GREECE: An Introduction to Restructuring/Insolvency

Greece: Restructuring/Insolvency 

A decline in the volume of insolvencies?
Despite the lack of complete statistical data throughout this period, in 2020/2021 the volume of restructuring and insolvency proceedings in Greece was apparently even lower compared to the - already relatively small - number in the last few years; however, this should not be viewed as an accurate indicator of a correspondingly improved solvency status of businesses or a sign that the parties concerned will not need to take recourse to the relevant provisions of the law in the near future:
▪ On the one hand, the suspension of the non-urgent court proceedings over several months when the pandemic restrictions were applicable (March 2020 to April 2021) has both generally affected the promotion of proceedings already initiated and significantly delayed the submission of new applications before the Court.
▪ On the other hand, the announced reform of the insolvency regulatory framework during the second semester of 2020 (with the new law issued on 30 December 2020, various chapters of which were put in effect, following extensions, on 1 April 2021 and 1 June 2021 for corporate and individual insolvency respectively), has induced those interested (debtors, creditors) to suspend their plans in expectation of the new legislation which could potentially more efficiently meet their respective needs. The new regime should now indeed be expected to provide a sounder basis for the implementation of restructuring and insolvency plans.
▪ Last but not least, in Greece measures of financial support were provided to sectors particularly hit following the COVID-19 pandemic, including measures taken by the banks for a moratorium on their loans, while general measures for the containment of defaults / termination of contracts were also introduced (such as a discharge of lessees from paying a percentage of their rent in cases of suspension of their employment contracts and/or their businesses due to restrictions imposed in the pandemic). These benefits should be expected to be lifted as the economy gradually returns back to normality.

As all the above factors are settled down, it can be expected that stakeholders will use much more often than before the new Restructuring and Insolvency proceedings and their volume should inevitably rise significantly.

The new insolvency legislation – comments on basic features

The new Insolvency Law, entitled “the Law for the Settlement of Debts and the Provision of a Second Chance” (“InsL”) has substituted since March/June 2021 the Greek Bankruptcy Code (“GBC”) (this latter has remained in effect since 2007 with over ten revisions during the financial crisis). The InsL has integrated in one text all insolvency-related provisions of law and has also introduced certain important changes (including adaptations to the requirements of EU Directive 1023/2019 on preventive restructuring frameworks):

▪ A very important amendment is the use of a new objective insolvency test for the ascertainment of the “cessation of payments”. This latter has always been the basic concept to confirm insolvency under Greek law. However, the absence of a concrete (measurable) test was viewed as an inherent ambiguity in the previous regime, often motivating the various stakeholders (management, shareholders, creditors) to postpone difficult decisions for the future and prolonging the life of businesses which had long-ago reached the “point of no return”. The InsL has introduced a new (rebuttable) presumption functioning as a quasi-compulsory threshold of insolvency, combined also with the liability faced by directors from non-timely filing (within 30 days from occurrence of the cessation of payments).
Thus, the non-payment of over 40% of the total due financial obligations of the debtor to certain important creditors (the Greek State, social security funds or financial institutions) for a period over six months, provided that the relevant non-performing liability exceeds the amount of EUR30,000, is now considered under the InsL, as a rule, as a necessary and sufficient condition for the initiation of bankruptcy proceedings.
With this change, the law aims at the reduction of the number of distressed companies (“zombies”) who only stayed afloat at the expense of their creditors / business associates with the consequent contamination of other businesses in the chain of trade.

▪ The rehabilitation procedure, already tested in its ten-year life, under previous variations, is now reinforced as the basic restructuring tool in a “pre-pack” form, given that it was generally perceived as an efficient option for restructuring.

▪ There is a long-desired and welcome digitalization of certain functions (e.g. concerning the Insolvency Registry, already a requirement on the basis of European legislation). The enhancement of an electronic platform for an out-of-court workout for the avoidance of bankruptcy combined with an early warnings mechanism is also an innovation of the InsL – the creation of relevant technical platforms for the early warnings is now underway.

▪ The effect of bankruptcy on existing contracts has been reversed, the new principle being that in the event that a piecemeal liquidation is followed in bankruptcy, contracts should be led to termination as there is no longer need to keep them in effect, unless the bankruptcy administrator decides differently, while the continuation of contracts is secured by the law in cases of rehabilitation plans under the InsL to support restructuring plans.

▪ An automatic (under conditions) discharge of debtors within a three-year time period from bankruptcy is provided, extended now to the legal representatives of legal entities.

▪ The extension of the application of the relevant framework to individuals (non-merchants), with the view for them to benefit from the discharge from debt under certain conditions is a major reform, although controversial, according to some commentators, from a legal perspective.

▪ There can be no doubt however that the legal framework was overall simplified and consolidated, having absorbed the experience from the over twelve-year period of the application of the GBC.

In essence, the InsL creates the following pattern of available insolvency tools / stages in the process of insolvency:
Early warning mechanism → Out-of-court workout → Rehabilitation procedure → Ordinary bankruptcy (this latter, either in the form of piecemeal liquidation of the assets of the business or joint sales of business units or assets for the preservation of values).

The law has sustained already some criticism for authorizing a substantial part of the relevant regulations to be further specified by secondary legislation (ministerial decisions). Although this may perhaps be valid from a legal-technical point of view, it is true on the other hand that the administration has shown quick reflexes in preparing already quite a number of the relevant administrative enforcing acts, to avoid delays in the practical implementation.

Future glance 

The InsL has now already started being tested by both stakeholders and jurisprudence. Although possible new adaptations are not excluded, parties concerned are expected to use more intensely the new insolvency framework to deal with new needs, as affected by the pandemic crisis, even more so as they may gradually gain confidence that the improvements made lead to more efficient and sustainable restructuring and insolvency solutions.
The long-lasted financial crisis of the country during the previous decade, although painful, has unavoidably been the ground for condensed experience and more maturity for all market participants, also at the level of insolvency institutions, from which only benefits may be drawn in the future.