Snapshot: due diligence in M&A transactions in Portugal.

Analysis of the state of affairs

What are the most critical areas that require special attention when conducting a pre-survey in M&A transactions in vulnerable environments?

The focus of the pre-screening process should be the same as in traditional M&A transactions. However, in vulnerable transactions, the diligence process often has limited access to information and serious time constraints. The scope of the survey and the ability to rely on it is usually very limited and focuses on financial issues and other key aspects such as valuation of liabilities (and the value of traded debt), financing terms and agreements, and the ability to directly enforce guarantees and collateral. Particular attention''tends to focus on existing privileged loans (held by tax, social and cooperation authorities) as there are limited restructuring measures for loans of this rank. When a transaction is structured on a loan-to-purchase basis, the buyer often receives detailed information on the transferred loans and very limited information on the debtor, as the vulnerable company is often not a party to the transaction. Buyers typically focus on the characteristics of the debt (especially personal or in rem collateral) and the options for restructuring it with or without creditors' consent. They also pay attention to whether restructuring can be accomplished through insolvency or other restructuring procedures. However, in''Depending on the planned acquisition structure, the key emphases may vary. However, when conducting a preliminary examination, it is important to understand how the company got into financial difficulties and identify where changes are needed to restructure the company.

Check public records

What public records checks should be conducted as part of a preliminary examination in vulnerable M&A transactions in your jurisdiction?

The following public records should be inspected:

• Commercial register: all relevant actions and documents of a company from its inception are recorded and may be obtained for a fee;
• The Citius Portal: all restructurings and procedures'.
The real estate registration office: this is where all information on ownership and any encumbrances on real estate is registered and published online; and
• Real Estate Registration Office: all information on real estate, its ownership and any encumbrances on real estate is registered here; and
• Instituto Nacional da Propriedade Industrial: publicly available information on trademarks, patents and designs online.

Contractual protections and risk mitigation

What contractual defenses and other strategies are commonly used to close screening gaps in M&A transactions in a vulnerable state?

Standard contractual protections apply but may have limited effectiveness in M&A transactions in a vulnerable state. The provision of broad and general warranties or specific indemnifications in normal circumstances usually''is not accepted by the seller because the specific terms of the sale and the fact that the underlying asset is already trading at a discount implies a trade-off in which the risk of the transaction is transferred to the buyer. In addition, the provision of collateral by a vulnerable company may be subject to challenge, and the solvency of the company may prevent it from fulfilling its obligations under indemnification clauses arising from contractual guarantees. Therefore, the protection that can be provided to the buyer in a transaction is to some extent uncertain. In addition, very often, the standard defenses of deferring payment or withholding portions of the price are not accepted by the seller, who seeks to ensure that the transaction is completed quickly and that it benefits from the''her. All of these limitations should be considered by the buyer in setting the transaction price. As a means of mitigating risk, the seller often requires that the transaction be executed and completed in a pre-insolvency proceeding, which will provide the seller comfort with court authorization, confirmation of third-party creditors, and assurance that the transaction will not be at risk of reversion and will be enforceable against other creditors.