LAWYER AT THE SUPPRIME COURT OF GREECE
ACCREDITED MEDIATOR BY THE MINISTRY OF JUSTICE
Article Published in International Jurist, 2017
I. A FIRST TIME PRE-PACKED AGREEMENT
Due to the financial difficulties in recent years, a significant number of enterprises in Greece are filing for bankruptcy.
Recently, one of the most developed businesses in the hypermarket field in Greece was faced with financial inability to pay its creditors, amongst which were the four biggest banks in Greece, some of the largest food product supplying companies and the Greek State. Its debts were estimated at around 1.3 billion euro. Potential bankruptcy of this company, in the difficult economic environment in Greece, would cause a chain reaction with adverse consequences, both for a number of companies and the finances of the State. Under this pressure, for the first time in Greek practice, the debtor company and its creditors came to a collective reorganization agreement in order to avoid bankruptcy. A third big company in the hypermarket sector set up a subsidiary company in order to acquire the assets of the debtor company and part of its liabilities including debt. In this way, all kind of creditors, including foreign creditors, managed to announce their claims and continue the commercial collaboration with the new created company. This agreement has been validated by the Court and the procedure is currently in process.
We would also like to point out another procedure which was applied in the specific field of the afore-mentioned case for the first time in Greece. Creditors, among which foreign multinational companies, wished to secure their claims in case of potential bankruptcy. Rather than bring their actions to Court, which would have cost them much more time and money, some of them chose to settle their differences through the Alternative Dispute Resolution method of Mediation. The mediation agreement when deposited to the competent Court has the effect of an Enforcement Order, which enables the effective enforcement of the agreement.
II. NECESSITY FOR NEW LEGISLATION
In order to lessen the heavy economic impact that ensues with every failure, the Greek State has made significant efforts to ameliorate the legal framework on the bankruptcy proceedings. The most recent legislation change was made through L. 4446/2016 (G.G. A’ 240 22.12.2016), which amended the Greek Bankruptcy Code.
According to the Greek bankruptcy law (art. 2 par.1 of the Bankruptcy Code, L.3588/2007, G.G. Α’ 153 10.07.2007), the capacity to become bankrupt is reserved to physical or legal persons acting as traders and also corporate associations seeking to fulfill an economic purpose.
The main focus of the new legislation relies on offering to enterprises in difficulty the option to reorganize and restructure their debts before their default. In this way, the adoption of a reorganization plan, gives the enterprise or a part of it a chance to remain afloat and continuing its operation.
Three proceeding options are available according to Greek legislation in force for the purpose of saving the enterprise from bankruptcy.
III. PRE-BANKRUPTCY PROCEEDINGS
1. Collective pre-bankruptcy reorganization proceedings
(art. 99 et seq. of Greek Bankruptcy Code as added by L. 4013/2011, G.G. Α’ 204/15.9.2011 and amended by L. 4336/2015, G.G. Α’ 94/14.8.2015 and L. 4446/2016).
The Greek Bankruptcy law provides that, prior to filing for bankruptcy, the indebted enterprise may open the “pre-bankruptcy reorganization procedure”. This procedure aims at the approval by the majority of its creditors of the draft of a reorganization plan (collective pre-bankruptcy proceedings). This option is reserved both for enterprises encountering difficulties, as well as those enterprises already in default.
This reorganization plan agreement is concluded between the debtor and its creditors representing at least 60% of the total claims, including 40% of the privileged or mortgaged claims and is then deposited in Court for its validation (pre-pack agreements in common law States). Following Court validation, the reorganization plan has the effect of a judicial decision and is applied erga omnes. In the time period between deposition and validation, all enforced execution procedures against the debtor are suspended. The Court may also allow preventive measures to be taken, in order to protect the debtor’s property.
In previous legislation, the enterprise could also follow the same procedure after filing a request to the Court so for it to order the opening of the reorganization proceedings and the conclusion of a reorganization plan agreement within a specific time limit of maximum one year, as well as the appointment of a mediator for their coordination. During this period, the enforced execution measures against the business were suspended. Under the new provisions, the above possibility is abolished. Consequently, the procedure is accelerated. The debtor may file a request for preventive measures for protecting its assets only after the submission of the pre-packed plan to the Court; from now on, all parties must act quickly and effectively in order to rescue the enterprise and especially the debtor in order to avoid aggressive acts on the part of its creditors for their satisfaction of their claims.
2. Collective pre-bankruptcy reorganization proceedings on creditors’ initiative
(art. 100 par. 1 of Greek Bankruptcy Code as amended by L. 4446/2016).
Following the new legislation provisions, a reorganization plan may be drafted, even without the participation of the debtor, by the same percentage of creditors including 40% of the privileged or mortgaged claims as above and deposited in Court. This option is reserved to creditors only if the debtor is already in default.
Τhis provision constitutes a novelty for the Greek legal system. The same benefits as above can result, concerning the rapidity and effectiveness of the procedure.
3. Special Liquidation
(art. 68 et seq. of L. 4307/2014, G.G. A’ 246 15.11.2016).
An undertaking in difficulty can be placed under a status of special winding-up or liquidation. This special liquidation is ordered by the Court upon request of the debtor or its creditors representing the 40% of total claims.
A Liquidator is appointed and charged with the task of recording all assets of the undertaking and of inviting potential buyers to propose their offers to buy the total of the assets of the undertaking, which can then continue its operation. The relevant procedure is then validated by the Court.
The above option remains unchanged under the new regulations.
IV. The Final Phase: Bankruptcy
(Articles 1 et seq. of Greek Bankruptcy Code)
If none of the above solutions bears fruit, the bankruptcy procedure follows, which is ordered by Court upon request of the debtor in default or its’ creditors or the Public Prosecutor (Art. 4 and 5).
The Court then appoints a professional in charge of the bankruptcy, the “Trustee in bankruptcy” (art. 7 and 63), who takes over the property management of the bankrupted entity in order to liquidate it; he/she invites the creditors to announce their claims in a time bound limit (art. 89 et seq.) in order to draft the Table of Creditors for the liquidation proceeds. The creditors, who did not make their announcement within the time limit, can file an opposition to the competent Court demanding the verification of their claim (art. 92).
After the finalization of the Table of Creditors, the Creditors are compensated from the liquidation proceeds in proportion to their verified claim and their eventual privilege (art.153 et seq.).
Under the new provision, the above-mentioned opposition must be filed in a short six month time limit. By contrast to this, the previous regulations in effect permitted longer time periods for the procedures, up to the end of the liquidation, resulting in the delay for years on end of eventual creditors’ satisfaction.
V. THE NEW PROFESSION OF INSOLVENCY ADMINISTRATOR
The L.4336/2015 (G.G. A’94 14.08.2015) defined by the Presidential Decree 133/2016 (G.G. A’ 242, 29.12.2016) introduced to the Greek legal system the professional status of the Insolvency Administrator.
Specifically, professionals acting as Mediators, appointed by the interested parties to help in Pre-Bankruptcy Reorganization Proceedings, Special Liquidators or Trustees in Bankruptcy should meet certain requirements in order to obtain the license of Insolvency Administrator. This license is granted by the Insolvency Committee appointed by the Ministry of Justice. The capacity of acting as an Insolvency Administrator is reserved to lawyers, auditors and tax accountants.
In summary, we consider that the new legislation drastically improves Insolvency law in Greece, through its modernization and harmonization with that of other European systems. Foreign creditors and suppliers of foreign can recover their claims with greater flexibility and in a shorter period of time. The possibility for creditors to request the reorganization of an undertaking, even without the debtor’s consent and the priority given to the extra-judicial proceedings through the limitation of court involvement, as well as the shortening of time limits for the faster conclusion of bankruptcy as a final step, can all be considered as cost and time-saving means for the satisfaction of creditors. Additionally, the new regulated profession of Insolvency Administrator ensures the quality and effectiveness of the proceedings.