The Restructuring Review: Greece
Overview of restructuring and insolvency activity
i Liquidity and state of the financial markets
The sudden impact of the covid-19 pandemic had a very negative impact on a rebounding economy in Greece just as it was starting to revive after a near decade-long crisis.2 The country's GDP fell 25 per cent during the economic crisis but was on a path to rise 2-3 per cent this year and investors were regaining interest under the current governing party 'New Democracy'. The economy grew by 1.9 per cent last year, helped by booming tourism (the country's biggest revenue engine that brings in as much as 18–20 per cent of GDP), which is also expected to take a big hit this year with estimates that revenues could fall 52–70 per cent. The International Monetary Fund, which took part in two rescue packages of €240 billion, also expects that the economy will contract 10 per cent this year and foresees approximately 22.3 per cent unemployment. It is, however, too early to predict the extent of the consequences and there is currently a certain degree of uncertainty. From a legal standpoint it is evident that the covid-19 pandemic will have direct and indirect consequences in both the society and economy. One point that is controversial is if and to what extent it may stand as a force majeure clause.
The growth prospects for 2021 will, to a large extent, remain conditional on the course of the global economy, and of the eurozone economy in particular, following the covid-19 pandemic.
Key reforms include improvement of fiscal figures, reforms to the Bankruptcy Code, the continuation of the banking sector's recovery through the reduction of non-performing loans (NPLs) and debt restructurings, the introduction of collective dismissals, the opening-up of closed professions and boosting of investment and privatisations.
Moreover, the banking sector continues to be closely watched, as the three recapitalisations and the ongoing liquidity support from the European Central Bank and the Bank of Greece have not been enough to strengthen their financial performance. Following the issuance of a legal framework3 on the establishment and operation of credit servicing firms by the executive committee of the Bank of Greece, Piraeus Bank has become very active on taking measures to handle NPLs as well as NPEs, such as implementing internal procedures or outsourcing such services to third parties.
This promising activity can also be attributed to the recent legislation4 that releases managers, directors and any other person entrusted with the management of a banking institution's estate from any liability arising therefrom within the scope of a restructuring, rehabilitation, special administration procedure or haircut of debts and claims. Finally, provision of financial support has also been relatively low, making it thus very hard, if not highly unlikely, for small and medium-sized enterprises (SMEs), which dominate the Greek economy, to gain access to financial help from the banks. An exception to this practice has recently been noticed within the scope of a restructuring procedure, in which case the banks rely upon a well drafted business plan and are more willing to proceed with a refinancing of the existing debts, especially in view of the preferential ranking of claims arising from such agreements.
ii Impact of specific regional or global events
As a result of the covid-19 pandemic many events around the world had to be cancelled or postponed. A number of events have been modified to remove a live audience or to be purely held via teleconference. While it is undoubtedly reasonable to protect public safety, all these cancellations, particularly of major conferences, are taking a huge financial toll.
Undoubtedly, Brexit (the United Kingdom's exit from the European Union) has created new conditions. While it is very hard to quantify the exact consequences, both political and financial, of this event, no one can claim that this will be an easy path for either side. A first estimate is that Brexit will have a great impact on immigration, as the United Kingdom will be able to restrict immigration from Europe, depending on the future relationship between them. It is likely that Britain will restrict the number of low skilled workers entering the country and will focus more on highly skilled workers. In any case, Britain will design specific and probably strict migration requirements that will affect Greece, as many highly skilled Greek workers have moved to UK. On the other hand, this could be a good outcome for Greece as those who might have left for the UK will contribute their know-how in Greece and thus help Greece increase its competitiveness.
Among other things, trade and manufacturing as well as financial services will be affected, since Britain will be considered a third country and thus tariffs will be imposed on imports and exports. Regarding financial services, Britain may also lose its 'passporting rights', which currently allow UK-based institutions to provide services to the European Union without having a branch in another Member State. The loss of such rights may lead UK-based banks to establish subsidiaries in the European Union in order to process business there regardless of the fact that such work may be done in London.5 This outcome could also be positive for Greece and its maritime economy, as many shipowners cooperate with British banks and could lead to an increased presence of British banks and bank services on Greek territory.
Apart from the economic recession, Greece has struggled under the weight of what in recent history is perhaps its largest refugee crisis. Greece has become a country of entry and transit for hundreds of thousands of refugees from the Middle East. It is estimated that approximately 66,110 refugees entered Greece in the year 2019. In February and March 2020, Greece faced huge immigration issues when Turkey unilaterally announced the opening of the country's borders to Greece in order to allow refugees and immigrants to reach the European Union. As the refugee flows were enormous and Greece was unable to secure decent living conditions and the integration of such a large amount of people, the Greek government announced the closing of the country's borders. The illegal entry of approximately 41,060 refugees and immigrants was thus prevented.
Consequently, Greece is also grappling with a huge number of asylum applications and an ineffective immigrant detention system, both of which entail high administrative costs and expenditures that Greece cannot afford. The refugee crisis has had a deleterious effect upon the political environment and has raised questions about how the refugees will be integrated into society, public schools and the public health system. Undoubtedly, this will be a substantial budgetary cost for Greece, which is difficult to address due to fiscal and budgetary adjustments.
iii Market trends in restructuring procedures and techniques
A large number of medium-sized companies proceed with informal and out-of-court restructuring following a mutually agreed business recovery scheme with the banks, under which the banks have become involved or take over the debtor's management and look for a potential investor. This is heavily applied to outward-looking companies that have increased export activity, such as those of the aquaculture industry, or those that have good potential to remain sustainable and regain their profitability because of their financial contribution to the Greek market, such as companies in the food industry (mainly supermarkets). Small companies usually apply for a formal restructuring procedure, which is typically a longer and costlier process.
Although the competent authorities do not regularly issue a report regarding insolvency statistics, the Hellenic Statistical Authority recently published some figures referring only to the bankruptcy procedure for 2019. According to these statistics,6 the bankruptcies declared in 2019 amount to 63, whereas in 2018 they amounted to 82. There was therefore a decrease of 23.2 per cent. Moreover, of these statistics, 21 declared bankruptcies concern sole proprietorships, 10 partnerships and 31 capital companies. The most bankruptcies in 2019 were recorded in the industry of retail and wholesale – repair of motor vehicles and motorcycles (38.1 per cent), the industry of manufacturing (23.8 per cent), the hotel and food services industry (15.9 per cent) and infrastructure industry (6.3 per cent).
General introduction to the restructuring and insolvency legal framework
Greek law provides a series of insolvency and pre-insolvency procedures to which a Greek seated company or an individual may be subjected on its own initiative or at the initiative of its creditors.
More specifically, the main insolvency processes are provided for and regulated by the provisions of the Law on Debt Settlement and Facilitation of a Second Chance (Law 4738/2020), which entered into force on 1 March 2021 as amended and in force (the Bankruptcy Code). This Greek Law transposes the provisions of Directive 2019/1023 of the European Parliament and of the Council on preventive restructuring frameworks, on discharge of debt and disqualifications and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive 2017/1132 on restructuring and insolvency. The new Bankruptcy Code replaces and abolishes Law 3588/2007 as well as the vast majority of the pre-existing debt settlement and restructuring mechanisms mentioned in Law 4307/2014 regarding special administration and No. 3869/2010 on indebted households. The main processes may be outlined as follows:
- bankruptcy proceedings – voluntary liquidation;
- bankruptcy proceedings – involuntary liquidation;
- liquidation procedure in detail;
- repeal of the provisions concerning special administration;
- restructuring procedure;
- extrajudicial debt settlement – pre-bankruptcy proceeding; and
- early warning mechanism – pre-bankruptcy proceeding.
Bankruptcy proceedings – voluntary liquidation
According to the Bankruptcy Code, both individuals irrespective of whether they are engaged in commercial activities or not and legal persons who pursue an economic purpose may be subject to bankruptcy proceedings. On the contrary, legal entities governed by public law, local government bodies and public-sector institutions are not eligible for bankruptcy.
Voluntary liquidation is commenced by the debtor and in case of a legal person through its board of directors or a relevant management body. The debtor must file a bankruptcy petition before the Multi-Member Court of First Instance7 within 30 days of a cessation of payments, in a general and permanent way. The Bankruptcy Code establishes some objective presumptions in order to define the conditions for the cessation of payments. This is the case when the debtor does not pay monetary obligations due to the state, social security institutions, credit or financial institutions amounting to at least 40 per cent of his or her total liabilities due for a period of at least six months, if the non-performing debt exceeds the amount of €30,000. The selective fulfilment of monetary obligations due does not lift the state of cessation of payments, which may consist of the failure to meet even one significant financial debt.
Moreover, the Bankruptcy Code provides that voluntary liquidation can be filed anytime in the case of a debtor's imminent inability to perform his or her liabilities.8 A general and permanent inability of the legal entity to satisfy monetary obligations as they become due and payable may be present or imminent; essentially, a foreseeable result of illiquidity. In any case, present or imminent inability or possibility of insolvency, as the case may be, must exist at the time of the filing of the bankruptcy petition. Regardless of the existence of any of the aforementioned criteria, bankruptcy will not be declared if the court, based on the financial data submitted, believes that the assets or the income of the debtor cannot cover the bankruptcy's expenses.9
Once the court declares a legal entity bankrupt, the entity is placed in receivership. The bankruptcy petition shall nominate the proposed insolvency administrator and be accompanied by the written statement of the latter that he or she accepts the appointment and that no impediments exist regarding his or her appointment. The nomination is not required if the bankruptcy petition includes a debtor's statement that he or she did not manage to appoint an insolvency administrator. After the declaration of the bankruptcy and according to Article 137 the court appoints a certified insolvency practitioner (syndic or bankruptcy trustee) to start the liquidation proceedings and manage the legal entity's assets and liabilities. Upon request of the debtor, the court may also appoint the legal entity's management body or the debtor himself in case of natural persons (debtor in possession) with or without restrictive conditions, who shall manage the assets and liabilities, along with the insolvency practitioner, following the relevant consent of the union of the creditors. Upon request of the insolvency practitioner, the court may remove the debtor from the administration of its property, if this is in the creditors' interest. In this case, the insolvency practitioner is solely competent for the management of the debtor's property.
The court, finally, designates the date that the present cessation of payments occurred, which is presumed to be the 30th calendar day preceding the submission of the bankruptcy petition and in case of imminent cessation of payments is the date of the submission of the relevant petition.10 However, if it is speculated on the basis of the information available that the debtor has been unable to serve his or her monetary obligations due in a general and permanent manner at an earlier date, the court will set this earlier date as the day of cessation of payments. The latter cannot be more than two years prior to the date of the declaration of the bankruptcy or in the event of the death of the debtor beyond the year before the death occurred.
The declaration of bankruptcy has the following significant results:
- the acknowledgment of the debtor's assets that exist at the time of bankruptcy declaration as 'non-exempt' property that is required for liquidation purposes. The latter includes all the assets belonging to the debtor, irrespective their location;
- any claims not due at that time become immediately payable. An exception is provided only for the claims of secured creditors, which become payable on the date of their expiry. Claims not due are reduced by the amount of legal interest corresponding to the time period from the declaration of the bankruptcy to the date they become due; and
- the suspension of all individual enforcement actions and proceedings, either future or existing, against the debtor and the legal representatives in case of legal persons.
Bankruptcy proceedings – involuntary liquidation
Involuntary liquidation is commenced either by any creditor with a relevant legitimate interest in case of present cessation of payments, or by the prosecutor for reasons of public interest (very rare in practice). The time and procedure of filing are the same as those of the voluntary liquidation.
Liquidation procedure in detail
Pursuant to the previous Bankruptcy Code (Articles 107–131) either the debtor or the creditors could file a reorganisation plan along with the bankruptcy petition under certain conditions. This regulation aimed to rescue, maintain and rehabilitate the debtor's business during the bankruptcy proceedings. However, the new Bankruptcy Code does not provide for such a procedure due to the lack of practical application of the latter. The Bankruptcy Code provides instead only for the immediately liquidation of the debtor's assets. This aims to achieve the rapid return of productive means to potentially productive uses.
More specifically, the insolvency practitioner proceeds to the inventory of the assets of the bankruptcy property. The debtor is invited within certain deadlines to be present during the inventory. The practitioner can appoint an assistant of his or her choice for the needs of the inventory. Moreover, the latter shall draw up an inventory report of the debtor's total assets, which shall be published without delay and inform the rapporteur about the status of the insolvency property.
Regarding the liabilities of the debtor, the latter is obliged to deliver to the practitioner a list of his or her creditors and the amount of their claims. The insolvency practitioner invites all the creditors to lodge their claims within three months of the publication of the declaration of the bankruptcy. The claims lodged have to be verified by the practitioner within three months from the expiration of the lodgement deadline. Creditors who have not lodged their claims within the above-mentioned deadline and thus are not able to participate in the claims' verification may file an appeal at their own expense within the deadlines required by the Code and request the verification of their claims from the Bankruptcy Court, which judges in accordance with the provisions of non-contentious proceedings.
After the completion of the inventory and verification procedures, the liquidation of debtor's assets takes place. Either the debtor's business in whole or in part in case of integrated operative units or individual assets are subject to liquidation.
The liquidation of the debtor's assets in whole or in part in case of integrated operative units requires an application or an additional intervention, which has to be submitted by 30 per cent of the creditors, including 20 per cent of secured creditors. This process applies only if the debtor is an entity and the case in question does not concern a bankruptcy of small entities.
The liquidation is conducted through a public e-auction without a minimum price and is administrated by a notary public. Within 10 working days from the end of the e-auction, the insolvency practitioner draws up a report, which names the bidder.
Within one month of the e-auction, the creditors' assembly will convene without delay at the invitation of the insolvency practitioner in order to either approve or reject the transaction. In case of approval, the sale contract is concluded between the insolvency practitioner and the bidder. In case of rejection and if no further resolution is concluded by the assembly, the liquidation of the debtor's individual assets takes place. If the liquidation has not been completed within 18 months of the declaration of the bankruptcy by the court, the practitioner shall proceed to the liquidation of the individual assets as well.
In this last case, the assets of the insolvency property are sold separately through an e-auction as well. The first bid price is determined by two certified valuators and corresponds to the average price of their assessments. If the first auction does not succeed, the Bankruptcy Code provides for the possibility of holding two e-auctions, each no later than 20 days after the previous e-auction. The first bid price is adjusted accordingly (firstly to ¾ of the first bid price and secondly to ½). In the event of a third fruitless auction, the insolvency practitioner will submit to the rapporteur a request for the reduction of the first bid price or the approval of conditions that will facilitate the sale of the individual assets.
If the sale of the assets is not achieved within 120 days of the issuance of the rapporteur's order, the e-auction is repeated without a first bid price.
Following the liquidation, the proceeds are distributed to the bankruptcy creditors in accordance with the provisions regulating the priority of their claims.
Repeal of the provisions concerning special administration
Special administration procedure was provided under Law 4307/2014. Article 265/1c of Law 4738/2020 stipulates that the submission of new petitions in accordance with Articles 68 et seq. of Law 4307/2014 ceases. These provisions still apply on pending proceedings at the date on which the Bankruptcy Code entered into force. Exceptionally, the assembly of special administration creditors convened at the invitation of the special administrator may decide to continue the procedure at its current stage by applying the provisions of the Code. In this case, the special administrator exercises the duties and responsibilities granted under the Code to the insolvency practitioner.
Conclusively, the special administration provisions are reformed and reflected with deviations in Articles 157 et seq. of the Bankruptcy Code. These articles provide that the insolvency practitioner proceeds to the liquidation of the debtor's assets. The proceeds of the liquidation are distributed to the bankruptcy creditors. The liquidation of the total assets or integrated operative units is concluded through a public e-auction as described in detail above. No first bid price needs to be set.
Restructuring procedure – pre-bankruptcy proceeding
The restructuring procedure11 is a collective pre-bankruptcy procedure that aims to maintain, rehabilitate, restart and 'rescue' an entity's going concern, while safeguarding creditors' best interests. The restructuring procedure applies to every person who carries out business activity or has his or her main interests in Greece. If the latter is presently or will imminently be unable to perform his or her monetary obligations due in a general way, or even if the probability of insolvency exists (estimated as such by the court), the creditors' compromise agreement (hereinafter referred to as 'pre-pack deal' or 'restructuring agreement') may be submitted for ratification before the competent court (the Multi-Member Court of First Instance in the district, where the debtor has his or her main interests). This agreement must be approved by the debtor and by at least 50 per cent of the creditors, including 50 per cent of secured creditors.
The restructuring agreement has to be accompanied by a business plan with a duration equal to the duration of the agreement.
The deal must be structured in a manner that would not impair the collective enforcement by all creditors. Namely, the rehabilitation must not leave not participating creditors in a worst position, in comparison with the position that they would have in terms of satisfaction of their claims, in a plain bankruptcy process.
The new Bankruptcy Code provides that, from the date of the pre-pack deal submission, until the issuance of the court's decision, all enforcement actions against the debtor are automatically suspended for a maximum period of four months. Such suspension can occur only once, while after the lapse of the four months, suspension is allowed only through a Court (interim measure) decision. The date of effect of the above-mentioned suspension is registered with the Electronic Solvency Register. Furthermore, the disposal of the property and equipment of the debtor's enterprise is prohibited, unless they are replaced by others of at least equal value or unless their disposal concerns their use as collateral in the framework of an interim financing, which is mentioned in the restructuring agreement.
The court decision that rejects the restructuring agreement is subject to appeal, before the competent Court of Appeal in accordance with the general provisions of the Code of Civil Procedure. An innovative provision of the new Bankruptcy Code states that both automatic suspension and any further provisional measures may take place only once even before submission of the creditors' compromise agreement for ratification upon request of the debtor or one of the creditors if: (1) the petitioner produces a written declaration signed by creditors, representing at least 20 per cent of the total claims; and (2) the conditions of an emergency or imminent danger of the parties are met. Such measures shall be in force until the submission for ratification of the pre-pack deal and in any case for four months from the court's respective order. It is noted that no extension of such measures can be ordered.
The new Bankruptcy Code provides that creditors may also submit a pre-pack deal, without the debtor's consent, if: (1) such deal is executed by 50 per cent of the creditors, including 50 per cent of secured creditors; and (2) the debtor is under present cessation of payments or (3) in case of capital companies, if the total equity of the debtor is lower than one-tenth of its share capital and has not been restored at least to such percentage within the fiscal year following the reference date of the balance sheet, ascertaining this case or 4) the debtor has not filed financial statements for at least two consecutive fiscal years or 5) in the case of limited liability companies whose equity is less than half of the share capital, if the administrators do not convene the assembly of the partners for the resolution regarding interim measures, any interested party may request the dissolution of the company from the court. In this case, the petition for the agreement's ratification shall be submitted by one of the contracting creditors.
If that the agreement has been approved by the debtor and the creditors in accordance with the provisions of the Bankruptcy Code, the Court ratifies the agreement when the following conditions are cumulatively fulfilled:
- It is probable that the restructuring agreement ensures the entity's sustainability in a reasonable manner.
- It is probable that that the principle of non-deterioration of the creditors' position is met.
- The restructuring agreement is not the result of fraudulent behaviour or does not violate the provisions of mandatory law and in particular of competition law.
- Creditors in the same position are treated in line with the principle of equal treatment. Deviations from this principle are allowed only for important business or social reasons, which have to be mentioned specifically in the court decision. Deviations are also allowed if the affected creditor consents.
- The debtor consents to the agreement concluded only by creditors.
Furthermore, the new Bankruptcy Code introduced a new role for the special mandator. The court can also appoint a special mandator upon request of the debtor or one of the creditors, who is responsible for certain actions especially for the safeguarding of the debtor's property, the execution of special managerial acts, the signing of executory contracts of the restructuring agreement and the supervision of the implementation of the agreement's individual terms.
Currently, in the case of a pre-pack deal, due to the present cessation of payments, the special mandator appointed by virtue of the ratification decision is entitled to substitute any shareholder or stakeholder in the respective meetings if such shareholder or stakeholder denies his or her participation or votes for the approval of actions required under the pre-pack deal either after its submission or as condition precedent.
The special mandator shall exercise the aforementioned rights granted that the shareholder's declared abstention or negative voting impairs the quorum and majority percentages.
The same right (along with its limitations) applies in all other cases of a pre-pack deal ratification, if abstention or negative voting by the shareholder or stakeholder is a result of abusive behaviour.
Extrajudicial debt settlement (pre-bankruptcy proceeding)
The Bankruptcy Code reforms and updates the out-of-court procedure, which was initially regulated by Law 4469/2017. Either the debtor (both natural and legal persons) or the creditors may file a petition for an extra-judicial debt settlement. The debtor is able to file the application provided that his total debts to the state, social security institutions and banks (default of payment for at least 90 days) or claims from an amount to €10,000 at least or that 90 per cent of his total liabilities are not owed to a one single financing institution. If this person or entity has applied for or has begun a pre- or post-bankruptcy procedure, a special administration or a liquidation, or they have been irrevocably convicted for tax evasion, money laundering, extortion, forgery, bribery, smuggling, fraud or fraud of creditors then they are not subject to the extrajudicial debt settlement. Moreover, the debtor who has performing debts has to invoke facts, which indicate the deterioration of his financial situation by at least 20%. Providers of investment services, undertakings for collective investment in transferable securities, alternative investment funds and their managers, credit and financial institutions and insurance or reinsurance undertakings are excluded from this extrajudicial mechanism. Debtors, who have applied to be subjected to Law 4469/2017 cannot apply for this procedure, unless they have waived their previous application with the former law on time.
The petition has to be submitted via the electronic platform of the Special Secretariat (Directory) of Private Debt Management. If that the settlement is initiated by the creditors, an invitation to file the petition within 45 calendar days is notified to the debtor. The petition must be accompanied by various documents, such as a creditors' list, a list of all assets and any encumbrances, any affiliated persons, financial statements and various certificates. The required documents differ depending on whether the petition is submitted by a natural person or a legal entity.
The extrajudicial settlement is a multilateral negotiation among the debtor, the creditors, the state and the social security institutions, which takes place via the above-mentioned platform managed by the Ministry of Digital Governance in cooperation with the Special Secretariat of Private Debt Management. During the negotiations, the parties concerned are bound by a duty of confidentiality and truth. An agreement among the parties should be concluded within two months of the submission of the petition. Otherwise, the petition will be rejected.
If the debtor does not abide by the agreed terms, each participating creditor concerned reserves the right to terminate the agreement. The termination of the agreement results in the reinstatement of the debtor's liabilities to the creditor concerned.
Upon submission of the petition and until the proceedings are terminated in any way, all enforcement actions, the continuation of the enforcement proceedings on claims, movable and immovable property against the debtor and the criminal prosecution for the offences of being in debt to the state and to third parties and to social security institutions are suspended.
After petition is submitted, the creditors may submit a restructuring proposal to the debtor. If the debtor and the majority of the creditors in terms of debt nominal value consent, an agreement is reached. This agreement can also be concluded with each creditor in the form of separate bilateral agreements with identical content. The Bankruptcy Code includes several restrictions on the terms of such agreements (e.g., the repayment of debts to the state and social security institutions in more than 240 instalments cannot be agreed).
A subsidy may be granted to vulnerable debtors under specific conditions, if the restructuring agreement includes a loan secured with the primary residence of the debtor.
Early warning mechanism – pre-bankruptcy proceeding
The new Bankruptcy Codes introduces an electronic early monitoring mechanism, which divides debtors into three levels of insolvency risk, is supervised by the Special Secretariat of the Private Debt Administration and is used to detect potential circumstances of insolvency in advance. This mechanism is activated upon request of the debtor concerned and the Supervisory Authority states opinions and proceeds with suggestions to deal with the insolvency risk as appropriate.
Compulsory administration under the Code of Civil Procedure
The Code of Civil Procedure provides that the court may impose a special administration upon the real estate property or even the business of the debtor, following a creditor's petition. Such an order is issued only if the creditor's claim is judicially verified and thus, the creditor has obtained a respective decision allowing him or her to enforce his or her claim against the debtor. The competent court is the Single-Member Court of First Instance of the region, where the debtor's property or registered seat of his business is located. The court's decision is subjected to appeal. The court appoints an administrator of the property or the business. The debtor can be appointed as administrator, if the court considers that this serves the exploitation of the property or the operation of the business. Creditors may be appointed as administrators as well.
The compulsory administration is terminated ipso jure if the debtor is declared insolvent. It should be mentioned that this procedure is not acknowledged as an insolvency or liquidation procedure, but as an alternative means granted to the creditor to satisfy his or her monetary claim. These provisions are not regulated in detail, and therefore initiation of such procedure is not widely recorded. It appears that special administration is more applicable to very small businesses or merchant individuals.
Nonetheless, in 2013 a large construction company was the first-ever debtor to be placed under compulsory administration, following the respective petition of a minority creditor.12 As the court explained in its headnotes, courts may not impose a compulsory administration upon a real estate property or business of the debtor if there are compelling reasons for not doing so. Compelling reasons are those that render the administration unprofitable, where the business's operation and success is closely related to the personal reputation and contribution of its managers or partners, or where the business's operation falls within the provisions regarding the protection of trade secrets.
ii Insurance companies
On 5 February 2016, the Greek legislator abolished all provisions13 that applied to insurance companies, by virtue of Law 4364/201614 (the Law). The Law is in compliance with Directive 2009/138/EC, regarding the undertaking and operation of insurance and reinsurance companies.
According to the Law, such companies are required, as an integrated part of their business strategy, to maintain tools to proceed with a regular practice of assessing their overall solvency needs. The results of each assessment should be reported to the supervisory authority, which is the Bank of Greece.
The new provisions aim to create a trustworthy environment and minimise unexpected liquidations of insurance companies that have severe financial and social results. In this respect, Article 235 of the Law provides that insurance companies are not subject to the rules of bankruptcy or pre-bankruptcy proceedings. As such, the Bank of Greece is the only competent authority to decide on the revocation of its licence as well as on the restructuring measures for an insurance company, including the rise of capital, mandatory transfer of portfolio, suspension of payments to third parties etc., as well as on the winding-up proceedings following the suspension of their licence.
In the case of winding-up, the priority of claims is as follows: (1) employees' claims arising from employment contracts and employment relationships; (2) claims of the state arising from due taxes; (3) pension fund claims; and (4) claims on assets subject to rights in rem.
iii Credit institutions
According to the new rules on credit institutions, Article 145 Paragraph 1(a) of Law 4261/2014 provides that, subject to the specific provisions of Law 3458/2006 on Restructuring and Liquidation of Credit Institutions, such undertakings are not subject to the rules of bankruptcy or pre-bankruptcy proceedings.
To this extent, Law 3458/2006 provides for a special liquidation procedure that may be voluntary or involuntary. In any case, if the Bank of Greece suspends the licence of a credit institution, then such undertaking is immediately placed under involuntary liquidation.
iv Investment services companies
There are a number of laws applying to investment companies, depending on their nature and the investment services provided. Thus, Law 4514/201815 applies to investment services firms and investment intermediation firms, Law 3371/2005 applies to portfolio investment companies, Law 2367/1995 applies to closed-ended investment companies, Law 2778/1999 applies to real-estate investment companies and real-estate mutual funds, Law 2992/2002 applies to venture capital funds, Law 2367/1995 applies to venture capital companies, Law 4099/2012 applies to undertakings for collective investment in transferable securities (UCITS) and their managers and Law 4209/2013 applies to alternative investment funds and their managers.
In general, investment companies can be declared bankrupt, subject to explicit provisions of the law that require a specific liquidation procedure supervised by the competent authority.
In this respect, Article 90 of Law 4514/2018 provides that a bankruptcy proceeding may be suspended if the Hellenic Capital Markets Committee revokes the licence of the company concerned (for reasons provided in Article 8 of Law 4514/2018), when a special liquidation procedure is commenced.
It should be noted that Article 2 Paragraph 3 of Law 3458/2006 on Restructuring and Liquidation of Credit Institutions, as amended by Law 4335/2015,16 also applies to investment companies that are established as parent companies in Greece and that have subsidiaries in another Member State. It remains to be clarified whether this new amendment, which provides for a restructuring procedure rather than bankruptcy and liquidation, will be applied to investment companies established as parent companies in Greece that do not have any subsidiaries in the EU area.
As mentioned above, the new Bankruptcy Code stipulates that non-merchant individuals are eligible for bankruptcy as well.
In accordance with the previous legislation, non-merchant individuals were protected under Law 3869/2010. Nevertheless, pursuant to Article 265/1b of the new Bankruptcy Code, from the entry into force of the latter, the possibility of submitting new petitions in accordance with the provisions of Law 3869/2010 ceases. However, proceedings pending at the time of entry into force shall proceed in accordance with the provisions of Law 3869/2010.
The new Bankruptcy Code introduces a mechanism for protecting the primary residence of vulnerable distressed debtors. The concept of vulnerable debtor is determined on the basis of objective criteria, whereas the above-mentioned mechanism provides for the sale and lease back of the primary residence.
Specifically, in cases where a vulnerable debtor is declared insolvent, the latter may submit a request for the transfer or lease of his or her primary residence to an entity that acquires and re-leases such residences. This entity acquires the ownership right over the vulnerable debtor's property at market value pursuant to the assessment of a certified valuator. The ownership is free of any encumbrances or claims of third parties. This property shall be leased back to the debtor for 12 years. In the event that the debtor fulfils his or her rental obligations, he or she is able to exercise the right of repurchase and acquire the property at a price determined in accordance with the provisions of the Law.
vi Informal methods to restructure companies in financial difficulties
Informal methods applied to restructure companies in Greece usually include the following:
- An amendment of debt repayment schedule, which is the plainest type of financial restructuring, aimed at making existing debt repayments consistent with the debtor business's projected cash flows. Such amendment may also be accompanied by an enhancement of lenders' security and may also include some additional financing to cover urgent needs of the debtor.
- Standstill agreements, under which, debt repayments to banks and bondholders are suspended over a specified period for the purpose of negotiating and reaching a compromise agreement on the financial and operational restructuring of the debtor. Usually, standstill agreements provide the enhancement of participating lenders' security and may also include some additional financing to cover urgent needs of the debtor, as well as some changes in the debtor's management.
- Restructuring agreements regarding the financial restructuring of the debtor, combined with operational restructuring of the debtor, on the basis of a business plan and a management team approved by the participating lenders. Such agreements include various components, such as (partial) debt-to-equity conversion, the refinancing of the debt that is agreed as sustainable (by the debtor's business and on the basis of the approved business plan), the taking of a new enhanced participating lenders' security package and new working capital financing, for supporting or restarting the debtor's operation and growth. According to the debtor's financial position and type of business, restructuring may include negotiations with the employees and suppliers and agreement on certain payment arrangements in respect of outstanding amounts, to enable the debtor's stable operation.
- The above transactions would ideally take place with the participation of existing major shareholders, in the form of new equity contributions (a component that has been quite limited in Greece up until now) or of an investor capable of enhancing further debtor's management efficiency, capital structure, and credibility in the Greek and international market.
vii Other laws relevant to insolvency and restructuring
The taking and enforcement of security
The new amendments to the Bankruptcy Code categorise Greece as an even more 'creditor-friendly' jurisdiction than before. The right of creditors to submit a pre-pack deal for ratification, without the debtor's consent, in the case of present cessation of payments, the limitation of the available deadlines as well as the right of the special mandator to substitute shareholders or stakeholders that deny their presence or vote for decisions that are required under the pre-pack deal are major provisions that enhance the efficiency of the restructuring process and disregard any act that could jeopardise the operation of the entity in a way that promotes both creditors' and society's interests.
Moreover, financial assistance to companies is provided mainly by the banks, which enjoy multiple types of security measures and privileged enforcement in case of insolvency. A bank providing a loan will take a mortgage on the company's immovable property or a fixed or floating charge on its movable property, particularly on its inventory and equipment. A very important amendment concerns the priority of those claims that arise from financing of the entity in connection to a restructuring or reorganisation plan. Such claims are now the top priority and must be satisfied in full. Thus, banks that in most cases provide such financing are fully protected and satisfied, under the new Bankruptcy Code.
In fact, following the announcement of the creditors' claims, within three months17 of the publication of the court's decision and their verification by the judge rapporteur and the insolvency practitioner, the latter commences with the realisation of the company's assets (unsecured and secured). The distribution of the proceeds to the creditors takes place in accordance with the general provisions of the Code of Civil Procedure, unless otherwise provided for by the new Bankruptcy Code. First in priority are creditors with general preferred privileges.18 The holder of the security in a specific asset of the company, whether immovable or movable, has a specific privilege (second class) and may be satisfied after the general preferred privileges. The third (last) class of priority includes unsecured creditors, who are satisfied after general and specific privileges. Nonetheless, before payments to any of the aforementioned classes, bankruptcy expenses, expenses concerning the management of 'non-exempt' property19 and claims of collective creditors20 must be paid in full. Moreover, if the three priority classes coincide, the proceeds are separated as follows: after the general preferred creditors who have granted financing, goods or services in connection to the restructuring agreement receive full payment, then the rest of the general creditors receive 25 per cent of the proceeds, special preferred creditors receive 65 per cent and unsecured creditors receive 10 per cent.
Duties of directors of companies in financial difficulties
In Greece, the law sets out two different categories of the directors' duties: the first category concerns the payment of the entity's tax liabilities and social security contributions, while the second category concerns the initiation of the bankruptcy proceedings.
With regard to the first category, in case the entity fails to withhold, collect or pay income tax, VAT, unified property tax (ENFIA) or its respective share of social security contributions and any surcharges the directors, administrators, executive managers as well as syndic or bankruptcy trustees (now insolvency practitioners) of a legal entity, are rendered jointly and severally liable for payment of such taxes and contributions under the following cumulative conditions:
- the above individuals must bear the above capacities either during the operation of the legal entity, or at the time of dissolution, merger or at the time of winding up of the entity;
- the monetary obligations of the company became due during their term of office under the above-mentioned capacities; and
- the monetary obligations have not been paid to the state owing to the liability of the above persons.21
This joint and several liability arises at the date of liquidation or merger or acquisition of the liable company.
The second category of duties refers to the prompt and timely initiation of the bankruptcy proceedings by the company's directors. The Bankruptcy Code envisages the joint liability of directors22 as well as of those who exercised undue influence on them, if they fail to promptly file a bankruptcy petition, within 30 days from the date that there is present inability of the company to pay its liabilities as they become due. Such liability entails the restitution of creditors for damages arising from the reduction of the insolvency proceeds.
Similarly, joint liability is attached to the company's directors if the cessation of payments is a result of a fraudulent or grossly negligent act.23
The importance of the bankruptcy rules, in terms of social and financial consequences, is also evident the establishment of criminal liability against the company's directors24 if they defraud creditors, conceal or fraudulently transfer assets of the company, dispose of inventory at very low prices, make false declarations or generally diminish the value of the company's assets.
Fraudulent exploitation of the debtor's assets is also avoided through the annulment of specific transactions that took place in the statutorily determined suspect period. The suspect period includes transactions carried out within the time period from the cessation of payments until the declaration of bankruptcy.
The Bankruptcy Code distinguishes between transactions that must be annulled and transactions that could be annulled.
The insolvency practitioner must proceed with the mandatory annulment of transactions25 made by the debtor within the period of filing the bankruptcy petition and the declaration of bankruptcy (suspect period) and specifically:
- donations and gratuitous deeds or deeds that resulted in undervalued consideration for the entity;
- payment of debts that were not due and payable;
- payment of due debts with means other than cash or the agreed consideration; and
- imposition of security measures on the entity's assets for pre-existing debts, when the entity had not undertaken such obligation or for new debts arising from a novation agreement.
On the contrary, the insolvency practitioner may proceed26 with the annulment of transactions, whereby the other party acted in bad faith, knew or could have known of the company's cessation of payments and that such transaction was detrimental to the creditors' interests.
Similarly, if the company entered into transactions with the intent to defraud creditors or benefit other creditors within five years prior to the declaration of bankruptcy, these transactions may be annulled, provided that the other party knew of the company's intent.27
Transactions that took place during the execution of an extrajudicial settlement agreement or a restructuring agreement are explicitly exempted from such revocation.28 It should be noted that there are some transactions that are exempted from bankruptcy revocation, even if entered into within the suspect period, specifically:
- regular business activities and arm's-length transactions;
- the provision of services or goods by the company for which counter-consideration was an immediate and equivalent payment in cash;
- debtor's transactions explicitly excluded by law from the application of the provisions on revocation, invalidity or cancellation of transactions, which took place in the last two years prior to the declaration of the bankruptcy;
- transactions that were reasonable and urgently required for the negotiation of a restructuring agreement;
- the granting of mortgage in favour of a company – especially a bank – according to Law 17.07/13.08.1923;
- the granting of pledge in favour of banks, regarding pre-existing claims from loans or open accounts, according to Legislative Decree 4001/1959;
- the creation of a mortgage or pledge to secure the issuance of bond loans or transfer of claims, according to Law 4548/2018; and
- the granting of security by special purpose vehicles (SPV) or other third parties in favour of banks, or other third parties to secure claims against the SPV, acting within the scope of a public-private partnership (PPP) agreement, according to Law 3389/2005.
Recent legal developments
The new Bankruptcy Code regulates all the issues of bankruptcy. Greece has incorporated the provisions of the Directive 1023/2019 in the national legal framework as well. All individual debt settlement tools that existed under the previous legislative regime for the settlement of private debt are integrated in the new Code for the Debt Settlement and Provision of a Second Chance. The new Code fundamentally reforms the framework for dealing with financial weakness, collective satisfaction of the creditors' claims and discharge of debt of any person.
The continuous changes to the Bankruptcy Code prove that national legislators are vigilant about the current needs of the market, the necessity to interfere efficiently in the operation of distressed businesses and the improvement of the corporate rescue framework. Both the recent and upcoming amendments demonstrate a greater coherence and an increased efficiency in these rules that offer more opportunities and reduce costs and time loss.
i Regulation of the insolvency practitioner profession
The Bankruptcy Code provides moreover for the role of the insolvency practitioner. The insolvency practitioner is responsible for undertaking the duties of the syndic or bankruptcy trustee as these duties are set out in the Bankruptcy Code. The profession of the insolvency practitioner is regulated by virtue of Presidential Decree 133/2016, according to which a natural person can be appointed as an insolvency practitioner, granted that he or she has succeeded in the relevant national exams and has obtained the required licence. Pursuant to Article 265 Paragraph 1f of the Bankruptcy Code, the obligation to conduct examinations for the acquisition of the insolvency practitioner's licence is lifted for 2020.
The Greek Bankruptcy Code stipulates that law, auditing and consulting firms may be appointed as insolvency practitioners as well, provided that these firms employ at least one certified person with any employment relationship.
In order to participate in these exams, the natural person must have exercised the legal or audit or accountant of class A profession for at least five years. The insolvency practitioner shall exercise his duties with integrity, independence, honesty and professionalism and shall be liable for any wrongdoing. In exercising the duties assigned to him or her, the insolvency practitioner is liable to bankruptcy creditors and the debtor for any fault, unless otherwise provided in law. The latter shall demonstrate the diligence of a prudent insolvency practitioner. He or she is personally liable to third parties who have been harmed by his or her actions only for intentional fault. Liability under the provisions of the tort law is not excluded. Any claim against the insolvency practitioner is prescribed three years after the injured party became aware of the damage and the event giving rise to the damage occurred. In any case, claims against the insolvency practitioner are time-barred three years after the termination of his or her duties.
Moreover, the insolvency practitioner is supervised by the Insolvency Administration Committee, which is also responsible to keep a register of accredited insolvency practitioners, while the Disciplinary Board shall be responsible for monitoring the insolvency practitioner's appropriate conduct and to impose the statutory disciplinary measures, in case of misconduct.
ii Procedural changes in restructuring
The new Bankruptcy Code has simplified the restructuring procedure and introduced shorter and more internal proceedings, as explained above (see Section II.i).
iii General changes in insolvency procedure
Provisions regarding the debtor's duties
The new Bankruptcy Code provides for two basic amendments regarding the debtor's duties: (1) the first concerns the duty of the debtor to submit along with the bankruptcy petition his financial data and a certificate witnessing the amounts of his debts, issued by the state. These additional documents shall help the court to have a more accurate picture of the debtor's financial situation; and (2) the second concerns the appointment of the debtor as a manager of the entity's assets (along with the insolvency practitioner), regardless of whether he filed for a bankruptcy petition. In fact, the only criterion is whether such appointment in favour of the creditors' interests.
Changes in the bankruptcy bodies
The infrequent use of the creditors' committee, which was entrusted to monitor the bankruptcy proceedings and assist the insolvency practitioner's duties resulted in its abolition. Thus, the creditors' committee is no longer one of the bankruptcy's bodies. Articles 85-88 of the previous Bankruptcy Code, which provided for the existence of such committee, have been abolished by Law 4491/2007.
Moreover, the duties of the judge rapporteur have been upgraded. As of today, the judge rapporteur is responsible for deciding upon conflicts between the creditors, supervising the work of the insolvency practitioner, granting his or her consent for specific actions, such as sale of real estate property, supervising the proceedings during the auction of the business as well as convening the creditors' assembly, following a request by the insolvency practitioner or any creditor. The latter defines the issues to be decided on. In this case the rapporteur has to convene the assembly without delay.
Extension of liability
The new Bankruptcy Code provides for extended liability for both the insolvency practitioner and the board of directors or other management body of the entity. On one hand, the insolvency practitioner is liable29 for any default in the performance of his duties, while liability towards third parties may be attached only in case of intentional fraud. Liability under tort law is not excluded.
On the other hand, the board of directors or other management body of the debtor are liable jointly and severally if they fail to promptly file a bankruptcy petition within 30 days of the date that the entity is unable to pay its liabilities as they become due. 30 Such liability entails the restitution of creditors for damages arising from the reduction of the insolvency proceeds. If the delay in submitting the bankruptcy petition is due to an attempt to avoid insolvency through negotiations to reach a restructuring agreement or an agreement in the frame of the extrajudicial debt settlement mechanism, such liability does not exist.
Similarly, joint liability is attached to the entity's directors or management if the cessation of payments is a result of a fraudulent or grossly negligent act.
Shortening of deadlines
In general, the deadlines31 of the insolvency procedure are shortened as follows: (1) the deadline for filing an appeal against the orders of the judge rapporteur is now 10 days from the issuance of such orders (2) the deadline for the convention of the creditors' assembly by the judge rapporteur is now five days prior to such meeting and the summary of the rapporteur's order for convening the assembly must be published in the Bulletin of Judicial Publications of the Jurists' Pension Fund
Priority of claims
Priority of claims is regulated in Articles 96 and 167 of the Bankruptcy Code as well as in Articles 975-978 of the Code of Civil Procedure mutatis mutandis. Following the enactment of the law, there are entirely new claims that will be secured with assets which do not bear any encumbrances up to that date (of the enactment) then employment claims existing prior to the date of the first auction and concerning due salaries up to six months shall have super-priority for an amount up to the minimum wage provided for an employee above 25 years old multiplied by 275 per cent. This super-priority is calculated per employee and per month for the aforementioned six-month period, following the payment of legal costs, costs for the management of the bankruptcy property and other claims arising from the bankruptcy's works.
After the satisfaction of this super-priority, the priority of claims is as follows: (1) financial facilities provided throughout the restructuring period, (2) special preferred claims, (3) general preferred claims and (4) unsecured creditors.
Creditors' bankruptcy liquidation claims are classified into the following categories:
- Costs pre-deducted from the liquidation proceeds before the satisfaction of any other class of creditors, including:
- judicial fees relating to the administration of the bankruptcy property; and
- claims of the group creditors (arising in the course of bankruptcy and as a result thereof). Claims that are equipped with a special privilege or lien over the proceeds in respect of certain movable or immovable property or over money including claims:
- for expenses with a view to maintaining the particular asset;
- secured with an in rem security (pledge); and
- for expenses incurred for the production and harvesting of crops.
- Claims that are equipped with a general privilege or lien, including claims:
- for new money injected or goods or services provided to ensure the continuation of the company's activities and payments under a restructuring agreement;
- from dependent employees and lawyers;
- from the state for value added tax and withholding taxes imposed with surcharges of any nature;
- from social security organisations; and
- from the state and local government bodies for all causes.
- Unsecured claims and claims of secured creditors whose security does not suffice for the full satisfaction of their claims.
According to Article 167 of the Bankruptcy Code, the claims of category (a) above shall be satisfied first and in full.
If more classes of creditors concur, after payment of pre-deducted claims (and if new money claims concur with unsecured claims following full repayment of the first category), creditors are satisfied as follows:
|Concurrent creditors||Percentages of liquidation proceeds for the satisfaction of claims|
According to this new ranking system, the above classes of creditors are satisfied in the following order:
- pre-deducted costs and claims;
- claims of employees for salaries of up to 6 months up to a certain amount, which may be calculated on the basis of the law;
- claims for new money;
- secured claims;
- generally privileged claims and remaining secured claims; and
- unsecured claims.
Ranking cannot be amended.
The Bankruptcy Code provisions on creditors' rankings are considered mandatory (ius cogens) and may not be amended through relevant contractual arrangements. Certain provisions of law refer to 'creditors ranking last' (subordinated creditors) (ie, even after unsecured creditors). However, contractual arrangements altering the core provisions on ranking may not be followed in case of bankruptcy to the extent that they contravene mandatory code provisions.
Liquidation of small entities
The new Bankruptcy Code provides for important amendments to the liquidation of small companies. The law identifies small entities as those that meet at least two of the following criteria: (1) have total assets amounting up to €350,000; (2) have a turnover amounting up to €700,000; and (3) employ up to 10 people on average. In case of individuals the asset criterion applies to the property of each individual ('small-scale bankruptcies').
The application for the declaration of small scale bankruptcies is submitted electronically to the Electronic Solvency Register. Thirty days after the publication of the application in the Registry and unless an intervention against the application is submitted, the application is accepted by the Bankruptcy Court. The rapporteur and liquidator are appointed as well. Announcement of the creditors' claims must take place within three months of publication of the court's decision.
Sales of assets that are subject to deterioration, or undervaluation, or if their preservation is costly can proceed by the insolvency practitioner without the consent of the judge rapporteur. The sale of the debtor's assets takes place in accordance with the provisions for the sale of the debtor's individual assets.
If the first auction and its two repetitions within 20 days are fruitless, then the judge rapporteur may order the sale of the immovable property without an auction, following such request by the insolvency practitioner. The order of the rapporteur must be issued within 30 days of the submission of the relevant request by the insolvency practitioner and is not subjected to appeal.
If the bankruptcy has not been completed within one year of the declaration, the insolvency practitioner has to submit a report to the rapporteur explaining the reasons for the delay of the procedure. If the delay is deemed unjustified by the rapporteur, the latter replaces the insolvency practitioner.
Discharge of debts
In case that the debtor is a natural person, he is completely discharged from his debts to the bankruptcy creditors, regardless of whether they have been announced or not, 36 months from the date of the declaration of the bankruptcy. If the bankruptcy estate includes the debtor's primary residence or other fixed assets whose value exceeds 10 per cent of his or her total liabilities, then the discharge comes into effect one year after the declaration of the bankruptcy. According to this mechanism the debts do not pass to the debtor's heirs.
Anyone who has a legal interest can appeal against such discharge before the Bankruptcy Court. Admissible grounds of appeal are the following: fraudulent actions on the part of the debtor, the debtor did not act in good faith and did not cooperate with the organs of the bankruptcy either at the time of the bankruptcy's declaration or during the relevant proceedings, the debtor concealed income or assets during the insolvency proceedings, the debtor has been prosecuted or convicted for specific crimes. The Bankruptcy Court decides on the discharge after reviewing the report of the rapporteur and hearing the insolvency practitioner.
The debtor is not discharged from debts incurred after the filing of the bankruptcy petition and debts, which are result of deceit or gross negligence and caused death or body injuries to a person and maintenance debts.
Such discharge provides for individuals, who were jointly and severally liable for claims pertaining to the insolvency due to their capacity as representatives or administrators of a legal person or entity as well.
The debtor's discharge does not terminate the insolvency proceedings and especially the liquidation of the debtor's assets and the distribution of the proceeds.
iv Regulation of NPLs and HAPS asset-protection scheme
As a result of the covid-19 pandemic, the economy has come to a sudden halt. Persistently high NPL ratios were a concern in several European countries after the 2008–2012 crisis, and the covid-19 pandemic may cause a re-emergence of the NPL problem. Significant achievements in the legal, judicial and the overall NPL management framework have been introduced in Greece, within the last two and a half years, which could be highlighted in the following areas: an out-of-court-workout framework has been enacted, amendments in the Greek Bankruptcy Code satisfactorily address the previously identified impediments, changes in the Code of Civil Procedure appear to have set the basis for much improved efficiency in the enforcement of security rights (including electronic auctions), the issue on the liability of banks' restructuring personnel has been addressed, the profession of the insolvency administrator has been regulated, the issue regarding tax losses arising from sales of receivables has been resolved, and last but not least the newly proposed asset-protection scheme that the EU has approved (Hercules Asset Protection Scheme-HAPS). The latter intends to help banks offload up to €30 billion in NPLs. The Greek government launched such a securitisation scheme in order to deal with the country's NPL issue. The Hellenic state will guarantee the senior tranches of the securitisation deals as long as more than half of the non-guaranteed mezzanine and junior tranches have been sold to private investors. HAPS was originally envisaged to provide 9 billion but has been upped to 12. As a securitisation scheme is based on the successful Italian GACS (Garanzia sulla Cartolarizzazione delle Sofferenze) model and its main aim is to enable banks to transfer their NPL exposures to a special purpose vehicle, which will subsequently securitise them. Piraeus Bank has finalised an agreement with Intrum to create a new Athens-based distress fund to manage NPL portfolios and manage real estate. Eurobank acted similarly with €7.4 billion of loans via its Project Cairo securitisation to doValue, a Fortress subsidiary while Alpha Bank closed a deal to transfer €12 billion gross book value of loans under its Project Galaxy scheme.
Therefore, investors' interest in any type of Greek NPE loan-books is impressive, and demonstrates the willingness of international large pots of capital to tap into a highly underpenetrated NPE market with significant potential, such as the Greek one. It is evident that resolution of the NPEs is the last sizeable and challenging obstacle the Greek banking system will have to overcome. A few NPE transactions happened in 2018 and 2019, and the effort to further intensify in 2020 is more than evident. The data from the Bank of Greece show that the exposure of Greek banks to NPLs amounts to €81.8 billion, while efforts are being made to reduce them up to €38.6 billion (a drop of 47 per cent) by the end of 2019. Of those NPLs, a portfolio amounting to €16.4 billion is expected to be disposed or fall under the special administration procedure.32 In fact, the pressure for liquidity led to replacements of the banks' boards of directors, in order to ensure that a highly qualified management can face the current challenges of the banking sector. The law on NPLs was recently modified in view of making the respective legal framework more attractive and easier for the management and acquisition of Greek NPLs. 33
NPLs will be managed either by special NPL asset-management companies limited by shares (with special and limited scope of business) that operate in Greece or in the European Economic Area or purchased and transferred to companies limited by shares that operate in Greece or in the European Economic Area or in countries outside the EU34 and part of their business scope is to purchase and acquire claims from loans or credit agreements.
The regulation of NPLs sets out the requirements for the establishment and operation of the eligible companies. For a special NPLs asset management company to acquire permission to manage NPLs (and any collateral immovable property), it must file with the Bank of Greece, among others, its article of association, the identity of any and all natural or legal persons that have directly or indirectly a special participation in the company, the identity of any and all natural or legal persons that exercise control in the company, a business plan including the company's projected actions, strategy and available resources, a detailed report of the methods and procedures to be adopted for such management and questionnaires that assess its ability and suitability to deal with the restructuring of NPLs. The Bank of Greece shall grant the required licence within two months of the submission of the respective petition. Furthermore, a management company must have a minimum share capital of €100,000, and if it wishes to finance new loans or credit agreements, a share capital of €4.5 million.
The acquisition of NPLs, on the other hand, does not require a specific licence but the acquiring company must have signed a management agreement with a special NPL asset-management company. The sale and transfer of such loans shall be effective only upon delivery of a written extrajudicial invitation to the debtor (and guarantor) to settle his or her debt within 12 months prior to such sale and transfer, according to a debt settlement agreement in writing. The acquisition is effective against third parties following registration of the agreement in the books of the Registry of Pledges and notification of the assignment to the debtors and any guarantors.
It should be noted that the sale and transfer of NPLs shall have an income taxation on the goodwill, borne by the acquiring company, while both management and acquisition agreements shall be subject to a VAT taxation of 24 per cent. Stamp duties are explicitly excluded for the agreements executed by the Special NPLs Asset Management Company.
Finally, Law 4472/2017 introduces a major provision according to which those persons who are responsible for supervising and or managing: (1) public property (including all kinds of state property or property of state-owned entities); or (2) property of a credit or financial institution are immune from any criminal or civil liability arising from their actions or failure in connection to the restructuring or discharge of loans, claims or charges, within the scope of the Bankruptcy Code or the law on the extrajudicial debt settlement procedure or the law on financially distressed individuals and households or the law on special liquidation of credit institutions or the law on NPLs, and in accordance with the provisions of their internal regulations and guidelines, rules and procedures and applicable laws. These actions or failures to act must also aim to settle or restructure debts or assist the operation of the business and should not deteriorate the financial situation of the entity in comparison to that which would result from a liquidation procedure.
v Restructuring of municipalities and communities
According to Article 76/2 of the Greek Bankruptcy Code legal persons governed by public law like municipalities and communities are not eligible to bankruptcy. In this case special provisions are applicable. Law 4555/2018 and 4111/2013 regulate this matter.
The Financial Independency Observatory of Municipalities and Communities (the Observatory) is entitled to report to the Ministry of Internal Affairs as well as the municipalities and communities (M&Cs), the latter's deviation of more than 10 per cent from the quarterly budgetary targets and provide it with guidelines and methods to overcome such deviation. If the Observatory concludes that an M&C is incapable of drafting a preliminary balanced budget, fraudulently records false or overestimated financial data or does not record the compulsory expenditures, it is also entitled to request further evaluation of the financial data and the drafting of a report describing the financial situation of the M&C. In a second step the Observatory is supposed to cooperate with the Ministry of Internal Affairs in concerning the matter of balancing the budget. For the financing of the M&Cs a programme agreement is concluded between the Ministry of Internal Affairs and the M&C concerned. The financing is covered by the account for providing financial support to the M&Cs, which is held with the Deposits and Loans Fund. The drafting of this agreement takes place only in the event that the M&C concerned did not manage to secure funding from credit or financial institutions duly established and operating either in Greece or abroad. The Observatory is the competent body for monitoring the implementation of this agreement. The latter defines the monitoring process as well as the specific duties of the Observatory.
Significant transactions, key developments and most active industries
i Value and significance of the transactions
The value of distressed deals is difficult to assess, as the legal process typically involves the partial sale of balance sheet for the assumption of liabilities
Attica Group is an international ferry boat operator, whose shareholders are Marfin Investment Group (MIG) representing 79.38 per cent of the share capital and Piraeus Bank representing 11.84 per cent of the share capital. MIG is willing to sell the ferry operator's shares through the sale of share packages to investors attempting to restructure and reduce loan obligations. It is estimated that the Attica Group's liabilities amount to €356 million. Replying to a letter issued by the Hellenic Capital Market Commission, MIG has pointed out that it has received several offers from investors, that have already been rejected and there is no binding offer from an investor at this moment. Except for the above-mentioned Attica Group is ready to issue a corporate bond worth €150 million in order to raise its share capital and finance the group's loan restructuring. It is worth mentioning that Attica Group has previously issued a corporate bond, that was covered entirely by Fortress fund. In this case the capital raised financed the restructuring of Attica Group's subsidiary Blue Star Ferries' debt.
In 2018 Kalogirou store, a branch of Lemonis Clothing & Footwear Group of Companies, was placed in restructuring, following a petition filed by FAIS Group. According to the relevant decision issued by the court, the new partnership, under the restructuring plan was consisted of FAIS Group, whereas Attica Group and Lemonis family were the minority shareholders. The restructuring plan's goal was for the Lemonis Group to have a positive EBITDA as from 2018. The Group's turnover is expected to reach the amount of 54,963 million Euros in 2023. Over the same timescale, the Group's EBITDA are expected to be positive ( specifically €6.289 million in 2023), when in 2016 and 2017 were negative, coming up to -4,341 and –5,164 respectively. The Group's liabilities, according to restructuring plan, are expected to be reduced to €6.430 million in 2019 and €2.345 million in 2020, when in 2017 they came up to €70.456 million. In the long term (specifically in 2023), the Group is expected to achieve a profitability up to €9.392 million.
Notos Com Holdings
Notos operates a number of department stores representing International brands, under the Notos Galleries and Notos Home brands in Greece. It was established in 2001 through a combination of several companies. According to its financial data, Notos Com Holdings had a total of liabilities amounting up to €230 million, including total borrowings of €152 million. Due to its financial distress, Notos Com Holdings opted for the restructuring procedure in 2018, which was supported by Pillarstone, an NPL platform backed by KKR making its first investment in Greece. The deal was the first of its kind in Greece after the government reformed laws to better protect international investors and was made after months of negotiations with the four systemic banks of Greece, namely Alpha Bank, Eurobank-Ergasias, the National Bank of Greece and Piraeus Bank. The banks and Pillarstone invested €25 million in new funds, while the firm's majority owner, Michalis Papaellinas, also invested in the structure. The restructuring plan included inter alia provisions for the reduction of the number of the employees and the partial transfer of the Notos Home activities to the store at Stadiou & Eolou street, while one of the firm's central stores sited in Kotzia square in Athens was closed after operating for 15 years.
In 2016, one of the largest supermarket chains in Greece was placed in a restructuring procedure due to its financial distress. This case received great press coverage, since it was the first case of the specific industry and with financial and social interests of various stakeholders. The pre-pack deal provides for the establishment of a new company (NewCo), under the trade name 'Hellenic SuperMarkets Sklavenitis SA' in which Marinopoulos will transfer assets amounting to approximately €715 million, liabilities amounting to approximately €1 billion, all its commercial claims and all its fixed assets. Sklavenitis SuperMarkets SA (another major player in the industry) will acquire the NewCo and contribute in cash, through a share capital increase, an amount of approximately €125 million.
According to the pre-pack deal, which was ratified by the court, the restructuring plan envisages four basic components: (1) haircut of some claims; (2) extensions of credit line by the banks; (3) increase of the number of total instalments for claims towards the state and the Social Security Institution; and (4) specific provisions for employees. In particular, claims of both secured creditors and unsecured creditors-suppliers of Marinopoulos (the latter's claims amounting to approximately €647 million) will be reduced by up to 50 per cent. Apart from Alpha Bank, which accepted a haircut of up to 20 per cent, banks (Alpha Bank, Eurobank, Piraeus Leasing, National Bank of Greece and National Leasing) shall receive full payment of their claims, amounting to approximately €196 million, within 20 years, after a five-year grace period and in 15 unequal instalments with interest, following a capitalisation of any due interest amounts, which will take place at the execution date of the pre-pack deal. Claims of the state and the social security institution will be paid in full and in 250 equal and interest-free instalments.
The banks agreed to extend the credit line of Marinopoulos with an amount up to approximately €55 million and provide a credit line to NewCo up to approximately €352 million. Apart from the share capital increase in the NewCo, Sklavenitis SuperMarkets SA and Marinopoulos Bros. Holdings SA will also provide interim financing of up to approximately €15 million and €10 million. It is noted that all existing employment, leasing and tenancy agreements will be transferred to the new company. Moreover, any and all administrative licences, trademarks, permissions of use, inventory, equipment and furniture are transferred to the new company.
Dias Aquaculture SA and Selonda
The restructuring of Dias Aquaculture (Dias) was one of the first that occurred in the fish farm industry. Dias applied for a pre-pack deal, which included a transfer of Dias' business to Selonda Aquaculture SA. In particular, Dias contributed in kind its total assets, amounting to €69 million, and part of its liabilities, amounting to €29.6 million, to Selonda's share capital. A part of Dias' liabilities, which constituted 81.95 per cent of its total liabilities would not be contributed to Selonda; instead, it remained within Dias's financial statements and was covered with the acquisition of 41,261,980 shares issued by Selonda, in accordance with its share capital increase of €12.4 million. The newly issued shares were subsequently transferred by Dias to its creditors, on a pro rata basis, for their satisfaction. It should be noted that Selonda itself had also applied for a restructuring plan, which resulted in a haircut of its debts held by the banks, amounting to €50 million. Selonda is now managed and operated by a new management appointed by the participating banks, which is seeking an interested investor to buy out Selonda.
The Company has submitted for ratification to the Multi-Member Court of First Instance of Athens the restructuring agreement with its creditors in order to settle the company's huge debts towards such creditors, avoid the declaration of bankruptcy and ensure its development sustainability. For the first time since the implementation of the new Bankruptcy Code, the Court's decision ratifies under certain conditions a restructuring agreement, while at the same time it provides for a haircut of 68 per cent of the company's total debts. Furthermore, the Court's decision states that the restructuring agreement and the business plan are realistic and feasible, the financial loss of the creditors would be greater in the event of the bankruptcy's declaration and the restructuring agreement is neither a result of an unlawful behaviour nor violates any jus cogens rules.
ii Restructuring techniques used
As normal methods of restructuring are not enough to save distressed companies in the Greek crisis environment, debtors and their creditors are led to more complicated solutions, depending on the nature and size of their business. In particular, large companies that were listed in the Athens Stock Exchange preferred to go private, through acquisition by an interested investor. A greater percentage of medium-sized companies resorted to techniques such as debt-to-equity conversion and debt-forgiveness agreements. In such cases, the banks, which usually hold the largest percentage of their debts, take over their management, proceed with drastic restructuring measures and then search for an interested buyer. Restructured companies – especially those with increased exports – are able to obtain new working capital financing. More advanced tools, such as a debt push-up, or even the creation of new group structures with lower debt levels or the consolidation of existing players in each sector, are also used to rescue viable businesses and recover part of the existing debt.
iii Distressed industries and market trends
The industries of construction, textiles, electric appliance stores and supermarkets have suffered the most severe financial losses within the Greek market. The reasons for such distress can be explained by the fact that they are all capital-intensive industries, with high running costs, squeezed profit margins and, in addition, are over-leveraged (through abundant financing provided to them before the crisis). Profit margins have decreased even more now that companies have limited access to working capital finance. Moreover, the recent changes in the income tax code, the real estate property taxation and the increase of VAT up to 24 per cent have significantly diminished the spending capacity of Greek consumers.
The principles of unity and universality35 pervade the rationale of Greek law,36 which is applied in insolvency proceedings that are initiated in Greece. EU Regulation 1346/2000, and all later amendments, were integrated to the Greek insolvency laws in May 2002. Similarly, the UNCITRAL Model Law on Cross-Border Insolvency was implemented almost in its entirety through Law 3858/2010.
Nonetheless, Greek jurisprudence on international insolvency cases is very poor. In fact, there are two main cases37 that were successfully tried before the Greek courts, regarding the recognition of a foreign decision and the initiation of secondary bankruptcy proceedings.
Many provisions of the EU Regulation have superseded any bilateral or multilateral agreements on insolvency proceedings or recognition of foreign decisions. Unlike France and Italy, Greece has not signed any respective agreements, and thus, the EU Regulation 1346/2000 remains in full force.
According to Article 81 of the Treaty of the European Union and Articles 7 and 35 of Law 3858/2010 on Cross-Border Insolvency, the Greek courts must cooperate with foreign courts or foreign insolvency administrators directly or through such administrators. Similarly, the Greek courts are entitled to communicate directly, request information or judicial assistance from foreign courts or foreign insolvency administrators or coordinate cross-border insolvency proceedings with other participant Member States. Although these provisions have stood for a considerable period, no respective cases have been reported.
A recent development in the European Union concerns the abolition of EU Regulation 1346/2000 on 26 June 2017. Any and all insolvency proceedings commencing thereafter are governed by EU Regulation 2015/848, as amended by EU Regulation 2017/353. Many novelties of EU Regulation 2015/848 have already been implemented in the Bankruptcy Code through Law 4336/2016, such as the introduction of the insolvency practitioner and the rescue of viable companies, while the Commission's recommendations C(2014) 1500 have also been implemented by virtue of Law 4446/2016, including the expedited restructuring procedures and the rules for granting a second chance to honest entrepreneurs. Other novelties, such as the registry of insolvency, the interconnection with the respective registries of other Member States, publication to another Member State and the cooperation of insolvency practitioners both in main and secondary insolvency proceedings may be either implemented through further amendments to the Bankruptcy Code, or the new regulation will be directly applied to cross-border insolvency cases.
The amendments to the restructuring procedure follow the trends of European law and the current practices and needs of the Greek market. For the first time, creditors are also entitled to file a pre-pack without the consent of the debtor, if the debtor is in permanent cessation of payments. This is a crucial provision, as creditors have a chance to rehabilitate entities with growth potential, despite their permanent cessation of payments. It is likely that the law will extend this right also in case of debtors with imminent cessation of payments, as this will help even more creditors who are 'trapped' owing to misleading practices by their debtors. It should be noted that a proposal to extend the scope of this procedure as aforementioned cannot be confused with the bankruptcy procedure, in which case only the debtor can file a bankruptcy petition due to imminent cessation of payments. This distinction lies at the heart of restructuring; creditors grant a second chance to businesses that are viable and can grow further, with a good business plan, if they are released from their bad management or inefficiencies of their owners.
Moreover, the abolition of the special liquidation procedure as mentioned above, highlights the importance of the special administration procedure. In order for special administration to play the role required today, some amendments should also take place. These amendments refer to: (1) the provision of the debtor's right to file for a special administration procedure, as can be initiated only by creditors; and (2) the extension of the special administration's scope to include imminent cessation of payments as well as probability of insolvency as events or conditions for the initiation of such procedure. Finally, a boost has been given to the Greek economy and all pre-bankruptcy procedures have been accelerated to attract foreign investors and thus there are increased chances to effectively restructure and ultimately rescue distressed Greek companies.
1 Dorotheos Samoladas is a partner, Dionysis Kazaglis is an associate and Sofrini Sideri is a junior associate at Sarantitis Law Firm.
2 Coronavirus: A visual guide to the economic impact BBC.
3 Executive Committee Act 118/19.05.2017 'Framework of establishment and operation of credit servicing firms (Law 4354/2015) – Replacement of Executive Committee Act 95/27.5.2016'.
4 Article 65 Paragraph 2 of Law 4472/2017.
7 According to the Paragraph 6 of Article 79 of the Bankruptcy Code, the debtor must also submit his or her financial statements, if they exist, for the last available fiscal year as well as certificates witnessing the amounts of his or her debts, issued by the state. Otherwise, the petition will be dismissed as inadmissible.
8 Article 77 Paragraph 3 of the Bankruptcy Code.
9 Initially, the existence of assets that could cover the bankruptcy's expenses constituted a negative condition, namely a reason for the court to reject the respective petition. Now, according to Article 77 Paragraph 4 of the Bankruptcy Code it has become a positive condition to accept the petition, thus expediting the procedure and rendering it more efficient.
10 Article 81 Paragraph 2 of the Bankruptcy Code.
11 Article 31 of the Bankruptcy Code.
12 Decision No. 5461/2014 of the Single Member Court of Appeals of Athens.
13 The old provision is the Legislative Decree 400/1970, as amended by the Presidential Decree 332/2003.
14 As amended by Law 4680/2020.
15 Law 4514/2018 implemented Directive 2014/65 (MiFID II).
16 Article 111 of Article 2 of Law 4335/2015.
17 The claims of the state shall be announced without the above-mentioned time restriction no later than the drafting of the final distribution board. The deadline for the announcements is suspended from 1 to 31 August pursuant to Article 153 Paragraph 1 of the Bankruptcy Code.
18 General privileges include: financing of the debtor for its continuing operations, claims arising from the contribution of goods and services to the debtor, based the restructuring plan, even those that were granted six months, at the maximum, prior to the date of submission of the restructuring agreement for ratification; if the debtor is an individual, costs and expenses for his or her funeral, hospitalisation, daily necessities; claims from dependent employment agreement, periodical fees for services that arose within two years prior to the filing of bankruptcy, lawyers' fees, value added tax claims, taxes, pension fund claims; and any claims of the state and the prefectures.
19 'Non-exempt' property refers to the bankrupt company's assets as of the date of the bankruptcy's declaration. 'Exempt' property refers to such company's assets that are statutorily exempted from liquidation, such as necessities, family rights, the debtor's personality and his or her ability to work, rights that are strictly connected to his or her person (such as the right to use his or her name, to accept or waive inheritance rights, etc.).
20 Collective creditors are those creditors whose claims arose out of the insolvency practitioner's actions in connection to the bankruptcy proceedings.
21 Article 50 of Law 4174/2013, as amended by Law 4797/2021 and 31 of Law 4321/2015.
22 Article 127 Paragraphs 1 and 2 of the Bankruptcy Code.
23 Article 127 Paragraph 4 of the Bankruptcy Code.
24 Articles 197 and 202 of the Bankruptcy Code.
25 Article 117 of the Bankruptcy Code.
26 Article 118 of the Bankruptcy Code.
27 Article 119 of the Bankruptcy Code.
28 Article 120(e) of the Bankruptcy Code.
29 Article 259 of Law 4738/2020. The insolvency practitioner is similarly liable for agents used, if he was not entitled to appoint them. Otherwise, the insolvency practitioner's liability is limited to the appointment of such person and the directions provided.
30 Article 127 of the Bankruptcy Code. The same rules apply to those people who exercised undue influence on directors and managers, holding them jointly liable.
31 Articles 134 and 150 of Law the Bankruptcy Code, respectively.
32 Deloitte, Deleveraging Europe 2016–2017, page 32; https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/corporate-finance/deloitte-uk-deleveraging-europe-2016-2017.pdf.
33 Law 4354/2015, as recently modified by Article 70 of Law 4389/2016, Article 4 of Law 4393/2016 and Article 48 of Law 4472/2017.
34 Companies established in countries outside the EU may establish a branch in Greece provided that their registered seat is not in a non-cooperative country or in a country with a preferential tax regime.
35 Unity and universality mean that the insolvency procedure, whether of individuals or legal entities, is one and the applicable law is that of the jurisdiction, where such procedure was initiated and any creditor, regardless of his or her residence, may participate therein.
36 Both the Bankruptcy Code and the Civil Procedure Code incorporate these principles. In particular, Article 780 of the Civil Procedure Code provides the requirements, regarding the recognition of foreign judicial decisions that: (1) the decision must apply substantive law, that according to the Private International Rules is applicable; (2) the decision must have been issued by the competent jurisdiction, in accordance with the substantive law of the jurisdiction applied; and (3) the decision must not be contrary to moral usage or public order. On the contrary, EU Regulations 1346/2000 and 2015/848 provide for a more simplified recognition procedure, according to which the declaration of bankruptcy from the competent foreign courts is automatically recognised in other foreign courts, starting from the date of such declaration's legal effects. The only exceptions to the automatic recognition are those of public order and individual rights.
37 Decision No. 494/2014 of the Single Member Court of First Instance in Kos and Decision No. 437/2013 of the Multi-Member Court of First Instance in Athens.