European Restructuring Monitor (ERM)
Eurofound's ERM database on restructuring-related legal regulations provides information on regulations in the Member States of the European Union and Norway which are explicitly or implicitly linked to anticipating and managing change.
-Law 4738/2020, Book One: 'Prevention of Insolvency', Articles: 1-64, Book Two: 'Bankruptcy', Articles: 75-211, Book Three: 'Enhancement of Effectiveness and Monitoring Clauses - Vulnerable Debtors', Articles: 212-226, as amended by Law 4818/2021, Part III: 'Provisions for the Debt Settlement and Facilitation of Second Chance - Amendments to Law 4738/2020 and other provisions', Articles: 34-56, and Law 5043/2023, Part VIII: 'Other Urgent Provisions', Article: 75 -Article 7, 107 et seq. BC, 108 BC, 109 BC, 115, 118, 120, and 120a BC, 124 BD, 128 BC of Law 4446/2016; Articles 14 and 15 of Law 4491/2017; Articles 107-131 of Law 3588/2007; Article 12 of Law 4013/2011
-Law 4738/2020 (as amended by Law 4818/2021) abolishes Law 3588/2007 (known as Bankruptcy Code) and integrates into the national legislation the EU Directive 2019/1023 on preventive restructuring frameworks, discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency, and discharge of debt (the EU Restructuring Directive). The new Law can be categorised in two sections:
Preventive (pre-insolvency) restructuring
This includes:
*early warning of debtors (both individuals and legal entities) via an electronic mechanism supervised by the Special Secretariat for Private Debt Management, as well as advisory practices provided by Borrower Service Centres and Professional Bodies (i.e.Chambers or Professional Associations). Debtors are classified in three levels of insolvency risk -low, moderate, high. The mechanism is activated upon a request of the interested party and not automatically on the initiative of a third party;
extrajudicial settlement of (natural persons and/or legal entities) monetary liabilities to the Greek State, the Financial Institutions (including servicers), and to the Social Security Institutions. The procedure is initiated, either at the request of the debtor through the Special Secretariat for Private Debt Management e-platform, or at the initiative of the creditors by notifying the debtor by a letter. For the restructuring agreement consent criteria, besides the debtor's consent, require the 60% of financial institutions and, at least, the 40% of secured creditors. Upon submitting the restructuring application and during negotiation procedures, financial institutions stay any Code of Conduct action, or any enforcement action (s).State and Social Security Institutions can restructure and write- off debts to them and, most importantly, debtors who have settled, or who have not delayed, for a period exceeding three months, their debts are eligible to a subsidy to repay their loans secured by their main residence, for five years from the date of application. For a debtor to receive the grant, the total amount of debt must be at least €20,000 and the balance of debt not to exceed €135,000 for a single-person household, increased by €20,000 for each additional member, and up to a maximum of €215,000 per debtor. Debtors with >90% to one financial institution are excluded while, debts towards third parties are not restructured under this process; pre-insolvency business recovery process concerning persons with a business activity and providing for debt restructuring, with or without business transfer. The process recognises two categories of creditors -those under a special privilege, and all others (unsecured creditors and creditors with general privileges) affected by the rehabilitation agreement, the conclusion of which, requires a 50% consent (even via electronic voting) of each category, with the possibility of bypassing these majorities under certain conditions.The principle of non-deterioration of the position of creditors is explicitly stated, as it, is the deemed consent under clear conditions of the State and the Social Security Institutions. In cases not covered by the provision on deemed consent, discharge of liability for employees (for public or private bodies), who consent to the rehabilitation agreement, is provided. The rehabilitation process, contrary to bankruptcy, does not constitute grounds for termination of the debtor’s outstanding contracts and as such, it should specify its consequences on employees' employment and earnings, and should not entail employees' claims in precautionary measures except, for a good reason and for a specified time.
Bankruptcy proceedings
Insolvency capacity, for the first time, is granted to all natural persons regardless of whether they have a commercial status, as well as to legal persons pursuing an economic purpose; the cessation of payments term is defined, as quantitative criteria are provided addressing the debtor categories based on the size of the bankruptcy estate and not on legal capacity – form. As such, large scale insolvencies follow the ordinary insolvency process ending, either in the liquidation of the debtor’s business or parts of it as a “going concern” or in “piecemeal liquidation” using the e-auction mechanism; *the Bankruptcy Officer is nominated in the application for the declaration of bankruptcy, and the Court is provided with the written statement of acceptance of such nomination;
-The bankruptcy code provides for two proceedings that are relevant to the restoration of a failed enterprise to financial health; the recovery procedure that precedes bankruptcy and the reorganisation plan, which is considered after the declaration of bankruptcy.
Pre-bankruptcy recovery procedure
A debtor either in cessation of payments or in a situation of imminent cessation of payments may file for the ratification of recovery agreement already reached with the qualified majority of creditors (60% of the total claims, 40% of which should be secured). In addition, any debtor that is not in cessation of payments or in a situation of imminent cessation of payments can be subject to the recovery procedure, provided that the court considers it probable that the debtor will become insolvent, and insolvency can be lifted through implementation of the recovery procedure.
The agreement may consists of a prepack sale of all or part of the business, a disposition of assets, a debt-equity swap, or a change of the term of existing obligations, such as a write-down of the debt, extension of the repayment date, alteration of the interest rate or replacement of the obligation to pay interest by the obligation to provide the creditor with a share of the profits; such changes to liabilities may also be accomplished through a refinancing of existing debt or through the issue of a bond loan that may also include a convertibility feature. From the submission of the recovery agreement to the Bankruptcy Court until its decision there is an automatic uphold for a four-month period on all individual and collective enforcement measures against the debtor. Such automatic moratorium is granted to the debtor only once. In case the court’s decision is not published within the four-month period, the court may grant a suspension on all individual and collective enforcement measures against the debtor or any other preventive measure.
Before the submission of the recovery agreement, a moratorium may also be granted - at the request of the debtor or the creditors - if a creditors’ declaration in writing of 20% of the total claims is submitted, provided that there is an imminent danger. Such uphold can be granted by the court only once and for a maximum period of four months. There are three main criteria for the ratification of an agreement reached by the debtor and the qualified majority of creditors as set out above. First, it must result in a viable business and lift the debtor out of cessation of payments (or prevent it from reaching this state). Second, it must not leave any non-consenting creditors in a less favourable position than they would be in bankruptcy liquidation. Third, each non-consenting creditor may not be treated less favourably than any other creditor of the same rank or priority.
The Bankruptcy Court will not examine the debtor’s viability if the following conditions are met:
A pre-bankruptcy recovery agreement will be judicially ratified if:
The reorganisation plan
Any debtor may propose a reorganisation plan either along with its bankruptcy petition or within three months of being declared bankrupt. The three-month period may be extended by the reporting judge only once and up to one additional month if it is proved that the extension is not detrimental to creditors’ interests and the plan will be accepted by the creditors. The proposed reorganisation plan must include:
The plan must mandatorily provide for secured creditors, general preferential creditors, unsecured creditors and subordinated creditors. Employee claims constitute a particular class. Claims of unsecured creditors that are of diminished value may be classified separately. Within a particular class, more than one group of creditors may be provided. The plan must provide equal treatment among creditors of the same class, or among creditors of the same group.
The plan shall be approved by a majority of creditors representing 60% of the debtor’s debt, at least 40% of which represent secured debt. With respect to a recovery agreement, pursuant to the provisions of the GBC (Greek Bankruptcy Code), a guarantor’s or co-debtor’s liability is limited to the value of the claim against the debtor, as such claim was reduced in accordance with the ratified agreement and provided that the relevant creditor consented to the reduction. There is a similar provision with respect to a reorganisation plan.
-Law 4738/2020 is described as reforming profoundly the insolvency legislation currently applicable in Greece. According to analysts the new Code simplifies existing procedures, digitizes through the establishment of the Electronic Insolvency Register, maintains viable enterprises through the extra-judicial debt settlement mechanism and the rehabilitation process, and provides for the most vulnerable debtors. It sets more favourable conditions for companies that have the potential to become viable and have the support of their creditors (banks and suppliers), while on the other hand it gives creditors the ability to more quickly "close" pending cases with companies that have no possibility of recovery. The Law does not provide for fundamental changes in terms of rehabilitation since this procedure is considered as a successful regulation widely implemented in practice; on the contrary the bankruptcy reform in bankruptcy is significant for becoming more attractive to both creditors and debtors. The Law's main provisions and innovations are: a consolidated approach that replaces a multitude of provisions and consolidates them into a single legal text; an early warning preventive mechanism (articles 1 to 4) is introduced for the first time; the "second chance" seeking to contribute to the debtor's ability to "close" quickly, definitively (and at the lowest possible cost) the issue of their over-indebtedness which will not be transferred to their heirs and so on; the extra-judicial debt settlement mechanism for individuals and legal entities through an electronic platform, with the possibility of debt restructuring and/or "haircut"; a business resolution process that becomes unified and modernized; the new introduction-regulation of the possibility of bankruptcy for natural persons-non-traders’ the quick discharge of responsibility of the members of the management of legal entities that go bankrupt; The negative comments about the bankruptcy code are attributed to: the violation of the principles of good governance, given the multitude of empowering provisions (in deviation from Article 3 §2 Law 4048/2012 "Regulatory Governance: Principles, Procedures and Means of Good Legislation"); the several questions on the incompleteness of the arrangements for the early warning mechanism, the lack of functional connection with the other tools and provisions of the legislation, the lack of establishing incentives for inclusion in its arrangements and/or sanctions for avoiding it, the real possibility of early activation, etc.; the question of exemption from debts due to the issuance of post-dated checks remains pending, in the context of “second chance” with the debts to the State; *the fact that, although the out-of-court mechanism is a tool meeting the conditions to become efficient, needs to find the necessary support from the creditors –mainly the banking institutions. The example of the pre-existing-corresponding extra-judicial mechanism, which did not yield the desired results due to digitized bureaucracy, public agencies’ audacity, and reluctance mostly from the part of the banks, is quite recent.
-The reorganisation plan process has hardly been tested in practice. The statute seems to permit the development of a debtor-in-possession insolvency proceeding, as the court, upon receiving a voluntary insolvency application and a plan that provides for the continuation of the debtor’s business, may decide to allow the debtor to maintain control of the business along with the bankruptcy administrator’s cooperation. Upon filing for declaration of bankruptcy and until the grant of the relative order, a moratorium against all enforcement actions (including the involuntary grant of security over assets) may be provided by the competent court as a preliminary measure. The declaration of bankruptcy puts into immediate effect a moratorium on all enforcement actions by unsecured creditors. Secured creditors cannot continue pursuing their claims against the secured assets that are closely connected to the debtor’s business or production unit or enterprise until the reorganisation plan is approved. Any enforcement procedures attempted during the suspension are null and void. The ratified reorganisation plan is binding towards all the parties involved (such cramdown includes the dissenting and non-participating creditors).
Eurofound (2016), Greece: Rescue procedures in insolvency, Restructuring legislation database, Dublin, https://apps.eurofound.europa.eu/legislationdb/rescue-procedures-in-insolvency/greece
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