ALEXIOU, ROUKOUNAKIS & ASSOCIATES: The New Greek Bankruptcy Code12/10/2020
The New Greek Bankruptcy Code
By Alexis Alexiou
The Greek Parliament has recently approved a new Bankruptcy (insolvency) Code. The prolonged economic crisis of the country during the past ten years resulted in the accumulation of a very high private debt, which intensified a problem with important social and economic dimensions. To face it the State had proceeded to a decrease of taxes and other developmental measures, which led to an improvement of the available income and the reduction of unemployment. Unfortunately the Covid 19 pandemic brought new difficulties to both individuals and businesses that cannot meet their obligations and thus see their debt increasing. It was imperative to enact new appropriate “tools” for the settlement of all debts, and more specifically debts to the IRS, social security funds, local government organizations, banks and individuals.
The new codification under the title “Code for the Settlement of Debts and Granting of a New Opportunity”, composed of 265 Articles, was published in the Official Gazette on the 27th of October 2020 and will come into force on the 1st of January 2021.
According to formal statistics the total debt of individuals and businesses of the private sector is 234 billions of Euros. Of that amount 91,7 billions or a percentage of 39,3%, concerns non-performing loans belonging to the wider financial sector, 105,6 billions or a percentage of 45,2% concerns outstanding debts to the IRS, and 36,3 billions or a percentage of 15,5% concerns debts to social security funds. Two thirds of the debt concern businesses and the rest concerns private individuals.
Contrary to what the law has provided up to now, the new bankruptcy code allows the possibility of bankruptcy to individuals who are not merchants. It brings big changes to the settlement of debts of natural persons and legal entities. Besides providing the way by which somebody is declared bankrupt, it also replaces all legal tools for debt settlement, giving debtors two alternative solutions, i.e. either to settle their debts out of court or be declared bankrupt, returning to normalcy after one to three years. This multilateralism of solutions is manifested in the abovementioned title of the act. Due to the big extent of the statute and the many changes it introduces, the following paragraphs will be only a rough description of its main characteristics, concerning the most significant innovations.
- A preventive mechanism for the timely warning of the debtor so that he can avoid insolvency proceedings is established for the first time in Greece.
- All individual tools for the settlement of debts existing so far are incorporated in a general framework and a unified procedure. Thus the code puts an end to the welter of overlapping, varying legal rules, which used to confuse the debtors.
- As regards the settlement of debts out of court the code introduces an integrated and automatic framework for treating insolvency, after an application of the interested party. The procedure takes place clearly out of court between the debtor and the creditors and is confidential. The application will be submitted electronically to the Special Secretariat for the Management of Private Debts through the use of the relevant electronic platform. By the said platform the debtor, either natural person or business, will be offered the opportunity of restructuring debts, including the possibility of a debt haircut. The repayment of debts may be done in 240 installments , i.e. within 20 years. The settlement is decided by the majority of the financial institutions involved and in case the settlement proposal coming from a computing instrument is followed, its application by the State and the social security institutions is compulsory. The procedure may last up to two months. During that time the code provides for the suspension of the compulsory liquidation of security property of the debtor. Such a solution is offered on condition that the debt is sustainable.
- If the debt is not sustainable and cannot be regulated, then the debtor is relieved by declaring bankruptcy after the liquidation of all his property. Still bankruptcy is accompanied by the granting of a second opportunity, since the debtor will be allowed to return to economic activity one to three years after the declaration of bankruptcy.
- In an effort to face debts and in order to avoid bankruptcy, businesses may have recourse to restructuring. The latter’s framework has been updated, according to Directive 1023/2019. The consent of two categories of creditors is needed: (a) of those with sufficient collateral and (b) of the rest of them (50% of each category). However the court will validate the agreement reached through that method only if a total of 60% of all creditor categories consents. The rest of the creditors (minority) are bound by the agreement under certain conditions.
- If a preventive restructuring of the debt cannot be reached, then the code provides for the possibility of bankruptcy of both natural persons and legal entities. If that happens it puts into motion the process of collective satisfaction of the creditors accompanied by the discharge of the debtor from all his debts. In the case of legal entities the liquidation of the totality of their assets is decided and if it is not effected within eighteen months, then the individual assets are sold. Till the discharge happens natural persons must contribute with their income, if it exceeds their reasonable living expenses.
- The procedures of bankruptcy are systematized and simplified towards the goal of a speedy completion. For this purpose a series of innovations is introduced, such as the use of electronic means that ensure transparency and publicity, the immediate start of procedures, or the introduction of quantitative criteria to determine when payments are discontinued.
- Bankruptcy is accompanied by a debt write-off. Therefore the debtor’s heirs are not liable for the remaining debt of the bankrupt debtor. This process is completed quickly within a year if the debtor loses his property. If he remains without any property his discharge is completed in three years.
- There is no discharge available for the so called “strategic welchers”. Specific controls and cross-checks (e.g. for transfer of assets) in Greece or abroad are provided.
- The members of the boards of directors of legal entities which become bankrupt are exempted from bankruptcy.
- It is important to note that even after the bankruptcy or the discharge of the debtor, the co-debtors and guarantors are still liable towards the creditors, if their claim has not been totally covered.
- Besides businesses, natural persons , i.e. public servants, employees, pensioners, or self-employed persons, who do not meet their financial obligations, in other words do not pay their debts to the State, social security funds or banks for a period of at least five months, may also be declared bankrupt.
- The bankruptcy application can be filed not only by the debtor, but also by any creditor and the district attorney as well.
- The debtor who is declared bankrupt loses all assets belonging to the so-called insolvency assets. The latter includes all his assets as well as his income, if it exceeds the amount of “reasonable living expenses”. Certain assets or income of the debtor that cannot be attached are exempted from the insolvency assets.
- The code establishes protective provisions for borrowers that belong to socially vulnerable groups. The State exercises a benefit policy in a preventive manner through the subsidy of loan installments and in a repressive manner as well through the subsidy of rent.
- The legislator manifests special care as regards a person’s first home. If the creditors proceed to the liquidation of the first home, then the State intervenes, seeking to avoid evictions during the stage of liquidation, by providing essential support through the establishment of a private institution for the acquisition of the real property. This institution will have to acquire the property that represents the first home of a debtor belonging to a socially vulnerable group, and which otherwise would be publically auctioned after the declaration of bankruptcy or enforcement. The Institution has to let the vulnerable household use the home for 12 years, on condition they pay rent, supported by the state through a rent benefit and a right of repurchase at the end of the renting period at a price determined by a certified appraiser. In case the debtor does not pay three consecutive rents he will be evicted and lose the right of repurchase. In this manner an eviction that would take place if a third person acquired the house is avoided.
Cross-border bankruptcy proceedings are governed by Regulation (EU) 2015/848.