Greek L.4738/2020 - Bankruptcy

Greek Law No. 4738/2020 (Government Gazette A’ 207/27.10.2020) titled "Debt settlement and second-chance arrangement and other provisions" (hereinafter "the Law"), introduces procedures in harmonization with the provisions of the Directive (EU) 2019/1023 "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 (EU) 2017/1132 (Directive on restructuring and insolvency)", while at the same time radically reforms the context for the treatment of financial inability, collective satisfaction of creditors and discharge of debts for any individual, natural person or legal entity, carrying out financial activity, regardless whether such activity is business or not. 

Necessity and Purpose of the Regulation

The Law introduces innovative provisions, given that it ensures the access of viable enterprises and entrepreneurs facing financial distress to effective national framework for preventive restructuring, that will allow them to get on with their business, as well as it establishes the ability of honorable insolvent or over-indebted entrepreneurs to exempt from their debts after a reasonable period, which will offer them a second chance. Specifically, the bankruptcy procedure regulated by the Second Book of the Law - is significantly simplified, as the liquidation of the bankrupt estate is accelerated, while the ability of a natural person’s bankruptcy without meeting the condition of the commercial status is established. At the same time, the ability of all natural persons to exempt from their debts within three (3) years from the bankruptcy declaration, or even sooner, after one (1) year from the bankruptcy declaration under the conditions set out by the Law, plays a significant role in the whole context of the new framework. 

Provisions of the New Law

The main points and innovations of the Law described in its Second Book- which are applicable from 01.01.2021, are the following: 

1. The bankruptcy capacity is expanding to any natural person, while the ability to further extend the group of individuals with bankruptcy capacity is provided, by including the legal entities (of private law) without financial purpose, but with financial activity, whilst according to the existing legal framework merchants and associations of persons with legal personality, which pursue an economic purpose, were eligible for bankruptcy. 

2. For the first time the term of the cessation of payments is objectively defined, as quantitative criteria are provided, while it is highlighted -following the jurisprudence trend - that the selective fulfillment of overdue financial obligations shall not lift the cessation of payments, which may also be the inability to fulfill even one significant overdue financial debt. 

3. The competent Courts for small scale bankruptcies (subject to the criteria of micro entities of art. 2 of Law 4308/2014 relating to Greek Accounting Standards)for which simplified procedures are established- are the County Courts, while for the rest bankruptcies the competence of the Multi-Member Court of First Instance is retained. 

4. The application for bankruptcy - except for the provided special conditions by the Law - shall define among others the proposed administrator (“syndic”, hereinafter the “administrator”- in Greek called “syndikos”), who shall be duly licensed as an Insolvency Practitioner, and be accompanied by a written declaration of the proposed administrator for the acceptance of his/her appointment, as well as a declaration for the nonoccurrence of any conflict, whilst pursuant to the existing Law 3588/2007,  the administrator was directly appointed subject to a decision of the bankruptcy Court without prior acceptance of his/her appointment.

5. It is provided that when the application for bankruptcy is submitted by a debtor’s creditor/-s, that represent at least 30% of the total claims against the debtor – among whom secured creditors representing at least 20% of the secured creditors are also included- it can include a request for the sale of business’ assets as a whole or of its distinctive operational units pursuant to the procedure of articles 157 et seq. of Law (“Liquidation of debtor’s property and its distribution to creditors”). In this case, if it is presumed by the bankruptcy Court that the satisfaction of the creditors will be improved, it decides the sale of individual assets or the sale of  business’ assets as a whole or of its distinctive operational units. This applies in case of bankruptcy of business and not in case of a small scale bankruptcy. 

6. The issues regarding publicity of applications, decisions and acts relating to bankruptcy are being regulated, while it is provided that any relevant publication or submission is registered with the Electronic Solvency Register and additionally for the businesses to the General Commercial Registry (G.E. MI.).

 7. The bankruptcy declaration results to an automatic and without incurring any liability  termination of all pending and ongoing contracts of the debtor on the 60th day of the bankruptcy declaration, unless the administrator, within sixty days from bankruptcy declaration, considers that these serve the smooth progress of the bankruptcy process, or the improvement of the liquidation’s value of the assets, whilst pursuant to the existing Law 3588/2007, the current bilaterally onerous contracts at the time of declaration of bankruptcy , in which the debtor was a contracting party, maintained  their force. (author’s comment: provided that there is no relevant contractual term of automatic termination in case of bankruptcy, a term particularly common in commercial contracts).

8. Specifically, regarding the employment agreements, within sixty (60) days of the bankruptcy declaration, the administrator may request for their continuance by signing new agreements with the employees with the same terms, applicable at the time of the bankruptcy declaration, subject to a relevant approval by the rapporteur and the creditors’ assembly, in contrast with existing Law 3588/2007, subject to which the employment agreements were not rescinded ipso jure with the declaration of bankruptcy, but the administrator retained the right to rescind the employment agreement, by termination. It is hereby clarified that the termination of the employment agreements regarding the employees’ rights for compensation, is considered as termination by the employer.   

 9. Exceptionally, if the bankruptcy decision provides for the sale of business’ assets as a whole or of its distinctive operational units , the abovementioned  provisions (no. 7 and 8) regarding the pending and ongoing contracts of the debtor as well as the employment agreements, do not apply and the administrator has the right of option. 

10. It is explicitly defined that the bankruptcy declaration is not a reason for the deprivation of professional license of the debtor/natural person. 11.The part of the annual income of the debtor/natural person, minus taxes and social security contributions, which exceeds the reasonable living expenses, (as set out in par. 2 of art. 73 of Law 4389/2016), or the sum equal to the amount that cannot be seized multiplied by twelve as defined by Law, whichever is higher, constitutes part of the bankrupt estate, whilst subject to the conditions of the Law, the annual income of the debtor can be excluded from the bankrupt estate. 

11.The part of the annual income of the debtor/natural person, minus taxes and social security contributions, which exceeds the reasonable living expenses, (as set out in par. 2 of art. 73 of Law 4389/2016), or the sum equal to the amount that cannot be seized multiplied by twelve as defined by Law, whichever is higher, constitutes part of the bankrupt estate, whilst subject to the conditions of the Law, the annual income of the debtor can be excluded from the bankrupt estate. 

12. From the bankruptcy declaration, all individual recovery measures of the creditors against the debtor for the satisfaction or the fulfilment of their insolvency claims are suspended ipso jure. Especially though, in case of a garnishee order, that took place before the bankruptcy declaration, the bankruptcy shall not affect the rights of the garnisher on any future claims of the debtor, that have been assigned subject to the seizure, but have not yet been arisen. It is also provided that the safeguard measures of par. 5 and 6 of art. 46 of Law 4174/2013, taken before or after the bankruptcy declaration, are suspended as regards the part relating to the debtor until the revocation of the bankruptcy decision or until the closing of the bankruptcy procedure or the cessation of its works. In case that the bankruptcy decision provides for the sale of business’ assets as a whole or of its distinctive operational units and under the condition that the asset, which is given as collateral, constitutes a part of the business’ assets for sale, the suspension is in force from the issue of the court decision for all secured creditors as well. 

13. The announcement of the creditor’s claim is registered with the Electronic Solvency Register and so the announcement of the creditor and its documents are not submitted to the secretary of bankruptcies, which is in force now according to Law 3588/2007. 

14. Further to the completion of the inventory, the administrator shall, without any delay, liquidate the debtor’s assets, disconnecting the assets’ liquidation from the verification of creditors’ claims procedure, which is in force now. 

15. Two (2) alternative forms for assets’ liquidation are provided: a) the liquidation of the assets of the bankrupt estate separately, i.e. via the sale of Chapter C’ via the publication of a relevant announcement of an auction with a first bid price or b) the sale of business’ assets as a whole or of its distinctive operational units. The request for the sale of business’ assets as a whole or of its distinctive operational units is submitted as part of the (bankruptcy) application, or pursuant to a supplementary intervention at the court hearing, according to the abovementioned (no. 5). 

Specifically, the express procedure of the special administration  (Law 4307/2014) is introduced as an alternative procedure for the sale of the bankrupt estate. The said law is repealed and now the provisions of art. 73 of Law 4307/2014 with the required adjustments are incorporated into the new Bankruptcy Code. The main adjustments are the following: a) A Notary Public is appointed for conducting the auction, b) The tender is taking place electronically via the platform “e-auction”, without a first bid price, c) Within one (1) month from the electronic auction, the creditors’ assembly shall meet without delay and approve or reject the transaction. However, the creditors’ assembly might approve the transaction under the condition of the improvement of the proposed offer, thus the bidder is obliged to submit an improved offer within ten (10) days from the administrator’s request.

 16.Regarding the disposal of the auction proceeds and the creditors’ classification, the articles 154-156A of the existing framework (Law 3588/2007) are abolished and it is provided that the creditors’ classification is subject to the respective application of articles 975-978 of the Greek Code of Civil Procedure with the following amendments. Specifically, there are some alterations relating to the retention of the general lien for financing and other benefits in the context of a rehabilitation agreement or negotiation for such agreement. 

17.It is provided that for the purposes of covering any costs and expenses of the bankruptcy procedure, the administrator – after having a relevant approval by the creditors’ assembly- might receive financing, which will be considered as  a creditor group credit. 18.The ipso jure exemption of the debtor/natural person from any debt against its bankruptcy creditors is also provided, after three (3) years from the bankruptcy declaration or the registration (of his/her name) to the Electronic 

Solvency Register, or even faster, after one (1) year from the bankruptcy declaration under the conditions set out by Law (with a special regulation for the case of a second exemption within a five (5) years period). In case there is any reason for the non-exemption of the debtor, any person having legitimate interest can appeal against such exemption. 19.The debtor is not released from debts that arose after the submission of the bankruptcy application (in case of debts towards the State, the crucial time is the one relating to the time that the obligation was born and not the time that the legal title was acquired) and from debts arising from deceit or gross negligence, which caused the decease or injury of an individual, debts arising from the offenses of Law 4557/2018 (GG A’ 139) and debts relating to maintenance, while the option for the recall of the exemption, as a whole or  partially, and the relevant conditions are also provided by Law. 20.The exemption of a legal entity’s representative or its managers from any liability of the debtor’s (legal entity) debts is also provided, as long as such liability arose within the suspect period or during the thirty six (36) months before it. The said exemption takes place after thirty six (36) months from the submission of the bankruptcy application or after twenty four (24) months from the bankruptcy declaration, or the submission of the trade name in the Electronic Solvency Register, whichever of these comes first, unless an appeal is filed within the aforementioned period against the exemption by everyone having legitimate interest. 21.The exemption of the debtor or its representative (in case of a legal entity) from the debts shall not affect by any means the continuance of the liquidation procedure, the distribution of the assets of the bankrupt estate and the creditors’ rights over them.

Objectives

Via the abovementioned procedures provided in the Second Book of the Law, and the definitely groundbreaking provisions for Greek standards, the liquidation is accelerated, the creditors’ role is strengthened, the use of an electronic register is established for all the announcements, the communications and the procedural steps of submissions, the bankruptcy of natural persons and the respective exemption of their debts is provided, making the bankruptcy procedure more simple, transparent and efficient. However, the restrictions regarding the provision for the exemption of the debtors and the legal entities’ representatives from their debts, raises concerns, as on the one hand a significant number of debtors has been convicted for tax evasion, or a prosecution for such offense against them is pending. On the other hand, with regard to the exemption of the legal entities’ representatives from the debts of the legal entity, this is provided only for a limited period, given the fact that a legal entity is declared bankrupt for accumulated  debts of many years, for which no exemption is provided by the Law. Finally, the ability of the administrator’s appointment by the applicant aims at the acceleration of the administrator’s appointment procedure, as well as to the avoidance of his appointment’s refusal, which is commonly observed in practice and not only blocks the process from going forward, but also burdens the Courts, that are responsible for appointing a new administrator. 

*The present document constitutes  one out of three alerts, regarding the context of Law 4738/2020 titled “Debt settlement and second-chance arrangement and other provisions». Please also see and the other related alerts titled “Insolvency Practitioners” and “Rehabilitation of legal entities” accordingly.

About Platis - Anastassiadis & Associates

Platis - Anastassiadis & Associates is part of the ΕΥ Law network operating in 83 countries globally and is comprised of 2,200+ people.

We are an independent law office with a core team of 25 lawyers. Our office provides high quality legal services across the full range of commercial and financial transactions.

Especially in our geographical area, we have established an ongoing cooperation with the respective law firms which are associated with EY, in order to offer seamless and consistent regional services to our clients that have cross country operations.

Our experience allows us to better understand our clients’ needs and offer them integrated multidisciplinary solutions in the fields of accounting, tax and financial advisory services. Platis – Anastassiadis & Associates law office is solution focused. We work closely with our clients to seek innovative and practical ways of dealing with their issues. Our priority is to help our clients meet their business objectives. Our expertise, commitment and enthusiasm has resulted in the build up of a client base which includes local and international listed, state and private sector companies and financial institutions.