The Greek Bankruptcy Code (GrBC), as recently amended by L4446/2016, L4442/2017, L4472/2017 and L4512/2018, aims to enforce modern rules of law, influenced and in a way ‘imposed’ by the economic and social reality of contemporary Greece.
The maximisation of the distressed debtor’s value of assets, a balanced ‘single’ system of liquidation and reorganisation, the equal treatment of creditors of similar legal state and a fast outcome1 constitute the principal objectives of the GrBC, to be attained by the application of fast, flexible and efficient clauses that favour all participants (ie, the distressed debtor, creditors, bankruptcy organs).
Besides reviewing standard bankruptcy proceedings (which include both the basic and the simplified procedure) two restructuring structures shall also be analysed, conforming to an approach of maintaining the debtor’s enterprise as an ongoing business:
- prebankruptcy restructuring rehabilitation proceedings (RehP); and
- the reorganisation plan (RP), which may only be utilised within the standard bankruptcy proceedings.
Furthermore, with effect from 1 January 2017, the ‘insolvency administrator’ exercises all powers vested to the trustee and the special liquidator, facilitating faster and more efficient proceedings. Presidential Decree 133/29.2016 regulates the insolvency administrator’s scope of powers, as well as minimum appointment requirements (business and finance knowledge, governmental examination and certification).
Because of the resounding failure of the former Code’s prebankruptcy proceedings to fulfil their target of preventing bankruptcies, L4336/2015 and L4446/2016 have radically reformed the RehP, aiming towards the simplification of the proceedings while making it less vulnerable to abuses.
Following the European Union’s guidelines for a new approach to business failure, it is of vital importance for the turbulent Greek economy to enable the continuance of potentially viable enterprises by offering them a second chance, through reinforcing and improving the efficiency of this prebankruptcy ‘repairing formula’, as RehP is often called, which would ultimately benefit society at large, the distressed debtor as well as creditors.
Following the latest amendments, a prepackaged agreement can be signed both by the the distressed debtors fulfilling the prerequisites of article 3 of GrBC (core bankruptcy requirements) and the required and qualified majority of creditors (60 per cent, of which 40 per cent should be secured).
Creditors themselves have the right to draft and file the relevant petition before the competent first instance court and, subject to court’s approval, mandatorily engage the non-collaborative debtor in the prepackaged agreement, provided that the debtor has officially ceased payments to creditors. Furthermore, in order to prevent abusive delays of the procedure, in cases that the shareholder’s approval is required, an authorised representative may be appointed to substitute the non-collaborative shareholders when exercising their respective powers and effectively acting on their behalf.
Ratification of the signed prepackaged plan by the court
The aforementioned agreement is enacted by the court’s ratification and the debtor’s rights are limited.
The petition filed should be detailed, describing the updated corporate and financial status of the debtor, proving the financial distress and proposing the proper structural measures, in order to recover and preserve both the business and the claims value (business plan). In addition, an expert’s report on the debtor’s financial condition must be submitted by the applicant.
Rehabilitation petitions suspend the hearing of any pending bankruptcy petition before the competent court.
Following recent legislative amendments, the ability to modify the validated plan is introduced, subject to the presence of new crucial factors.
Suspension of enforcement proceedings
To promote the efficiency of the RehP, filing of the prepackaged agreement automatically suspends all enforcement measures for a period of four months, subject to a judicial extension. In addition to that, according to article 106a GrBC, and prior to the initiation of the RehP, the court may, upon the request of anyone having a legitimate interest, grant the suspension of individual and collective enforcement actions throughout the negotiation period, provided creditors holding a minimum of 20 per cent of the debtor’s claims concur.
Following a long-lasting abusive implementation of RehP that often resulted in maintaining ‘on-hold’ companies of limited recovery possibilities, RehP proceedings now more than ever offer a real and quick revival opportunity to distressed entities and an efficient tool for creditors facing non-collaborative distressed debtors.
Ordinary bankruptcy proceedings
Overview of the bankruptcy procedure according to the Greek Bankruptcy Code2
Conditions of bankruptcy (articles 2–3 GrBC)
Two substantial and two procedural conditions must apply for the initiation of a bankruptcy proceeding:
- Eligibility of the debtor as a merchant or as a union of persons with legal personality engaged in economic activities (eg, companies limited by shares, limited liability companies, private companies, general partnerships).
- Permanent, general or imminent cessation of payments or likelihood of such, along with the filing of a reorganisation plan on behalf of the debtor.
- The declaration of bankruptcy by judgment of a court that has jurisdiction over the commencement (declaration) of bankruptcy proceedings. The competent court is the first instance court of the place where the debtor maintains its statutory or vital interests.
- The likely existence of adequate debtor’s assets to cover the bankruptcy costs. An initial deposit of €500 should also be paid to the Deposit and Loans Fund.
Application and substantial effects of bankruptcy declaration
Bankruptcy proceedings may be initiated by:
- the distressed debtor’s petition, which can be filed up to one month from the time of cessation of payments (or prior to that, if cessation is imminent or likely). In the event that the debtor’s managerial decisions had either eluded or provoked its bankruptcy, directors’ personal civil liability towards the creditors, including the public sector (tax and social security organisations), might be triggered;
- any creditor; or
- the district attorney (in case of public interest).
After the debtor is declared bankrupt by the competent court, a new situation is immediately enforceable and applicable erga omnes:
- The debtor can no longer manage its business, assets and liabilities. Although, following the filing of a special petition by the debtor, the court could allow him or her to withhold the general management, along with the guidance, involvement and final approval of the insolvency administrator, as long as it is proved that this would be in favour of the business.
- All transfers of assets that took place by the debtor in a period of two years before bankruptcy declaration can be annulled.
- Creditors’ claims against the debtor are considered overdue.
- Creditors are not allowed to take individual enforcement measures against the debtor, unless certain conditions are fulfilled.
Procedural effects of bankruptcy
The effects of bankruptcy, arising after the debtor’s declaration as bankrupt and the initiation of the bankruptcy proceedings, are as follows.
Effects as regards the debtor
The fundamental effect with respect to the debtor’s estate is bankruptcy divestment in relation to all assets found in the bankruptcy estate.
Effects as regards the creditors
Creditors in bankruptcy proceedings are divided into three types:
- Bankruptcy creditors, who have accrued monetary claims against the debtor at the commencement of proceedings; they are divided into four categories (article 21 GrBC):
- unsecured creditors, whose claims are not secured by a privilege or real security and may, under certain conditions, claim up to 10 per cent of the bankruptcy estate;
- priority creditors, whose claims have a general privilege (eg, claims of the public financial authorities for the collection of VAT and income tax, claims of the social security sector, claims of the debtor’s employees) and shall be satisfied from the debtor’s estate;
- secured creditors, whose claims are secured by special privilege or real security on a specific asset of the debtor’s estate; and
- creditors of reduced protection also called ‘last resort’, whose claims will be satisfied from the debtor’s estate after satisfaction of the unsecured creditors.
Post-bankruptcy commencement creditors, whose claims against the debtor arise out of its post-bankruptcy acquired property and are satisfied by it. Post-bankruptcy acquired property contains, indicatively, property inherited by the debtor (natural person or legal entity) as well as movable property acquired by the debtor (natural person) from the execution and closing of contracts between the debtor as an independent contractor and the principal (consideration or compensation).
Mass creditors, whose claims against the debtor are generated from the administration of the debtor’s estate by the trustee (eg, claims of employees assisting the trustee’s work at the post-commencement period, court fees and other administrative costs) and are satisfied prior to the claims of the bankruptcy creditors from the bankruptcy estate; these claims are classified as costs incurred during bankruptcy proceedings.
Post-bankruptcy declaration proceedings
The bankruptcy declaration is followed by proceedings divided into two stages: preparatory and final proceedings.
The principal requirements for the progress of preparatory proceedings are:
- The establishment of the bankruptcy organisation, consisting of:
- the bankruptcy court with supreme supervision over bankruptcy and jurisdiction in all trials in relation thereto;
- the insolvency administrator;
- the supervisory judge, with an enhanced role in comparison with the past provisions, who has the overall supervision of bankruptcy and the oversight of the insolvency administrator; and
- the creditors’ assembly, which decides on crucial matters regarding the proceeding’s progress. (It should be noted that with a view to a quicker and more flexible procedure, the recently adopted L4446/2016 abolished the ‘creditors’ committee’, which under the previous legislative framework played an assisting role aiming at the support of the trustee during the performance of his or her duties.)
The execution of acts that safeguard and preserve the assets of the debtor’s estate, such as sealing and unsealing of the debtor’s estate.
The submission of creditors’ claims and the verification and admission thereof.
The aim of this stage is to satisfy the creditors, whether by liquidation and distribution or by restructuring. According to the GrBC, a maximisation of the possible eventual return to creditors, resulting in their adequate satisfaction, can be attained through a post-bankruptcy reorganisation plan submitted to the bankruptcy court by the debtor or the creditors, also resulting in the preservation of a viable debtor’s business. The court may accept or reject the plan.
Where the court rejects the plan or where a reorganisation plan is later nullified, despite its principal approval by the court, creditors are satisfied through liquidation of the debtor’s assets and distribution (article 132 et seq GrBC). A subsequent report of the trustee to the creditors is provided and the proceedings are terminated.
Termination of bankruptcy proceedings
Bankruptcy is terminated (article 164 GrBC) if:
- all bankruptcy estate assets are liquidated;
- the reorganisation plan is ratified by the court;
- assets may no longer cover bankruptcy expenses or time lapses as specified in article 166(3) GrBC, (ie, 10 years starting from the commencement of the creditors’ union or 15 years from the declaration of bankruptcy); or
- all creditors’ claims (in capital and interests) prior to the bankruptcy declaration date are paid in full.
By virtue of recent legislative amendments and subject to certain criteria, the debtor may – as the final stage of the bankruptcy proceedings – file before the court a petition requesting to be released from any outstanding debt and, as such, be given a second chance.
Significant change in allocation of bankruptcy payments towards creditors
Until 31 December 2015, public sector claims (taxes, social insurance, etc) ranked high and resulted in a very low satisfaction level of all other creditors from the bankruptcy estate.
Recent amendments of the Greek Civil Procedure Code3 and GrBC, < 4 as entered into force on 1 January 2016, have changed the allocation of the bankruptcy estate to the creditors as follows: creditors with a general privilege (ie, public and social security sector, among others) will be satisfied from up to 25 per cent of distributed bankruptcy estate, secured creditors (real estate collateral, etc) will be satisfied from up to 65 per cent of estate, while unsecured creditors may now be satisfied from up to 10 per cent of the bankruptcy estate. In the event that a RehP or a reorganisation plan includes specially allocated amounts, paid by creditors, to be invested within the scope of the continuation of the business (article 154a GrBC), such creditors’ claims would be preferably satisfied.
Bankruptcy reorganisation plan
What is it?
Reorganisation is a bankruptcy procedure within the Greek Bankruptcy Code, providing a last resort for the distressed debtor to keep the business running.
The reorganisation process is divided into four stages:
- Submission of the plan: during the bankruptcy process, the distressed debtor or qualified creditors (60 per cent of the creditors, of which 40 per cent should be secured) have the right to submit a reorganisation plan (RP), either upon filing for bankruptcy or within three months from the declaration of bankruptcy. Under the newly adopted provisions, creditors also preserve the right to simultaneously submit a reorganisation plan even without the debtor’s approval, provided that the debtor faces present cessation of payments and a bankruptcy petition is co-submitted. The RP consists of three parts: (i) accurate description of the distressed debtor’s financial condition; (ii) evaluation of advantages compared to standard liquidation proceedings; and (iii) detailed description of the effects to creditors’ claims.
- Judicial review: the RP must be approved by the bankruptcy court. The court can reject the RP if: (i) the procedure followed did not comply with the law; (ii) the plan’s approval by the creditors’ assembly is the result of fraud or any other wrongful act, or is the result of bad faith on behalf of the distressed debtor, the creditors, the trustee or any other third party acting; (iii) there are public interest grounds; or (iv) the plan did not adequately protect claims of the creditors who voted against the plan.
- Discussion and voting by the assembly of creditors: within two months of the court’s approval, the creditors’ assembly discusses and votes on the RP, allowing certain amendments to take place. For the RP to be implemented, a majority of creditors must be present, while it has to be voted by creditors representing 60 per cent of all claims, of which 40 per cent of all claims must represent secured or privileged.
- Judicial ratification: following the creditors’ assembly approval, the bankruptcy court should ratify the final RP unless reasons mentioned above in the judicial review stage are present.
Following ratification, the RP becomes binding against all creditors and the debtor maintains management of the business to execute the RP.
In practice, the whole RP procedure is pretty complicated and fewer than 10 plans have been fully approved. It also appears that it is usually too late for any recovery plan to be approved at this bankruptcy stage.
Simplified bankruptcy procedure for companies of small object
The complexity, the wide time frame and the high cost of the proceedings for the conclusion of bankruptcy have enabled the legislator to create a special, simplified and expedited procedure for small object bankruptcies by virtue of articles 162 to 163c of GrBC. Because of the size of the vast majority of Greek enterprises, a large number of distressed entities will be eligible for this procedure.
The procedure is initiated upon a court’s decision, provided that the distressed debtor meets criteria regarding the evaluation of the assets (up to €150,000), the turnover (up to €200,000) and the median number of employees (five) in the past financial year. Real estate assets will not disallow the initiation of the said procedure (contrary to previously applicable provisions). The total period of the said proceedings can not exceed a period of six years from the initial court’s ruling in initiating the simplified bankruptcy procedure.
The legislator has substantially simplified the small object bankruptcy procedure, and this is widely anticipated to create a welcoming environment for such procedures.
1 For example, the complexity, the delays and the high cost of ordinary bankruptcy proceedings have forced the legislator to create a fast and simplified procedure by implementing the Limited Value Bankruptcy Proceeding (articles 162 to 163 GrBC), which is initiated if the distressed debtor’s assets (including any real estate) are valuated by the trustee up to the amount of €100,000.
Law 3588/2007 as applicable after the amendments introduced by Laws 4013/2011, 4055/2012, 4072/2012 and 4336/2015.
Article 977, as applicable.
Articles 154 and 156 GrBC as amended by Law 4336/2015.