New Insolvency Law in Greece. End of Business or New Beginnings?
With the new insolvency law, the Greek government hopes to provide the necessary tools to manage the debts generated before the pandemic or which have deteriorated due to the pandemic. The goal is to achieve private debt reduction and to avoid bankruptcies.
According to the official data from the Bank of Greece, Tax Authorities, and Social Security Institutions, the private debt before the Covid-19 pandemic from Greece stood at around EUR 234 billion. It was caused mainly by the financial crisis happening in Greece for the last ten years.
The Covid-19 pandemic aggravated the financial crisis, which resulted in increased private debts with adverse economic and social impacts.
The Greek Government struggled to find a solution to manage the private debts and introduced a new insolvency Law no. 4738/2020 from 01st January 2021.
The new Law 4738/2020 replaces and abolishes the provisions of the Insolvency Law no. 3588/2007.
Under the new Insolvency Law, every person and legal persons with economic purposes are subject to bankruptcy proceedings. Legal entities governed by public law public and local authorities cannot be declared bankrupt.
?The new Greek insolvency Law provides debtors with two options:
1.? Pre-bankruptcy proceedings. The option of restructuring their dues (through an out-of-court work-out mechanism -OCW or court rehabilitation schemes) starting from 01st June 2021
Over 30.000 companies with debts towards institutional creditors have started the OCW process for a debt restructuring solution. Debts towards third parties are not restructured under the OCW process.
Other debtors prefer a personalized solution through financial mediation to negotiate with their creditors. Or even seek litigation.
Debtors can write off their debts only if they have a low financial ability to pay and do not possess any assets of significant value.
2.? Bankruptcy Proceedings. The option of debt discharge (through bankruptcy) and making a fresh, clean start.
The debtors that decide to go bankrupt will have all their property liquidated to obtain funds to pay for their duties.
Suppose the debtors do not obtain sufficient funds after the liquidation of their properties. In that case, the unpaid debt will be written-off with one condition: it will revive if they acquire any significant funds within the next year from liquidation.
After one year, the unpaid debts will be permanently written-off, and the debtor company will receive a second chance to start from the beginning with no obligations.
IA’s Conclusions
The Greek economy has gradually improved flexibility and openness, but progress has been slow.
Under the Insolvency Code, out-of-court restructuring agreements are intended to address over-indebtedness towards credit or financial institutions or indebtedness for taxes and duties. In contrast, rehabilitation agreements (pre-bankruptcy or in-bankruptcy) aim to rehabilitate the debtor's business.
The recent and upcoming amendments demonstrate a greater coherence and an increased efficiency in these rules that offer more opportunities to reduce costs and help to accelerate and simplify the procedures.
The continuous changes to the Bankruptcy Code prove that national legislators are vigilant about the market's current needs, the necessity to interfere efficiently in the operation of distressed businesses, and the improvement of the corporate rescue framework.
Written by: Cristina B?ra
Sources: Zeya, The Law Reviews
*This article is informative and is not to be used as legal, economic, or commercial advice.