A severe financial crisis has hit Greece for the last ten years. As is widely known, from 2010 until recently the country has sought bailout loans from the International Monetary Fund, the European Commission and the European Central Bank, being unable to service its public debt on sustainable terms. The bailout loans were accompanied with Memoranda of Understanding, signed by the creditors and the Greek State, imposing structural reforms on the public domain in Greece, structural reforms in the Greek economy and austerity measures, affecting both the majority of the population and also the economy in general. Moreover, the Greek banking system has also been bailed out through a series of recapitalisations, accompanied by strict monitoring of the handling of current exposures and of the terms and conditions for new credit exposures.
During the last few years (2016 to mid-2020), however, the Greek economy seemed to have regained a positive prospect. As reported by the Bank of Greece, until mid-2020, the economy posted positive growth, deflationary pressures were contained, employment picked up and unemployment decreased.
Moreover, the European Commission recognised that fiscal and external flow imbalances have been largely corrected, the general government balance was positive in 2016 and 2017 and in 2018 Greece has met the primary surplus target of 3.5% of Gross Domestic Product. The economy had started to recover, with growth at 1.4% in 2017. As of 21 August 2018, the financial assistance of the European Stability Mechanism has expired and Greece is subject to enhanced surveillance under Article 2(1) of Regulation (EU) No 472/2013. Moreover, following general elections in July 2019, a new government has been elected which aims to promote privatisations and investments as the means to overcome the consequences of the financial crisis and lead the country to sustainable growth.
Unfortunately, the pandemic of COVID 19 has deteriorated the Greek economy and material recession is expected for financial year 2020 and – most probably – 2021. This is due to the lock down of the economy for a material part of 2020 as well as limited revenues from tourism, which is the driving force for Greek economy.
Moreover, during the last few years and to the present, the loan market in Greece has been struggling to cope with the inevitable consequences of the financial crisis. Even prior to the COVID-19 crisis the banking system in Greece was faced with a great amount of Non-Performing Exposures (reported to 43.5% of total on-balance-sheet exposures) and banks are reluctant to offer new money to existing or new customers, at least under terms comparable to those offered by credit institutions in other EU and other Eurozone countries to their customers.
Greek banks have had to adjust to a modern exposure handling environment, concerning both performing and non-performing loans as well as the provision of new credit facilities. By virtue of Greek Law 4224/2013, accompanied by secondary legislation by the Bank of Greece, a new Banking Code of Conduct has been enacted. The Code of Conduct establishes general principles of conduct, both by banks and borrowers, with a view to setting specific rules under which a credit facility may be terminated and also to regulating the spectrum of alternatives for the settlement of debts in arrears, taking into account the specificities of each borrower.
The "hot topic" in the loan market in Greece is the management and transfer of non-performing loans. Recently enacted Greek legislation (Greek Law 4354/2015) refers to the regulatory requirements for an entity to be licensed to manage and acquire either performing or non-performing loans, as well as the terms and conditions of any transfer of loans. Many entities have sought and acquired the respective authorisation of the Bank of Greece and a considerable number of transactions of sales of NPLs have been concluded between Greek banks and entities licensed under the new Law.
Finally, during the last years the banking system has been developing and implementing a number of "closure solutions" for NPLs of businesses, such as operation restructuring solutions, debt to equity swaps, etc.
The loan market in Greece has been highly affected by the COVID-19 pandemic, mostly regarding the NPLs of private borrowers and commercial loans of affected sectors of the national economy. In mid-2020, Greek financial institutions agreed to suspend payment of a number of loan instalments for a period of three months for borrowers of mortgage loans and consumer credit. Moreover, the Government has declared aid measures that will support mortgage loans, granting up to 90% of the instalments for a period of nine months. The percentage of state aid grants will differ depending on criteria set by new legislation. State aid will be higher for performing loans.
Payments may also be suspended for business credit, under specific conditions. In addition, there are provisions introducing financing of enterprises, ensuring interest-free working capital for the first two years. Greek financial institutions have drafted new loan programs, providing (max) five-year finance to enterprises via loans under State guarantee issued by Hellenic Development Bank, covering up to 80% of the principal amount of the loan. Although these new loan programs are addressed to all types of entities (small, medium-sized and large enterprises), due to their terms (eg, high interest rate, financial good standing of the borrower, tax clearance certificates) they might prove to be prohibitive for enterprises in the margin of solvency. State guarantee is reported to secure a total amount of EUR7 billion of credit, subject to increase.
The Greek Government has repeatedly stated its intention to implement additional measures to support the economy and the loan market in particular, depending on the actual impact of the pandemic within 2020.
Due to the scarcity of new money available through the banking system in Greece (attributable to the crisis described in 1.1 Impact of Regulatory Environment and Economic Cycles), some high-capitalisation companies have sought alternative means of financing through the bond market of the Athens Exchange, as well as the bond markets of other EU member states (especially Luxembourg). A considerable number of entities with shares listed on the Athens Exchange, as well as non-listed entities, have opted to issue bond loans through public offerings, and to list those bonds in a regulated market. This has provided the necessary financing to big-cap entities, but has nevertheless altered the "classic" relationship between the debtor and its creditor, which was usually a bank or a syndication of banks.
Despite the fact that the Greek banking system is reluctant or unable to cover the economy’s need for new credit, there has been no sign of any growth in alternative credit providers – or at least credit providers operating under a regulated basis. The banking system (coupled with the high-yield bond market, as discussed in 1.3 The High-Yield Market) remains the main credit provider in the country.
The Greek crisis has resulted in the banks being very reluctant to offer new money to the economy. If new credit is to be offered, usually the bank will seek to overcollateralise its exposure in order to defend itself from fluctuations in the market. Moreover, as discussed in 1.1 Impact of Regulatory Environment and Economic Cycles, the management and sale of NPLs has recently become the "hot topic" in the market. Apart from this, we do not see any material alteration in the banking and finance techniques or the contractual documentation employed.
Apart from the new regulatory regime for the management and acquisition of loans (Greek Law 4354/2015, discussed in 1.1 Impact of Regulatory Environment and Economic Cycles), and Law 4469/2017 offering a new regime for out of court settlement of private debt towards credit institutions (a regime not yet tested in practice), there are no other legal developments that could materially affect the loan market in Greece.
Directive 2013/36/EC has been implemented into Greek law by virtue of Law 4261/2014 on the establishment, operation and supervision of credit institutions. As per Article 11 of Law 4261/2014, a credit institution may undertake the following activities:
As per the provisions of Law 4261/2014 and Directive 2013/36/EU, all of the above business activities can be freely exercised by credit institutions of any EU member state, either by virtue of the establishment of a branch, or by means of providing services without establishment (cross-border), provided, however, that such foreign credit institution has the respective capacity under the rules of its home state. In addition, credit institutions of non-EU states may also provide their services in Greece following authorisation by the Bank of Greece, issued under the provisions of Article 36 of Law 4261/20014 (Article 47 of Directive 2013/36/EU). All credit institutions operating in Greece are subject to the supervision of the Bank of Greece.
Moreover, the Bank of Greece also authorises the establishment of leasing companies, the operation of which is governed by Law 1665/1986, as well as factoring companies, which operate under Law 1905/1990.
Regulation of Credit Companies
Article 153 of Law 4261/2014 refers to the regulation of credit companies, which are also under the supervision of the Bank of Greece. Credit companies may grant credit to individuals for consumer and personal needs under conditions similar to those applicable to credit institutions. Specific acts of the Governor of Bank of Greece stipulate the details for the establishment and operation of such entities (currently Act 2622/21.12.2009). Credit companies may not accept deposits. The minimum initial capital required for the establishment of a credit company is half the initial capital required for the establishment of credit institutions.
Electronic Money Institutions
Articles 9 to 30 of Greek Law 4021/2011 implement the provisions of Directive 2009/110/EC on the taking up, pursuit and prudential supervision of the business of electronic money institutions. Electronic money institutions are also under the supervision of the Bank of Greece. Under Article 12, Paragraph 1 of the above-mentioned Law 4021/2011, the Bank of Greece is the competent authority for the authorisation and prudential supervision of electronic money institutions. Electronic money institutions are required to hold initial capital of not less than EUR350,000.
Under the Law, electronic money institutions are entitled to engage in the provision of one or more of the payment services, as well as of other ancillary and closely related services. However, electronic money institutions may not take deposits or other repayable funds from the public. The issuance of electronic money does not constitute a deposit or other repayable fund-taking activity. Furthermore, the granting of interest or any other benefit related to the length of time during which an electronic money holder holds the electronic money is prohibited.
Finally, the special purpose entities operating under Law 4354/2015 on the management and acquisition of NPLs may provide credit for loan or business restructuring purposes, provided that they have obtained a respective licence from the Bank of Greece and that their minimum paid share capital is EUR4.5 million.
There is no regulatory restriction on foreign lenders granting loans and other forms of credit, provided that these lenders are properly licensed in Greece, as per the provisions described in brief above (2.1 Authorisation to Provide Financing to a Company).
Under Greek law, there is no restriction on or impediment to the granting of security or guarantees by foreign lenders.
As of June 2015, and until August 2019, capital controls had been imposed in Greece by the government. Initially, these resulted in strict restrictions on bank transfers from Greek bank accounts to foreign bank accounts and limitations on cash withdrawals, measures to avoid an uncontrolled bank run and a collapse of the Greek banking system at that time. Such capital controls were gradually lifted and their consequences for the Greek economy ameliorated.
As of August 2019, all remaining restrictions have been abolished and currently there is no restriction or control applicable regarding foreign currency exchange and payments inside and outside Greece.
There are no legal restrictions on the borrower’s use of proceeds from loans or debt securities. That said, it is a commonplace that loan documentation provides for a representation by the borrower on the use of the proceeds of the loan. If the borrower fails to honour such representation, the lender usually reserves its right to terminate the loan and accelerate repayment.
The concepts of agent and trust are not directly recognised in Greek law. The general rule under the Greek Civil Code is that security can only be created in favour of the specific creditor of the secured obligation. Such security has to be executed, perfected, registered and enforced in favour of the particular lender (and, in the case of multiple lenders, in favour of each lender individually).
The general rule might be passed over in practice via a number of structuring variations. Firstly, the majority of credit facilities given to incorporated entities in Greece (mostly SAs) is given through the issuance by the borrowing entity of bond loans, covered by the creditors. The creditors may, under the law governing the issuance of bond loans in Greece (Law 3156/2003), appoint a bondholder’s representative to act on their behalf.
Security over the assets of the borrower entity could be registered in the name of the bondholder representative and not necessarily in the name of each lender individually. Additionally, in complex financing projects other alternatives may also be used, such as the choice of foreign law as the law governing the financing agreements or intercreditor agreements, regulating such issues, albeit at a contractual level between lenders.
Provided that transfer of the contractual agreement is not contractually restricted, the transfer of the lender’s rights is performed under Greek law by means of assignment of claims. Under Greek Civil Code, an agreement on assignment is executed by the assignor and the assignee only and, therefore, does not require the consent of the borrower. The assignment agreement has to service the borrower (with exceptions). As a consequence of the transfer of the principal agreement (credit agreement), the collateral securing the assigned claims is also transferred automatically. That said, new perfection requirements might be needed in such a case (eg, registration of the assignee at the registries).
It should be noted that, in cases where a loan is granted as a bond loan issued by the borrower and covered by the lender(s), transfer of the loan could be performed by virtue of transfer of the bonds issued. In the case of bond loans, collateral is registered in the name of the bondholder representative, acting on behalf of the bondholders. If the bonds are transferred, the new bondholders may appoint a new bondholder representative to act on their behalf for all collateral-related issues.
The contracting parties (lender, borrower and sponsor) are not restricted from agreeing on the buy-back of debt.
Commonly, the contractual terms in public procurement projects as well as other major projects involving financing require that the developer of the public work or project has sufficient evidence of certainty of funds. Usually, commitment of funds is a prerequisite for the award of any such project. In the specific case of acquisition of listed entities through a tender offer, the offeror is legally obliged to evidence certainty of the funds required for the acquisition of the target entity (Law 3461/2006, Article 9, Paragraph 3).
Payments of principal are not subject to withholding tax under Greek law. Withholding tax is payable on interest and amounts to 15% of the amount of the interest. A number of double tax treaties are in place between Greece and foreign countries, under the terms of which withholding tax may be reduced or even eliminated.
The general rule is that any non-resident company in Greece may have a liability to pay income tax to the Greek tax authorities on any income deriving from a Greek source. However, broad exemptions apply to this and relief may also be available under a double tax treaty. Additionally, as a general rule, credit agreements are subject to stamp duty. This rule is, however, subject to a number of exceptions, the most important being that loans offered by credit institutions are exempt from stamp duty.
The percentage of interest agreed on for loan agreements executed between parties, neither of which is a credit institution, is subject to statutory limitations. Loans offered by credit institutions are not subject to any such statutory limitation on the amount of interest. Nevertheless, Greek Courts may, when judging on the merits of each particular case, decide that a particular interest rate is commercially unreasonable and reduce it as appropriate.
The bargaining power of the contracting parties might play a significant role in the respective assessment and, therefore, the possibility of reassessment of the interest rate might be higher for consumer loans than business loans.
All types of assets of the borrower are available as collateral for the lender. These typically include real estate property, machinery, inventory, receivables, bank accounts, insurance contracts, intellectual property, shares and other securities as well as security in personam (corporate guarantees as well as guarantees by individuals).
As regards in rem security, under the Greek Civil Code this could be divided into two major categories: security over real estate property (mortgage and pre-notation of mortgage), and security over movable property and receivables (pledges, charges).
A mortgage over real estate property is granted either by virtue of a legal provision, a final court decision or a contractual agreement executed by means of a notarial deed. A mortgage is perfected upon its registration with the land registry or cadastre of the district where the real estate is located. A pre-notation of mortgage is granted by virtue of court decision issued under the procedure of interim measures and is also perfected by means of registration with the land registry or cadastre.
The major costs related to the perfection of a mortgage involve a notary fee of 0.10-0.80% of the secured amount (depending on the value of the transaction) plus VAT. If the mortgage secures claims under a bond loan of Law 3156/2003, then the proportional fees of the notary public are limited to 1/20 and may not in any case exceed the amount of EUR2,500. Moreover, a mortgage registration fee is payable and such fee amounts to circa 0.8%.
If the secured claim derives from bond loans, the registration of a mortgage is subject to a flat fee of EUR100, pursuant to Article 14 of Greek Law 3156/2003. A pre-notation of mortgage is not subject to any notarial fee and bears only the registration fees, which are identical to those for the registration of a mortgage.
Under the Greek Civil Code, a pledge is created by means of an agreement in writing bearing a certain date (ie, a notarial deed or document serviced by a court bailiff) and the acquisition of the possession of the pledged asset by either the pledgee or a third party acting as custodian. In cases of a pledge over receivables (claims), the third-party obligor needs to be notified. The procedure described in the Greek Civil Code is slightly changed in cases of pledges in favour of credit institutions, as the provisions of legislative decree of 17.7-13.8/1923 are applicable. Creation of pledges does not bear a significant cost, at least in the majority of cases where no public registration is required.
Greek law also recognises special cases of pledges/charges, such as the floating charge, notional pledge (pledge without transfer of possession from the pledgor to a third party) or a pledge/charge under the provisions of Law 3301/2004 on financial collateral.
Greek law also recognises securities in personam. These refer mainly to personal or corporate guarantees. Guarantees are widely used as collateral, given that they do not bear a significant cost and constitute security enforceable over the total of the assets of the guarantor.
Apart from personal and corporate guarantees which, as just discussed, are used widely, a pre-notation of mortgage is preferred in the case of real estate collateral. In the case of security over movable property and receivables, all types of pledges/charges are used.
Floating charges are recognised and regulated by Greek law (Law 2844/2000). Floating charges are registered in a public registry of charges and the date of registration is the decisive factor for any priority issues.
Under Greek law, downstream guarantees are freely permitted and in fact are quite customary. Upstream and cross-stream guarantees are subject to specific regulations, stated in Greek Law 4548/2018 on SAs. According to the Law, the general rule is that the granting of upstream and cross-stream guarantees and collateral is permitted if the Board of Directors of the company was approved such corporate act and provided that the BoD’s approval was not challenged by minority shareholders. If challenged, the approval is referred to the General Meeting of shareholders.
That said, it should be noted that the availability of corporate guarantees is also restricted by financial assistance rules and corporate governance rules. Under applicable corporate governance rules, a corporate benefit requirement is material, particularly in respect of the granting of upstream or cross-stream guarantees or collateral in general. The board of directors of the company is under a duty to promote the corporate interests of the company itself, which are not necessarily identical to the corporate interest of the group as a whole.
Under the rules applicable on incorporated entities (Law 4548/2018 on SAs and Law 3190/1955 on limited liability companies) the corporate entity may not refund (pay back), totally or partially, one shareholder’s participation in its share capital. Moreover, the incorporated entity may not (as a general rule) provide advance payments, loans or guarantees in order for a shareholder to acquire its shares. All the above rules refer to the same principle of corporate law, ie, that the amount of the share capital of the company should always remain available to the company’s creditors and should not be indirectly paid back to its shareholders.
The above rule is also applicable in cases of acquisitions of companies through any procedure, including a public tender offer. In practice, this rule has been circumvented in buy-out transactions by virtue of an eventual merger of the target entity with the offeror (usually an SPV). In this case, the debt of the offeror for the acquisition is transferred to the target entity as a result of the merger.
There are no other material restrictions, costs or consents required in order for security or corporate guarantee to be granted.
All non-registered security interests are released by mutual agreement of the signing parties, under the terms of such agreement. The respective agreement should also be filed in the appropriate registry in order for any registered security to be released. Under Greek law, repayment of the debt or extinction of the debt for any other reason (eg, due to invalidity of the debt agreement, statute of limitations etc) also results in the release of the security provided for the debt.
In such a case, however, it is customary for the signing parties to sign an acknowledgment of release agreement, which is filed to the respective registries. The interested party may also file a petition to the Court for a judicial acknowledgment of the release of the security.
Under Greek law, security interests are ranked according to their time of creation/perfection. Usually, in cases of conflict between registered and non-registered security interests, time priority shall prevail. Exceptions are applicable to this rule and, therefore, it is considered prudent to follow registration formalities when registration is an option.
Only after the higher-ranking security interests have been settled or discharged in full will the lower ranking ones be settled. Contractual agreement on subordination is possible, provided that it does not affect existing rights of third parties (eg, subordination between creditors with first and third priority may not alter the rights of the creditor with second priority).
Collateral may be enforced in cases of termination of the credit agreement. A credit agreement may be terminated in cases of the occurrence of events of default, which – apart from default in repayment of amounts due – can also include the failure to meet representations, warranties, positive and negative obligations etc. Therefore, the termination and enforcement of collateral may be initiated on a number of occasions. It should be noted, however, that Greek courts may – in limited circumstances – judge that termination of a credit agreement for reasons other than failure to pay amounts due is abusive and not permitted.
Although there are particularities depending on the type of collateral, the terms of the security agreement and the terms of the credit agreement, the general rule is that enforcement is initiated if the creditor has obtained a respective order, usually by the courts. The proceedings start with the confiscation of the assets involved and end up with their liquidation (usually via a public auction to the highest bidder). A number of exceptions apply, notably regarding traded shares, financial collateral and other types of collateral, for which the enforcement procedure is less burdensome.
Usually, enforcement proceedings run for a long period of time, the defendant (security provider) having many opportunities to challenge the procedure and prolong it. Moreover, from a business point of view, it is notable that public auctions may not result in repayment at market prices, due to formalities regarding the participation as well as the limited interest of third parties. Further, due to a series of rules on priority, the collateral taker may end up with considerably less value than the actual value of the collateral.
Rules of Priority
The Greek Code of Civil Procedure (GCCP) governs the rules of priority for repayment by the proceeds of the auction. Under the GCCP the order of repayment depends on the type of claims being notified following the auction. These may be:
The order of payment from the proceeds of the auction is as follows: firstly, all expenses related to the auction procedure are paid. Following payment of the expenses, the proceeds of the liquidation of the collateral are divided, 65% is paid to priority creditors under a special privilege (this category typically includes the collateral taker), 25% is paid to creditors under a general privilege (typically the state and social security funds) and 10% is paid to unsecured creditors. Special treatment is offered for claims secured under financial collateral legislation (Greek Law 3301/2014, implementing Directive 2002/47/EC). These claims are paid as per the terms of the respective collateral arrangement.
Recent legislation (Article 977A of the GCCP, introduced by virtue of Law 4512/2018) has altered the order of payment in certain cases of auctions. These refer to auctions of assets which were firstly provided as collateral after January 2018. In such cases, there is no division of the proceeds to 65%, 25% and 10% and the order of priority is as follows:
Firstly, all expenses related to the auction procedure are paid. Following this payment, claims of employees of the debtor as paid as super priority claims. Super-priority claims are claims of the debtor’s employees for unpaid salaries within the six months prior to the auction. Salaries are capped per person. Following payment of above super-priority claims of employees, claims of priority creditors under a special privilege (claims secured by collateral over the asset) are paid. Then, claims of creditors under a general privilege are paid and finally unsecured claims are paid.
It should be noted that the above rules of priority of the GCCP may be altered, if enforcement of the security takes place under the provisions of the legislative decree of 17.7-13.8/1923. This specific legislation is applicable to credit provided by credit institutions and offers a favourable enforcement regime for various types of collateral, including -in many cases- super priority of the borrower over the proceeds of the liquidation of the collateral.
In the majority of cases, Greek law rules on private international law (conflict of laws rules) permit the choice of foreign law, submission to foreign jurisdiction of either court or arbitration, and a waiver of immunity. This is subject to exceptions, notably those of the Rome I and II Regulations (Regulations EC 593/2008 and 864/2007).
Foreign judgments and arbitral awards are usually enforceable in Greece without a retrial on the merits. For judgments from other EU member states, the respective EU rules apply. Moreover, Greece has conducted a number of bilateral and multilateral conventions on recognition and enforcement of foreign court awards. In addition, Greece has signed the New York Convention of 1985 on the recognition and enforcement of foreign arbitral awards.
Apart from the issues covered in 6.2 Foreign Law and Jurisdiction and 6.3 A Judgment Given by a Foreign Court, there are no other material hurdles to a foreign lender’s ability to enforce its rights under a loan or security agreement.
Greek Law 3588/2007 (the Greek Bankruptcy Code (GBC)) regulates both the "classic" bankruptcy as well as the pre-bankruptcy procedure of rehabilitation (Articles 99 et seq of the GBC). In order for the rehabilitation procedure to commence, the debtor must file a petition before the court accompanied by a "pre-packed" agreement with the majority of its creditors. In order for the court to be able to certify any pre-packed rehabilitation agreement, the agreement should be accepted by creditors of the debtor representing at least 60% of the total debts, including at least 40% of the debts owed to secured creditors.
The parties to the pre-packed rehabilitation agreement have a great amount of discretion regarding the contents of the agreement. The agreement may provide for haircuts to all or some of the debts (including the debt of parties not signing the agreement), restructuring of the business and/or the loans of the debtor, debt-to-equity swaps, sale of business units, etc. Under the Law the sole material limitation to the contents of the rehabilitation agreement is the following: any creditor that has not signed the agreement may not be put in a position worse than the position they would be in if the assets of the debtor were to be liquidated under bankruptcy.
This is of importance in cases where the Law offers a particular creditor priority over the liquidation proceeds in bankruptcy; in such a case, their claims following the ratification of the rehabilitation agreement may not be lower than what they would have gained from a liquidation of the debtor’s assets in bankruptcy.
Applying for Court Certification
A debtor wishing to apply for court certification of a rehabilitation process may apply to the court for provisional measures, including suspension of individual enforcement measures until the certification of the agreement. These provisional measures may apply for a period of four months following petition (subject to limited exceptions where the four-month period may be prolonged). Such provisional measures may result in suspension of individual enforcement measures against the debtor’s assets as well as against assets of the debtor’s guarantors or joint debtors.
In addition to the pre-bankruptcy procedure of rehabilitation described above, Law 4307/2014 (Articles 68 et seq) regulates the second pre-bankruptcy procedure available under Greek insolvency legislation. Currently, this is the sole pre-bankruptcy procedure under Greek law that could be initiated regardless of the consent of the debtor. In order for this procedure – the "special administration" regime – to be initiated, the debtor should be in cessation of payments (or a similar situation of distress) and the petition for setting the debtor under special administration should be signed by creditors representing at least 40% of the total claims against the debtor.
The procedure under Law 4307/2014, though stated as an administration procedure, is in fact a fast-track liquidation procedure. The administrator is obliged to proceed to a public auction of the assets of the debtor as soon as possible. The scope of the Law is for the assets of the business of the debtor to be sold as a whole, thus aiming to obtain a higher liquidation price.
Following liquidation of the assets, the debtor’s creditors are paid under the priority rules of the GBC, as described in 7.3 The Order Creditors Are Paid on Insolvency.
Upon the appointment of the "receiver" under bankruptcy procedures, or the "special administrator" under the procedure of Law 4307/2014, all rights of unsecured creditors to proceed to individual enforcement against the debtor’s estate are suspended. All unsecured creditors are to be satisfied at the end of the procedure through the proceeds of the liquidation of the estate, under the priority rules described in 7.3 The Order Creditors Are Paid on Insolvency.
The general rule is that the rights of secured creditors (creditors having mortgages, pre-notation of mortgages, pledges or charges) to proceed to enforcement over the particular collateral concerned are not affected by the commencement of the bankruptcy or special administration. The secured party may enforce its rights over the collateral and proceed with the normal procedure of liquidation through a public auction, as described in 6.1 Enforcement of Collateral by Secured Lenders.
The rule that secured creditors are not affected by insolvency procedures is subject to a number of exceptions. In particular, the creditor may not proceed to individual enforcement regarding assets deemed necessary in order for the receiver or special administrator to continue to operate the business of the debtor, if such continuation of the debtor’s business in considered to be beneficial to the creditors. Moreover, the court may at any point issue provisional measures suspending such rights of secured creditors for a number of reasons.
The order of payment on insolvency is governed by Articles 153 to 161 of the Greek Bankruptcy Code (GBC). It should be noted that the GBC is under reform and a new codified legislation on insolvency is expected to be enacted by the end of 2020.
The rules of the GBC apply both to payments under the "classic" bankruptcy procedure of the GBC as well as under the "special administration" regime of Law 4307/2014. The rules are similar to the rules of the Greek Code of Civil Procedure regarding the order of payment following liquidation of a debtor’s asset.
Under Greek insolvency rules, the creditors of the debtor (ie, the individual or entity in insolvency) are divided into four major categories:
Treatment of Creditors
The GBC differentiates between the treatment of creditors depending on the type of claims existing against the debtor. For the typical case, where the aggregate of the claims against the debtor consists of claims of all the above four categories, the order of payment is as follows:
All expenses related to the insolvency procedure are paid. These include fees and expenses of the liquidator or administrator as well as the claims of any third party during the bankruptcy proceedings (eg, new agreements executed by the liquidator/administrator, new money given to the debtor during an aborted rehabilitation/restructuring procedure).
Following payment of the expenses, the proceeds of the liquidation of the estate are divided. 65% is paid to priority creditors under a special privilege (typically collateral), 25% is paid to creditors under a general privilege (typically the state and social security funds) and 10% is paid to unsecured creditors. Greek insolvency legislation makes an explicit exception for the priority of any claim secured under financial collateral arrangements (Greek Law 3301/2014, implementing Directive 2002/47/EC). Such a claim is paid as per the terms of the respective collateral arrangement.
Altered Order of Payment
Recent legislation (Article 156A of the GBC, introduced by virtue of Law 4512/2018) has altered the order of payment in certain cases of auctions. These refer to auctions of assets which were firstly provided as collateral after January 2018. In such cases, there is no division of the proceeds to 65%, 25% and 10% and the order of priority is as follows:
All expenses related to the auction procedure as well as fees and expenses of the liquidator or administrator are paid. Following this payment, claims by employees of the debtor as paid as super priority claims. Super-priority claims are claims of the debtor’s employees for unpaid salaries within the six months prior to the auction. Salaries are capped per person. Following payment of above super-priority claims of employees, claims of priority creditors under a special privilege (claims secured by collateral over the asset) are paid. Then, claims of creditors under a general privilege are paid and finally unsecured claims are paid.
It should be noted that the above rules of priority of the GBC may be altered, if enforcement of the security takes place under the provisions of the legislative decree of 17.7-13.8/1923. This specific legislation is applicable to credit provided by credit institutions and offers a favourable enforcement regime for various types of collateral, including -in many cases- super priority of the borrower over the proceeds of the liquidation of the collateral.
Greek Law does not recognise the concept of equitable subordination as such. Greece is a civil law jurisdiction where the concepts of good faith and business ethics play an important role in legislation and jurisprudence. Therefore, in a situation where equitable subordination would be applicable under a common law jurisdiction, the civil law principle of legal invalidity of any agreement against good faith and business ethics might be utilised to offer a similar result. Moreover, under Greek law any agreement of the debtor aiming to defraud its creditors is also subject to annulment, if certain conditions are met (Articles 939 et seq of the Greek Civil Code).
The major risks for lenders if their borrower or guarantor were to become insolvent are twofold.
Firstly, there is considerable delay in payment, as any insolvency procedure – and the bankruptcy procedure under the GBC in particular – is very time-consuming. In addition, the debtor may request that the court issue provisional freezing measures as from the filing of the bankruptcy procedure, affecting the lender’s right to enforce any collateral agreement (with exceptions).
Secondly, as described above, the payment priority rules applicable under insolvency might result in a lender not being able to receive full repayment, even for claims for which adequate collateral had been provided by the debtor.
Due to the financial crisis in Greece during the past few years, no major projects were structured or developed. On the other hand, the Greek government has undertaken the obligation to proceed to a number of privatisations in order both to modernise the management of ex-state-owned entities and also to gain more revenues to repay public debt. An independent fund has been created – the Hellenic Republic Asset Development Fund (HRADF) – to which state property was transferred.
The HRADF undertakes to sell state-owned property (ranging from real estate to share participations in listed entities) as well as to enter into other forms of privatisation agreements. The results of the operations of the HRADF are now becoming apparent, as the first privatisation tender procedures have been concluded and the respective projects are in operation mode. Recent major projects include:
As regards the law applicable to project financing, it should be noted that all projects are governed by the generally applicable law of contract and security, whereas particular fields are governed by specific legislation, eg, public procurement projects are governed by Greek legislation on public procurements (mostly implementing EU law provisions). Under the model usually applied in project finance structures in Greece, lenders (commonly consortia of Greek and foreign banks) seek to acquire revenues and assets of the project company as collateral for the financing. Security in personam is also used, but not as a predominant element.
As discussed above, under Greek law, financing is customarily provided under bond loan structures. Greek law on bond loans (Law 3156/2003) offers some considerable advantages to the parties, as the bondholder agent of the Law can be used as an alternative to the concept of security agent or trustee and bond loans enjoy a number of benefits regarding the cost for the perfection of security and other costs.
PPPs are governed by Greek Law 3389/2005. Under its provisions, Law 3389/2005 is applicable in cases where the project concerns the construction of works or the provision of services which fall within the scope of competence of public entities. The counterparty of the public entity (the private entity) assumes the risks associated with the financing, the availability and the construction of the necessary infrastructure or the provision of the services, against a consideration paid in lump sum or in instalments, either by the public entities or by the end users of the services.
A special administrative unit for PPPs determines the eligibility criteria for a project to fall within Law 3389/2005’s purview.
The major benefits for the private entity under a PPP project are, in brief, the following:
In project finance transactions there are no specific requirements for government approvals or payment of taxes, fees or other charges, or filing obligations. All related issues are governed by the same rules as for any financing or security transaction in Greece. As regards choice of law issues, it is not unusual for financing agreements for major projects in Greece to be governed by law other than Greek (predominantly, English law).
With respect to the oil and gas and power and mining sectors, the regulatory framework in Greece complies with all respective EU laws and regulations.
There are no material issues or concerns to be reported, other than those mentioned elsewhere in this chapter. As discussed in 8.1 Introduction to Project Finance, project financing documentation follows the general pattern of financing and collateral agreements in Greece.
The typical source of financing in Greece is direct bank financing.
The acquisition and export of natural resources in Greece is governed by specific ad hoc legislation, mostly implementing EU rules.
Greek legislation on environmental issues and health and safety mostly reflects EU rules on the respective subject matters.