50,000 euros, if you do not claim in time, you are left out of the asset distribution.
Step by step: what to do when you learn of the insolvency
1. Confirm the insolvency
Check on CITIUS whether the insolvency proceedings are effectively registered. Search by the company's tax number. The insolvency judgment indicates the name of the appointed insolvency administrator, the deadline for credit claims, and the date of the creditors' assembly.
2. Contact the insolvency administrator
The insolvency administrator (administrador de insolvência) is the person appointed by the court to manage the proceedings. It is to them that you should direct your credit claim. The administrator's name and contact details appear in the judgment published on CITIUS. Contact them immediately for information about the exact deadline and procedure.
3. Prepare the credit claim
The credit claim is regulated by Article 128 of the CIRE and must include:
- Origin of the credit - explain the contractual relationship: construction contract, CPCV, advance payments made, etc.
- Maturity date - when the credit became due (date of breach, date of work abandonment)
- Amount claimed - the total amount, including the outstanding capital
- Interest - if applicable, the calculation of default interest
- Nature of the credit - whether it is ordinary, privileged, secured, etc. In most cases, the property owner's credit is an ordinary credit
- Supporting documentation - ALL documents that prove the credit
4. Documents you should include
For property owners specifically, documentation is crucial. Gather everything you have:
- Original construction contract or CPCV, signed by both parties
- Proof of all payments made (bank transfers, receipts, invoices)
- Correspondence with the company (emails, messages, letters)
- Evidence of the state of the work at the time of abandonment (photographs, videos, reports)
- Quotes from other contractors to complete the work - this documents the additional loss
- Any other proof of contractual breach
5. Submit the claim within the deadline
Send the claim to the insolvency administrator by registered mail with acknowledgment of receipt, within the established deadline. Keep copies of everything, including the proof of dispatch with the date.
What happens after the claim
After the claims deadline, the process follows several stages:
- Credit verification - the insolvency administrator reviews all claims and prepares a provisional list of recognized credits
- Challenge - if your credit is not recognized, you can challenge the decision before the court within the legal deadline
- Creditors' assembly - creditors vote on the company's fate: liquidation (sell the assets) or recovery attempt
- Liquidation - in most cases, assets are sold and the money is distributed among creditors according to the legal hierarchy
- Distribution - credits are paid in order of priority: workers and the State first, then secured creditors, then ordinary creditors
PER vs. insolvency: what is the difference?
If instead of insolvency the company initiated a PER (Processo Especial de Revitalização / Special Revitalization Process), the situation is different. PER is a restructuring attempt: the company acknowledges it has difficulties but believes it can recover with a payment plan negotiated with creditors.
In PER, the company continues to operate during the process. Creditors negotiate a plan that may include partial debt forgiveness, extended payment terms, or credit conversion. If the plan is approved by the majority of creditors and ratified by the court, the company continues to function under the new conditions.
If PER fails, it usually proceeds to insolvency. Stay alert to the process developments.
The harsh reality of the numbers
It is important to be honest about what you can expect. In most insolvency proceedings, ordinary creditors, which is the category where property owners usually fall, recover a very small percentage of their credits. In many cases, recovery falls below 10%, and it is not rare for it to be zero.
This does not mean you should not claim, you should always claim to preserve your rights. But it does mean that the best protection is prevention: checking the contractor's financial health before hiring is infinitely more effective than trying to recover money after an insolvency.
Why prevention is always better
If you are reading this article before having hired a contractor, consider yourself fortunate. A simple check on the construction company can reveal warning signs that spare you all this trouble: pending lawsuits, tax debts, directors with a history of insolvencies, absence of an IMPIC license.
ObraXRAY exists precisely for this. In minutes, you get a complete report on any construction company in Portugal, cross-referencing court records, IMPIC license, tax situation, and director history. If something does not add up, you know before signing a contract, not after the work has stopped.