Greece has only recently started to compile statistics on insolvency proceedings. The data available to date provides only a very basic understanding of the frequency of use, and the timeframe for completion, of the respective processes. One undeniable finding is that the bankruptcy proceeding is used very rarely, in fact there have been fewer than 200 declarations of bankruptcy in Greece for each of the past five years. By contrast, a recent study estimates that there are thousands of zombie companies, entities that are in cessation of payments that have not been submitted to formal insolvency proceedings. The recovery proceeding has been used sparingly but is generally perceived as relatively effective in producing viable recoveries. Nevertheless, the evidence on this is anecdotal rather than based on comprehensive data.
There is no evidence of a significant increase in either insolvency petitions or restructuring agreements intended for court ratification as a result of COVID-19; it is possible that such an increase will develop after the emergency measures adopted by Parliament run their course.
Greece adopted on 26 October 2020, a new integrated insolvency framework (the new Law) that covers preventive tools, in and out-of-court restructuring tools and liquidation proceedings. The new Law, styled the law for the Settlement of Debts and the Provision of a Second Chance, also promises increased data collection as it is based on an electronic registry. To the extent that market participants will perceive the new tools and proceedings as more efficient and transparent, one could expect an increase in the frequency of their use and an acceleration of outcomes compared to the situation at present.
Under the previous regime, which still applies to proceedings that were pending at the time of introduction of the new Law, there were three basic laws that applied to the restructuring and liquidation of business entities in distress.
The basic law was the Bankruptcy Code (Law 3588/2007, as amended), which included the recovery proceeding, an in-court restructuring proceeding that anticipated the possibility of ratification of an agreement reached between the debtor (not required if the debtor is in cessation of payments) and creditors that hold at least 60% of its debt and 40% of its secured debt. The Bankruptcy Code also provided for a post-commencement restructuring proceeding, the reorganisation proceeding, which required the approval of creditors by the same percentages as the recovery proceeding and court ratification. The Bankruptcy Code also provided for a liquidation proceeding that could convert into a sale of the business or parts of the business as a going concern.
The Dendias Law (Law 4307/2014) provided for an expedited sale of the business, or parts of the business, as a going concern provided that the debtor was in cessation of payments and the application was supported by creditors that hold at least 40% of total claims against the debtor, including at least one financial institution.
Out-of-court workout (OCW)
Finally, there was an out-of-court workout (OCW) proceeding (Law 4469/2017) that provided for the multilateral negotiation, between a debtor and its creditors, of a restructuring agreement that could receive court ratification. This OCW agreement involved an automated-platform-assisted negotiation that was open to all creditors whose claims were disclosed by the debtor.
Some partnerships could also be allowed to participate in a proceeding intended for over-indebted households that empowered the judge to provide haircuts to, and rescheduling of, the debt, as well as protection from enforcement for primary residences that form part of the partnership’s estate (especially for general partnerships, to which legal partnerships under Greek law are akin).
The New Code
The new Law, which came into force in part on 1 March 2021 and fully on 1 June 2021, introduced a wholly new regime.
Out-of-court workout (OCW)
The first available tool is the new OCW, which is entirely out of court. It is in fact a framework for the debtor to ask for a proposal from its creditors, when those creditors are financial institutions. That proposal may be formulated on the basis of an automatic tool specified by a ministerial decision. If a majority of the financial institutions elect to make a proposal and the debtor agrees, then both the revenue office and the social security fund automatically participate in the settlement, as determined by the same automatic tool. The only relief that can be provided under the OCW is a haircut or a rescheduling of the payment. The process is confidential and leaves all other creditors unaffected.
The second proceeding is the recovery proceeding, which now incorporates the requirements of EU Directive 1023/2019 on restructuring and insolvency. This requires an agreement by the creditors, organised on the basis of two classes, the secured and all other creditors (including the State, social security funds and employees). The agreement of the debtor may not be required in circumstances such as the cessation of its payments.
The third proceeding is bankruptcy liquidation. This is a bifurcated proceeding for larger bankruptcies (everything except microenterprise bankruptcies and most consumer bankruptcies). At the time as the bankruptcy is declared, the court can decide whether to follow a going-concern sale of the business (or businesses) or to proceed with a piecemeal liquidation. For individuals, the law also provides for an automatic debt discharge following the lapse of a three-year period following bankruptcy (in some cases reduced to one year).
As outlined in 2.1 Overview of Laws and Statutory Regimes, the new Law provides for financial restructuring for debts to financial institutions and the State (both tax and social security arrears) by means of the OCW procedure.
Moreover, the new Law provides for a recovery proceeding that requires both creditor (and usually debtor) consent as well as court ratification.
Finally, the bankruptcy proceeding provides for piecemeal or going-concern liquidation of the debtor. The Greek Code of Civil Procedure (Article 1034 et seq) provides for a receivership procedure if all other individual enforcement routes have proved ineffective.
The triggering event for the compulsory filing is the cessation of payments by the debtor. Upon the occurrence of cessation of payments, the debtor’s management is required to file for bankruptcy within 30 calendar days.
Failure to file timely entails the civil liability of the members of the debtor’s management who are responsible for the delay (or even third parties that have contributed to that delay) to indemnify the damage caused to creditors by the delay, both in terms of the diminution of their recovery, as well as due to their contracting with the debtor during the latter’s insolvency. Any person who induced the directors to breach their obligation for a prompt filing is also liable.
The requirement to indemnify damages to counterparties for trading while insolvent is introduced by the new Law. The new Law also provides that delays due to an attempt to secure a recovery agreement or an OCW settlement may be excused.
Claims against management for liability arising from a delay in filing for bankruptcy are asserted by the bankruptcy administrator. The period of limitation for this liability is three years from its emergence; if, however, the delay is intentional or fraudulent, the prescription period is ten years.
Any creditor has standing to submit an application for the bankruptcy of the debtor assuming that cessation of payments has occurred.
As set out in 2.3 Obligation to Commence Formal Insolvency Proceedings as well as in 2.4 Commencing Involuntary Proceedings, the triggering event for an involuntary proceeding by either the debtor or any of its creditors is the former’s cessation of payments. The debtor is held to be in cessation of payments if it is generally and finally unable to meets in monetary liabilities as they fall due.
The new Law provides two additional points of guidance. A debtor that is in default on its debts to a financial institution, the tax authorities or a social security fund – for at least 40% of its total liabilities to that entity (60% for debtors that qualify for a small-scale bankruptcy procedure, such as consumers or microenterprises), for a period of at least six months and where the unpaid portion is at least EUR30,000 – is presumed to be in cessation of payments. Moreover, the new Law specifies that the selective satisfaction of debts does not preclude cessation of payments, which may be evidenced by the failure to meet even one significant debt that has fallen due.
A debtor can file for voluntary bankruptcy if it is in imminent cessation of payments (ie, if its general and final inability to pay its monetary debts as they fall due is imminent). There is no precise definition of “imminence” but presumably it has to be shown that it will happen within the immediate future.
The previous Bankruptcy Code also provided for the ability of the debtor to file for bankruptcy on a showing of the likely cessation of payments, provided it also presented to its creditors a reorganisation proposal, but this option has not been maintained in the new Law.
The following special provisions apply to insurance companies, banks and investment services companies.
As the statutory restructuring processes are perceived as being time-consuming and procedurally complex, the development of out-of-court restructuring processes has long been identified as critical for the handling of private debt.
Institutions under the supervision of the Bank of Greece (banks, leasing and factoring companies, servicers, special liquidators) are required to enter into bilateral debt restructuring negotiations with their co-operative debtors when those debtors are facing difficulties. This process has produced modest results.
The authorities (as well as international lenders under the bail-out agreements with the Greek State) have also recognised that a multilateral out-of-court settlement framework could facilitate financial and other debt restructuring. This led to the introduction of Law 4469/2017, which created a negotiation framework supported by an electronic platform. Agreements reached via this process could be court-ratified. However, this process proved unwieldy and found little use.
The new Law replaces Law 4469/2017 and introduces a new electronic negotiation platform that is limited only to the debtor, financial institutions, the tax authorities and social security funds. This new process allows financial creditors to discount or reschedule existing debt (the majority of creditors that are financial institutions binds any dissenting minority within the same creditor class, provided that it also includes at least 40% of financial institutions that hold security for their claims). If such a settlement is also approved by the debtor, then the tax and social security liabilities are automatically affected on the basis of a formula set by ministerial decision. In this way, the law provides for the participation of the State in an out-of-court restructuring as an inducement to a settlement offer by creditors that are financial institutions.
While there have been some cases of consensual restructurings, they are too few to allow the establishment of what constitutes a typical process or timeline. One would certainly expect to see the adoption of a standstill agreement. One would also expect the appointment of an expert to establish the elements of the necessary restructuring as well as the establishment of a creditor committee and, possibly, the engagement of counsel for the committee. It is unlikely, however, that there would be any impact on priorities, even on a consensual basis.
Super-priority is accorded to new-money investors in connection with a formal restructuring proceeding. However, new security can be provided for new money outside a formal proceeding and if provided by a bank it may not be set aside in the case of a bankruptcy.
The only constraint on the creditors is imposed by the Civil Law provision that rights may not be exercised abusively. In addition to that, one must be mindful of the prohibitions, in both the new Law and the previous one, against preferential treatment of a creditor and of transfers (as in the case of a debt for equity swap) that may be seen as defrauding other creditors (if they render the debtor incapable of satisfying its other debts).
The new Law includes an OCW process that allows the majority of financial institutions to bind dissenting lenders to haircuts or rescheduling of repayment of debt. This cram-down feature is projected in the new Law as a provision in the agreement to which financial institutions must accede if they wish to be part of the OCW process.
Otherwise, it is not at all typical for credit agreements to provide for the majority to amend the terms of the agreement.
Security is generally divided between security for immovable property and security for movables, which also includes claims such as accounts or shares and intangible property.
The following types of security are available for immovable property.
This is the basic form of security in relation to immovable property. In order to create a mortgage, a creditor must hold a title provided by law, a final court decision or a notarial deed. A mortgage is perfected by its registration in the competent Land Registry/Cadastre.
Pre-notation of mortgage
This is the most common form of security on real estate property and is created by a court order in the nature of an injunction and is perfected by its registration in the competent Land Registry/Cadastre. It can be viewed as a conditional mortgage that can be converted into a full mortgage upon the debtor’s default and the award of the creditor’s claim by an unappealable judgment/payment order with retroactive effect as of the registration of the pre-notation order. Pre-notations are far more common than mortgages because court fees are significantly lower than the notarial fees that would be payable for the mortgage deed.
The following types of security are available for movable assets.
This is the most common form of security. A pledge on a movable asset ensures the preferential satisfaction of the creditor through a forced sale of that movable asset in execution proceedings. A pledge requires physical delivery of the movable asset to the pledgee.
A chattel mortgage
Pursuant to Articles 1 and 3 of Law 2844/2000, and also known as a non-possessory pledge, a chattel mortgage allows the debtor to retain possession and use of the movable asset, and to freely dispose of it, but it attaches to the asset and ensures that the creditor is preferentially satisfied through the asset’s forced sale, following the commencement of execution proceedings.
Pursuant to Article 16 of Law 2844/2000, a floating charge enables the debtor to deal with (and dispose of) the charged assets (as specified in the agreement) in the ordinary course of business until the occurrence of either a default or an agreed event that causes the floating charge to crystallise. Following crystallisation, a floating charge becomes a fixed charge (similar to a pledge) attaching to whatever movable assets are available at that time.
Retention or fiduciary transfer of ownership
This allows the creditor, until fully paid, to retain ownership of property or have ownership of property transferred to them, but not to dispose of that property. This occurs in two situations.
The enforcement of security rights is governed by the Code of Civil Procedure. The creditor must have an enforceable title against the debtor in order to initiate enforcement proceedings. Enforceable titles are, among others, a payment order and a final and enforceable judgment. In general terms, a secured creditor has the right to force an auction of its security. The same can be done by any other creditor that proceeds to attach the asset that forms its security; however, the secured creditor is satisfied by priority by the proceeds of that auction.
The new Law provides for three different cases where enforcement is temporarily or finally blocked.
An application under the OCW process will temporarily block enforcement for up to two-months, which is the maximum duration of this process (this may extend to two-and-a-half months in special cases). Enforcement may also be suspended due to an application filed in anticipation of an agreement for the reorganisation of the debtor under the recovery proceeding or upon the filing of such an agreement for ratification. The duration of this stay may initially be set at up to four months but, pending the conclusion of a recovery agreement, in special circumstances, it may be further extended to up to six months, if:
If the stay is provided in connection with the filing of a recovery agreement for ratification, the stay usually remained in place under the previous regime until the issuance of the court’s decision. A filing, for the first time, of a recovery agreement leads to an automatic stay for four months, which may be extended by a new order of the bankruptcy court. The total duration of the moratorium under the new Law cannot exceed 12 months.
Enforcement may also be suspended in the event of an application for bankruptcy if the application provides for a going-concern sale. In all other cases, the application for, or declaration of, bankruptcy will not suspend enforcement by secured creditors. However, if enforcement has not commenced within a nine-month period after the bankruptcy declaration, then enforcement by secured creditors will no longer be possible and the securities will be liquidated by the bankruptcy administrator.
Stays do not generally affect the enforcement of financial collateral or employee salary claims.
Secured creditors enjoy both procedural protections and rights in statutory restructuring and insolvency proceedings.
The ratification of a recovery agreement requires the approval by a majority of each of the classes. The new Law provides for the formation of two classes: that of the secured and that of all other creditors (including State and social security claims as well as those of employees). The new Law also allows the secured creditor class to impose a cross-class cram-down in approving the recovery agreement, even without the consent of the majority of the unsecured creditors, if 60% of all creditors (in terms of the value of their claims) consent to the agreement. Moreover, a recovery agreement may only be ratified if it serves the best interests of creditors (ie, if dissenting creditors, including dissenting secured creditors receive at least the same recovery as in bankruptcy liquidation).
An application for bankruptcy may not provide for a going-concern sale (which will have the effect of suspending enforcement by secured creditors) if not supported by at least 20% of secured creditors (in terms of the value of their secured claims).
The new Law follows the Code of Civil Procedure in determining the ranking of claims. In broad terms, for securities created prior to 17 January 2018, secured creditors as a group are entitled to receive 65% of the proceeds of liquidation (and they are subject to the rule of absolute priority within that group). For securities created for new debt incurred after 17 January 2018 on assets previously unencumbered, secured creditors will be satisfied in priority to all other creditors except for certain employee claims.
The Law of Civil Procedure provides that for secured debts created prior to 17 January 2018, the proceeds from the disposition of the collateral, after the satisfaction of super-priority claims, are distributed 65% among secured creditors, 25% among creditors characterised as having general privilege (for tax claims, social security arrears and employee salaries and compensation arrears) and 10% to all other unsecured creditors.
For secured debts created thereafter, and provided that the collateral was unencumbered prior to the creation of the new security, certain employee claims are satisfied in priority, followed by the claims of secured creditors. In each case, the claims within each category are satisfied in accordance with the rule of absolute priority (under Greek law, securities are ranked in terms of their temporal priority). The priority applicable to satisfaction of general privilege creditors is set out in the statute, while unsecured creditors are satisfied pari passu.
A restructuring process in Greece would usually involve haircuts for unsecured creditors, although there have been cases where suppliers who were deemed essential for the continuation of the business have recovered their claim in whole (but usually in instalments over time). Those essential suppliers take advantage of an exception to the equal treatment or fairness test that allow more favourable treatment of certain creditors for significant commercial or social reasons.
Unsecured creditors are entitled to not being placed, by the terms of recovery agreement, in a worse position than they would have been in the case of the debtor’s bankruptcy. They also form one of the classes whose consent is required for an agreement to qualify for ratification, although the law also provides that if an agreement secures the approval of a majority of the secured creditors and of at least 60% of all creditors (inclusive of the secured) then it would qualify even if it did not secure the approval of the majority of unsecured creditors.
As a class, unsecured creditors do not have any particular rights in the context of a bankruptcy application of proceeding. Nevertheless, each unsecured creditor enjoys the same rights to intervene, seek information and participate in the creditors’ assembly, that belong to creditors in general.
The filing of a bankruptcy application gives the bankruptcy court the power, on the application of any stakeholder, to provide a stay for the preservation of the estate. That stay will normally preclude pre-judgment attachments by creditors.
New and interim financing provided to a debtor in a restructuring of bankruptcy proceeding can enjoy priority status. They rank prior to secured creditor claims, except for those created after 17 January 2018 and secured by assets previously unencumbered.
The new Law provides for the ratification of a recovery agreement entered into between the debtor and its creditors.
Such an agreement will be ratified by the bankruptcy court if it has the consent of the majority of creditors in each of the two classes formed in accordance with the new Law. These classes respectively include secured and all other creditors (including tax, social security and employee claims). The agreement may also be ratified if agreed only among creditors in the event that the debtor is in cessation of payments. Ratification makes the agreement binding on all creditors.
The new Law provides that 50% of the secured creditors can cram-down on the unsecured if they obtain the consent of 60% of all creditors (in terms of the value of their claims).
These percentages are based on a list of creditors compiled by an expert and based on the debtor’s books with a reference date not earlier than three months from the date of filing the agreement for ratification.
The agreement can include a rearrangement of the assets and liabilities of the debtor according to the new Law, which provides certain examples as guidance. For example, it mentions the reprioritisation of claims but only in favour of new money.
The object of the proceeding is to preserve the going concern (but not necessarily the entity of the debtor) in order to preserve value for the benefit of creditors and well as jobs, and to minimise disruption to the market (eg, to suppliers and other counterparties).
The application is followed (usually after several months) by a hearing in which other stakeholders may intervene. The time to issuance of the ratification decision varies but is usually not less than six months.
Even though unknown claims are not taken into account for the calculation of the requisite majorities, the agreement can affect them as well as contingent claims and claims that will arise up to the date of ratification. The new Law expressly exempts claims secured by financial collateral from the effects of a ratified recovery agreement.
Under the new Law, the consent of the Greek State and social security funds to the recovery agreement may be deemed to be given, even if they do not sign the agreement, under certain conditions (ie, the debt to each public law entity is less than EUR15 million, the “no creditor worse off” principle is respected, and the total debt owed to public law entities is less than the total debt owed to private creditors).
Creditors may be called to vote on a proposed agreement, but the usual process is for the necessary majority approval to be reflected in the executed agreement, which is then filed for ratification.
The procedure concludes with the ratification; however, the agreement can set conditions precedent for its coming into effect (eg, the approval by the debtor’s shareholders of debt capitalisation).
Prior to the filing of a recovery agreement for ratification, the debtor (with the support of at least 20% of the creditors in terms of the value of their claims and upon a showing that the protection is necessary as a matter of urgency) can ask for a stay of enforcement actions. Such a stay may be provided for up to four months and can be further extended to a maximum total duration of six months. Upon the filing, provided that another recovery agreement has not been filed previously, the debtor is entitled to an automatic stay of four months that can be further extended (usually to the date of issuance of the decision on the ratification application).
The debtor remains in possession during the pendency of an application for the ratification of a recovery agreement. To the extent protected by a stay, disposal of real estate or machinery is not permitted (with certain exceptions). The stay may also include other measures that, in the view of the court, will preserve its value. In other respects, the debtor can continue to operate its business.
Management of the debtor remains with its incumbent manager; however, upon the application of an interested party, the court can appoint a special agent to carry out some or all of the functions and responsibilities of management.
The debtor is free to borrow money during the pendency of an application for ratification of a recovery agreement.
As already noted, creditors are divided into two classes: secured and all other creditors. The second class include those creditors that, while being unsecured, enjoy a statutory privilege (ie, tax, social security funds and employees), as well as the unsecured ones that do not have any privilege by law.
Otherwise, there are no statutory requirements for the formation of creditor committees or for reporting by the debtor to the creditors, although these may be part of the recovery agreement or of an interim financing agreement.
If the recovery agreement is ratified, then its provisions apply to all creditors, even those that dissent (including the cramming-down of the unsecured as a class if they dissent but the majority requirements for ratification are otherwise satisfied).
There are no restrictions on the trading of claims against the debtor during the pendency of an application for the ratification of a recovery agreement. Accordingly, the rules generally applicable to an assignment of claims would also apply in this case.
The recovery process applies to entities on a standalone and not on a group basis. Applications relating to more than one affiliate could be joined and tried together, as separate but related applications.
As noted in 6.2 Position of the Company, a stay issued for the protection of the debtor imposes restrictions on the disposal of its assets. An automatic stay will also prevent a debtor from disposing of its real estate or machinery, except if replaced by other similar assets of equal value, or if used as collateral for interim financing that is expressly provided for in the recovery agreement that has been filed.
The manner of the disposal of assets under a recovery agreement is provided for in that agreement. Usually, the transfer is on a pre-negotiated basis and there is no bidding process. Outstanding creditor claims can be used as consideration for the transfer of assets to entities to which such claims are contributed (or to the creditors themselves).
The possibility of secured creditor liens and security arrangements being released is not excluded provided that, if the secured creditor dissents, its recovery under the agreement is consistent with the no creditor worse off principle.
Interim and new financing can be provided to a debtor in a recovery proceeding for the purpose of preserving its viability or keeping it as a going concern. Outside of changes brought about by a ratified recovery agreement, or consensually outside such an agreement, security on encumbered assets is possible but only as security of lower priority.
The value of claims is an issue in the agreement, while the economic interest of a creditor is critical to assessing whether the no creditor worse off test imposed by law is respected in any given case.
The fairness or equal treatment of creditors test is one of the two major tests for the ratification of a recovery agreement. Whether an agreement provides all creditors in the same position with the same treatment, except for discrepancies dictated by important commercial or social reasons, is up to the judgment of the bankruptcy court that is vested with the ratification of a recovery agreement.
Non-debtor parties, such as co-obligors or guarantors, can be released from liabilities under the agreement, but such a release cannot be imposed on dissenting creditors. Release of other parties, such as debtor management, is not foreseen as part of the recovery agreement.
A court may provide temporary suspension of set-off rights but not their termination. The rule under bankruptcy, which probably also applies in a recovery proceeding, is that the declaration of bankruptcy does not affect the right to set-off provided that the conditions for its exercise existed prior to the declaration of bankruptcy. There are special protective provisions in Greek law for set-off under financial collateral and netting of position in listed derivatives (eg, they are not affected by a stay).
The failure to observe the terms of the contract are governed by the rules applicable to contractual default, including as may be provided under the contract itself.
The law does not preclude existing equity owners receiving or retaining any ownership or other property.
Declaration of Bankruptcy
A debtor can apply to be declared bankrupt in the event that it faces imminent cessation of payments. It is required to file in the event of actual cessation of payments. The debtor’s cessation of payments in a necessary prerequisite for a bankruptcy filing by a creditor.
If the application is accepted, then the sum total of the debtor’s assets will constitute the bankruptcy estate and will be liquidated for the satisfaction of its creditors’ claims. Bankruptcies are distinguished between large and small regardless of whether the debtor is a merchant or a consumer, a legal person or an individual. For natural persons the categorisation is based on the value of the debtor’s assets. If the debtor is a legal person, then if it is a microenterprise it will follow the small-scale bankruptcy procedure.
Small scale bankruptcies are tried by the Magistrates' Court while larger scale bankruptcies are tried by the Multi-member Court of First Instance, in each case in the appropriate venue. For enterprises, venue is determined by reference to the centre of main interest (COMI), while for consumers the venue is their place of residence.
A bankruptcy petition will include the nomination of an administrator (except for applications filed by the debtor, containing a statement that the placement of an administrator who accepts their appointment was not possible; in the latter case, the petition will be heard even without such a nomination) as well as the acceptance of such appointment by the nominee. The person nominated for that function must be an insolvency professional. At the petition hearing, other stakeholders may object to the nomination and nominate other professionals. The court is expected to defer to the nomination made by the largest creditor, but has the discretion to appoint another person if they are more suitable in its reasoned opinion.
Administration of the Bankruptcy Estate
Once installed the administrator will conduct an inventory of the assets and call for the announcement of creditors’ claims. The administrator is charged with the verification of such claims on the basis of the evidence received from the debtor (such as books and records) or such evidence as it may receive from the debtors upon its request. The verification table drafted by the administrator will then be used for the purposes of distributing liquidation proceeds and it will be subject to objections and corrections at a hearing to be held at a later point (indeed, more than once, depending on how the assets are liquidated). There is no express exclusion of contingent claims from the verification process.
A declaration of bankruptcy stays all enforcement actions against the debtor, except for individual enforcement by secured creditors. The new Law provides them with a nine-month window, post-declaration, to commence such enforcement. If they fail to do so, then the stay applies to them as well.
A declaration of bankruptcy will normally divest the debtor from control of its assets. The new Law provides that in special cases the debtor may remain in possession but, at least in the past, that option was rarely (if ever) applied. Responsibility for the estate is vested with the administrator (or syndic). An administrator is a certified insolvency professional (either a natural person that has obtained the requisite certification or a professional firm that employs such certified professionals). The administrator is responsible for all matters relating to the development of the bankruptcy process and its timely conclusion, under the control of a reporting judge (also appointed by the bankruptcy court); the bankruptcy court itself for important matters and, for matters that are of particular significance to the creditors as a body, the creditors’ assembly.
Piecemeal and Going-Concern Liquidations
The declaration of a piecemeal bankruptcy will lead to the automatic cancellation of all contracts, except for those that the administrator opts to maintain in force in the interests of the bankruptcy process or the maximisation of the value of the estate. In the case of going-concern liquidations, the bankruptcy does not entail the automatic termination of pending contracts, but the counterparty has 30 days to provide the administrator with the option to elect whether to continue performance or not. If the administrator fails to respond timely, or elects not to continue, then the counterparty may terminate and seek damages, if applicable, as a bankruptcy creditor. The administrator may also elect to assign the debtor’s performance and benefits to a third party and the court may oblige a dissenting counterparty to continue its performance upon a showing that there is no harm to the counterparty and that the assignee has the ability to perform as required by the agreement.
Set-Off and Netting
The right of set-off is not affected by a declaration of bankruptcy if the set-off requirements were satisfied prior to such declaration. Netting of positions relating to trading in listed derivatives is governed by the rules of that exchange. Similarly, netting under a financial collateral arrangement is governed by the rules of that contract.
Creditors are entitled to a semester report by the administrator. In addition, the creditors’ assembly may compel the administrator to provide it with additional information, while individual creditors cannot also directly request information from the administrator.
Estate Value Distribution
The proceeds of liquidation are distributed to the creditors in one or more distributions until all assets have been disposed. At that time, the administrator will give a final accounting to the creditors’ assembly, which can release the administrator from any liability for the conduct of the process. The process terminates by a court decision or upon the lapse of five years from the date of declaration for larger bankruptcies or 12 months for the small-scale bankruptcies. For larger bankruptcies, the five-year term may be extended by the court if there are pending decisions on creditor objections relating to the distribution of proceeds, or by a decision of the creditors’ assembly for one time and up to two more years.
For bankruptcies of larger enterprises, the bankruptcy petition, if supported by 30% of the creditors in terms of the value of their claims, including 20% of the secured creditors, may include an application to sell the debtor’s business as a going concern (this may also be done in more than one constituent part, at the administrator’s discretion, subject to approval by the creditors’ assembly). In all other cases, a declaration of bankruptcy leads to the sale of the debtor’s assets piecemeal.
A going-concern liquidation is a public sale conducted by the administrator, on the e-auction platform provided for by law, that has no minimum price. The highest bid is then submitted to the approval of the creditor’s assembly. The assembly may decide to seek an improved offer or ask for the sale to be repeated. Assets that remain unsold after the lapse of 18 months are then sold piecemeal.
A piecemeal sale is always conducted on the e-auction platform (by a notary public) at a minimum price per lot (set by two certified valuators or one, depending on the value of the assets being liquidated). If the auction fails to produce a qualifying bid, the price is automatically reduced to ¾ of the original price and a repeat action is held 20 business days after the first one. If that auction is also unsuccessful, then there is a third attempt at a minimum price set at ½ of the original. If that also fails to produce a qualifying bid, the administrator is given four months to attempt to secure a negotiated sale at a price to be approved by the court. If that also fails, then there is a final auction at no minimum and any unsold assets revert to the debtor or are handed over to the State.
The only party that is excluded from participating in an auction or public sale is the debtor. There is no provision for credit bidding. There are also no provisions to either facilitate or pre-empt a stalking horse bid by a creditor. The purchase price at all auctions is payable in cash.
A pre-negotiated sale transaction is not possible in a bankruptcy liquidation. However, creditors that wish to effect pre-negotiated sales may opt for a recovery agreement as opposed to a bankruptcy petition in order to do so.
The creditors constitute an assembly, which is one of the organs of the bankruptcy proceeding. Initially, this assembly is constituted on the basis of the list of creditors that accompanies the bankruptcy petition. After the verification of claims and the posting of the table of verified claims, the assembly is reconstituted on the basis of that verification table, and it will also reflect any amendments that may arise as a result of creditor objections at the time of the distribution of liquidation proceeds.
The assembly is convened by the reporting judge and is quorate if at least 50% in terms of value participate. Decisions are taken by majority of the creditors represented at the meeting(s). They have the right to follow the development of the process leading up to the final accounting by the administrator at the time of closure of the proceeding and to compel the provision of information by the administrator. The assembly has the final word on going concern sales and can ask for the extension of the process at the five-year term.
There is no provision for the reimbursement of creditor expenses relating to their participation in the assembly. In addition, there is no provision to constitute creditor committees.
Law 3858/2010, which implemented most of the UNCITRAL Model Law, introduces the prospect of recognition of foreign insolvency proceedings as well as co-operation between Greek courts, foreign courts and liquidators of different jurisdictions. To our knowledge, there are no reported cases in which the court refused to recognise foreign proceedings. On the other hand, there are judgments reported in which Greek courts recognised foreign main proceedings and initiated secondary bankruptcy proceedings in Greece according to the provisions of the European Insolvency Regulation applicable to proceedings commenced in other EU member states.
There are no reported protocols or other co-ordination arrangements reported for cross-border proceedings.
Governing law as well as the treatment of foreign decisions or rulings are determined by Law 3858/2010 or the Insolvency Regulation, as may be applicable.
Foreign creditors are not treated in a different way than domestic creditors in Greek proceedings.
The process for recognition of foreign judgments or rulings inside the Greek territory is governed by different rules, which depend on the origin of each foreign judgment, and they are provided in several sources of law, like the Greek Code of Civil Procedure (GCCP), EU Regulations (ie, former Regulation 44/2001, where applicable, as well as new Regulation 1215/2012), and the bilateral or multilateral international treaties to which Greece is a contracting party.
As for the general process of recognition, a distinction should be made between enforcement by virtue of EU law (meaning Regulation 1215/2012) and enforcement by virtue of the GCCP and bilateral/multilateral treaties. In the case of enforcement by virtue of EU Regulation 1215/2012, the foreign judgment is considered automatically enforceable in Greece and the interested party may proceed with the specific enforcement actions provided by Greek laws without any prior involvement of a particular court. However, in the case of enforcement by virtue of a bilateral treaty or the GCCP, the foreign judgment should be first declared enforceable in Greece by the competent Greek court, which is the single member court of first instance of the place of residence of the debtor or the single member court of first instance in Athens (the latter if the debtor does not reside in Greece).
Requirements for the Enforcement of a Foreign Judgment
The governing rules for recognition, provided among the above-mentioned different sources of law (GCCP, EU law, bilateral/multilateral treaties), are not identical, but they have many similarities. More specifically, the basic requirements for the enforcement of a foreign judgment in the territory of Greece, based on the general terms of international treaties and GCCP rules are the following:
Objections to the Enforcement of a Foreign Judgment
Based on EU law (meaning Regulation 1215/2012), a foreign judgment must be automatically recognised in Greece unless:
There is a uniform principle in all existing rules of the GCCP, the ratified treaties, and the EU law, that the defendant cannot produce objections on the merits of the claim. However, the defendant can always maintain that, depending on the factual background of the case, the ruling of the foreign judgment contradicts Greek international public order and in that case the court can dismiss the request for enforcement. It should be noted that Greek law distinguishes between Greek internal public order (Article 3, Greek Civil Code) and Greek international public order (Article 33, Greek Civil Code). Greek international public order is narrower than Greek internal public order. Not all Greek mandatory provisions of Greek law are considered to fall within the notion of Greek international public order; therefore, the significance of this exception is relatively limited under Greek case law. Apart from Greek international public order, the GCCP also requires the foreign judgment be aligned with Greek good morals.
It should be noted that defendants alleging that the foreign judgment is not consistent with Greek international public order and that it is contrary to Greek good morals and in general abusive is a common pitfall in seeking enforcement of a foreign judgement in Greece. It is also common for defendants to make a judicial request for – and sometimes get – suspension of the respective proceedings within the Greek territory.
In general, Greek law provides for the following remedies of enforcement:
Thus, once a foreign judgment is recognised, the process for enforcement is the following.
First, the creditor must order the defendant to voluntarily comply with the foreign judgment automatically enforceable in Greece (if EU Regulation 1215/2012 is applicable) or the Greek judgment that recognises the foreign judgment and allows enforcement within the Greek territory (in all other cases). This official order is performed by the creditor via the service of an order for payment or compliance, which constitutes the first act of enforcement. In continuance, the creditor must wait for three business days and, if in that time nothing happens, the creditor may ask the enforcement officials (the court bailiff) to enforce the judgment against the defendant obligatorily via the means of enforcement provided under Greek law (ie, seizure and auction of real estate or movable property, seizure of claims, etc).
The main role in bankruptcy is that of the administrator. The administrator must be a registered insolvency professional. In the context of recovery, the court may also appoint a special agent to perform specific duties. That person (legal or natural) must also be a registered insolvency professional.
The administrator is responsible for the management of the bankruptcy estate from the time of declaration of bankruptcy to its closure. Among other things, it is tasked with:
A special agent in a recovery proceeding may be appointed to assist the debtor with the implementation of the agreement or to monitor the conduct of the business during the pendency of a stay order. A special agent may also be appointed by order of the bankruptcy court to vote in place of shareholders who hold out abusively against the implementation of the plan.
A bankruptcy administrator is appointed through the decision of the court declaring a bankruptcy, or, if the appointment does not take the form of an application or of an intervention at the hearing of the bankruptcy application, then the administrator will be appointed by the supervising judge.
The bankruptcy court, or the supervising judge in small scale bankruptcies, can remove the administrator for cause. The creditors’ assembly can also remove the administrator and appoint its replacement.
In a bankruptcy, the administrator takes over the debtor’s management, if the debtor is a legal entity, and assumes all its power and authority in respect of the debtor’s business and affairs.
The administrator is selected among registered insolvency professionals. Individuals can be certified as possessing the necessary skills for assuming the role of administrator or special agent (ie, to assume an office reserved for an insolvency professional). In the alternative, a professional firm can register as an insolvency professional if it engages certified individuals. Its appointment to a statutory office is conditional on using, for that purpose, a team that includes certified individuals. The law specifically refers to law firms, auditing firms and consulting firms as qualified to be registered as insolvency professionals (provided some additional requirements are also satisfied).
Greek company law provides that the duty of the members of the board of directors of a joint stock company is owed to the company itself. The duty is to act exclusively in the interests of the company, and for the pursuit of the company’s long-term economic well-being. The duties that directors owe to the corporation do not shift to the creditors when an insolvency or recovery proceeding is likely.
However, Article 127 of the new Law provides that a company’s management cannot ignore the interests of creditors when the company becomes insolvent, meaning that they must promptly file a petition for the declaration of bankruptcy so as to minimise further detriment to creditors as well as to new counterparties. The members of the board of directors who are responsible for any delay are severally liable for the damages caused to corporate creditors. Any person who induced the directors to breach their obligation to file promptly is also liable. The law provides that the damages are of two different types:
Members of the debtor’s management may also be liable to creditors if the cessation of payments is due to their gross negligence or intent. That liability may also be extended to any third party that procured such grossly negligent or intentional acts or omissions.
The law provides that a delay in filing may be excusable if it is due to an attempt to negotiate an OCW (the new Law process) or a recovery agreement in furtherance of the interests of creditors and other stakeholders.
Claims against management for liability arising from a delay in filing for bankruptcy are asserted by the bankruptcy administrator. This does not apply to claims for damages suffered by creditors due to the cessation of payments if it is due to management’s gross negligence or intent.
There are two categories of historical transactions, which precede the declaration of bankruptcy and can be annulled:
Mandatorily Voided Transfers
Gratuitous transfers, or transfers in which the consideration is disproportionately low by comparison to the value of the transferred asset, are considered adverse to the creditors and are voided mandatorily. The same treatment is extended to:
Optionally Voided Transfers
Any other transaction may be voided if the counterparty was aware that the transferor was in cessation of payments and it was detrimental to the interests of the debtor’s creditors.
Nevertheless, certain transactions are not subject to annulment.
The law also exempts listed derivative transactions from annulment under the insolvency provisions.
Historical transactions that preceded the declaration of bankruptcy can be set aside or annulled if they occurred during the suspect period. In the case of transactions that are automatically voided, that look-back period extends also to the six-month period prior to the commencement of the suspect period.
In principle, the setting aside of a transaction is the responsibility of the insolvency administrator who must apply for that purpose to the bankruptcy court. Nevertheless, creditors are not deprived of their right to claim the annulment of a transaction provided that the administrator fails to act within two months from receipt of notice. The claw-back action becomes time-barred one year from the day the administrator obtained knowledge of the transaction or, if this is sooner, two years from the declaration of bankruptcy.
Annulment claims may only be brought in connection with a declared bankruptcy and are not available in connection with the recovery proceeding.
The New Greek Insolvency Code
In October 2020, the Greek Parliament adopted a new insolvency law (styled the Law for the Settlement of Debts and Provision of a Second Chance – the Insolvency Law) that:
The Insolvency Law came into full effect as of 1 June 2021 (some provisions came into effect earlier, on 1 March 2021). Further amendments to the new insolvency law were inserted in July 2021. The Insolvency Law takes the place of Law 3588/2007, which had been amended several times before being abolished (the Bankruptcy Code 2007), while all parallel insolvency or illiquidity proceedings – such as those reliant on the Katseli Law for over-indebted individuals, the out-of-court workout (OCW), the special administration proceeding and laws for the protection of a primary residence – are no longer available for new applicants; applications that were pending when the new law came into effect will be decided in accordance with the Bankruptcy Code 2007.
The changes brought to the Greek insolvency landscape by the Insolvency Law are extensive and profound. The new legislation introduces a unified framework for the settlement of both consumer and enterprise debt for the first time in the country's history. The Insolvency Law directly implements the recent EU Directive on restructuring and insolvency (1023/2019) ahead of all other member states. As such, the Insolvency Law should also help Greece better participate in the EU banking and markets union.
The philosophy of the new Insolvency Law is straightforward: prevention should be available at an early stage and processes and proceedings should be streamlined, transparent and efficient. Failure (bankruptcy) should be followed by a second chance. Assets should be disposed of without delay, at market rates and in a manner that protects creditors’ rights. The public good is best served by the swift restoration of productive means to potentially productive uses.
Bankruptcy law in Greece goes back to the creation of the modern Greek State, as one of the earliest enactments made during the war of Greek independence was the adoption of the French Code de Commerce for commercial matters, which includes provisions for bankruptcy. Since then there have been many additional pieces of legislation governing either bankruptcy, liquidation or restructuring processes, culminating in the introduction of a Bankruptcy Code in 2007. However, during the ensuing crisis years, the provisions of the Bankruptcy Code proved inadequate to the challenges faced, and many subsequent efforts at complementing or amending the provisions of the Bankruptcy Code also proved inadequate.
As a result, in the past Greece scored very poorly in surveys such as the World Bank's Doing Business index, while it is apparent from the limited statistical information available that the core proceedings proved unpopular (eg, since 2014, there have been fewer than 200 bankruptcies per year in Greece, notwithstanding the severity of the economic crisis during that period). Even proceedings that were more favourably judged by market participants, such as the recovery proceeding and the special administration proceeding, were used sparingly.
The urgency of reform was also tied to the large percentage of loans that remain in arrears and the large number of zombie enterprises, entities that have been driven to inactivity (or underground) due to over-indebtedness without resorting to formal insolvency proceedings.
It is reasonable to expect that the Insolvency Law will enhance the value of debt collateral (and thus improve bank capital positions), by improving the simplicity, efficiency and speed of procedures, while also helping address Greece's legacy private debt problem. However, the Insolvency Law's most important legacy is likely to be the improvement of the country's entrepreneurial attractiveness. A clear framework for restructuring and bankruptcy is a critical ingredient of a modern market economy and necessary for risk taking.
The Insolvency Law:
Towards that end, it has adopted a range of techniques, several of which are discussed below.
Limited recourse to courts
Some procedures, such as the OCW, are purely out-of-court and not subject to any kind of judicial review or intervention, while in other cases, proceedings conducted are solely by written submissions to avoid the delay of having hearings. Courts are involved only for substantial and not for purely procedural actions, and some orders are entrusted to the judge rapporteur, who can issue orders without a formal hearing.
In addition, applications to court have been excluded in cases where they have been abused. One important example is the setting of minimum prices for the auctions used in the context of an insolvency liquidation. Under the Bankruptcy Code 2007, minimum prices are frequently adjudicated, both at the outset of the auction process and following its failure to produce a qualifying bid when adjustments are sought. The Insolvency Law leaves this issue in the hand of expert valuators while it also provides for automatic adjustments when necessary.
Some decisions, notably consumers’ bankruptcy petitions, may be accepted without further consideration if they are unopposed for a 30-day period following filing. This is likely to ease the burden on the courts. For the same purpose, and given the introduction of consumer bankruptcy, the Multi-member Court of First Instance, which has traditionally been entrusted with bankruptcies, will be complemented by the Magistrates’ Court for small scale bankruptcies.
Streamlining of processes
Even though the scope of bankruptcy has expanded to cover consumers, there are only two types of bankruptcy: (i) small scale for microenterprises and consumers with property of limited value and (ii) the ordinary procedure for all other debtors.
Liquidation begins immediately after the taking of an inventory; in the previous system, it followed the verification of claims and related disputes which entailed substantial delays often running to several years. If an auction fails to produce a qualifying bid, the minimum price is automatically reduced to ¾ of the initial minimum price and the new auction is set after a 20-business-day interval. After three unsuccessful efforts, there is a four-month period for a bilateral sale, and if that fails then a sale to the highest bidder without a minimum bid level. It is interesting to note that a pending proposal for a reform of the Code of Civil Procedure, on enforcement, provides for a similar system of automatic adjustment of the minimum auction price, following the example set by the Insolvency Law and replacing the current arrangement which requires the intervention of a court for an adjustment of the minimum auction price.
There are two kinds of insolvency liquidation: on a piecemeal basis or on a going-concern basis. The decision on the declaration of bankruptcy determines which of the two routes will be followed. Under the previous system, the administrator was expected to proceed to a piecemeal sale; however, a sale of the business or part of the business as a going concern was available as an option with the consent of the bankruptcy court. In order for the option to be open, the court would frequently suspend enforcement by secured creditors to preserve the integrity of the business. As a result, liquidation – either through individual or collective enforcement – advanced very slowly.
Moreover, the multiplicity of attempts at fixing the system produced overlapping processes (special administration as a separate insolvency proceeding) or procedures little used in practice (such as the reorganisation process). The Insolvency Law abolished the old system in its entirety and has combined the useful elements of the procedures that were discarded into the new procedures.
Simplification of procedures
The Insolvency Law aims to reduce the number of steps involved in the preventive and liquidation processes. For instance, the now abolished Bankruptcy Code 2007 provides that verification can be challenged at two stages, when the verification is made by the administrator and at the time liquidation proceeds are distributed to the creditors. The new procedures provide that objections to verification of claims can be raised together with all other relevant objections at the time of the distribution of the proceeds of liquidation (as opposed to the two stages applicable under the Bankruptcy Code 2007).
The employment of an electronic platform for applications also eases participants’ procedural burden, as the filing of certificates is replaced in most cases by permission to accept public databases.
The Insolvency Law also introduces quantitative tests as rebuttable presumptions to facilitate court decisions and to provide greater visibility to all parties; for example, a consumer will be presumed to be in cessation of payments if they are in arrears on bank loans, taxes or social security contributions representing more than 60% of their total due debts for a period of at least six months, provided that the unpaid portion is more than EUR30,000.
Reliance on electronic platforms and automated solutions
There is increased reliance on electronic platforms and automated solutions, in order to:
The Insolvency Law addresses the need to prevent insolvency at an early stage by permitting both businesses and consumers to resort to the OCW. The OCW is a confidential process based on an electronic platform that permits debtors to ask their creditor banks (and servicers) for a haircut on, or the rescheduling of, debt repayments. The banks decide on an offer by majority of claims held; if the solution is based on an automated tool (prescribed by law), then tax authorities and social security funds are required to apply the debt reduction or rescheduling provided by the automated solution. Creditors may decline to make an offer, and the process terminates automatically if an offer is not made and accepted by the debtor within a two-month period.
Businesses may also make use of the recovery proceeding, which is fully aligned with EU Directive 1023/2019. There are two classes of creditors – secured, and all other creditors – and an agreement requires approval by at least 50% of both categories. However, an agreement approved by 50% of secured creditors may be ratified if it also receives the approval of 60% of all creditors taken together (even if less than 50% of unsecured creditors approve the agreement). Dissenting creditors are bound by the agreement if it satisfies the principle of "no creditor worse off" and of equal treatment of creditors in the same position (however, difference in treatment may be countenanced for important commercial or social reasons). Certain employees’ rights (such as the right to collective negotiation, strikes, those protected in transfers of undertakings, etc) are unaffected by a recovery agreement and their claims are not subject to a stay (unless otherwise decided by the court).
Both businesses and consumers may be declared bankrupt. In the former case, the court will designate the means of liquidation, either on a piecemeal or a going-concern basis (for all or parts of the business). If the going-concern sale (which does not have a minimum price) does not produce a sale within 18 months, it converts into a piecemeal sale. Liquidation for consumers is always piecemeal.
Consumers who are declared bankrupt must contribute their income in excess of the basic income provided by law to the estate until their discharge.
Natural persons, whether involved in a business activity or not, are discharged of their debts after three years (in some cases after one year). Creditors can prevent discharge if they show abusive conduct, failure to co-operate or deception. Certain debts (family maintenance or penalties for crime) are exempted from discharge.
Creditors are given a bigger say on critical decisions, such as:
Management has the sole competence to agree a recovery agreement; decisions by the general assembly are limited to matters expressly required by company law. The court can also appoint an agent to vote instead of shareholders in cases of holding-out.
Minimum impact on the exercise of the rights of secured creditors
There are only four cases in which stays affect the exercise of secured creditors’ rights.
1) Under the OCW rules, a secured creditor must abstain from the actual conduct of an auction or set off its claims during the pendency of an application; however, all other preparatory actions (attachment of an asset, delivery of auction programme) are unimpeded. The maximum duration of the OCW process is two months (in certain exceptional cases it could be two and a half months) and an application is automatically rejected if made within three months of the scheduled date of an auction against the applicant’s assets.
2) If a recovery agreement is filed for ratification (but this does not affect rights under financial collateral or netting agreements).
3) If a bankruptcy petition involves an application for a going-concern sale.
4) If a secured creditor fails to commence the individual performance nine months after the declaration of bankruptcy.
Maximum use of electronic tools and automated solutions
The first tool available under the Insolvency Law for the prevention of insolvency is the OCW process. It involves applications by interested debtors to financial institutions for debt relief. The OCW provides for the use of an automated tool to generate such solutions, which also permits the participation of the tax authorities and respective pension funds in the proposed relief. Moreover, all procedural steps are published on the electronic insolvency register. The electronic register is also used for filings, announcements and communications with and among the creditors, for example, the announcement of claims and creditor votes are platform-based. Overall, the electronic register provides maximum publicity, advance warning and transparency to all Insolvency Law proceedings.
Regulation of the insolvency profession is improved
Under the new law, insolvency professionals may be both natural persons as well as professional firms. Notification of insolvency credentials is enhanced to help creditors and debtors in selecting administrators; and greater emphasis is placed on practical training and best practices.
Combination with social measures to address disproportionate effects
The introduction of the Insolvency Law is to be followed by the introduction of a primary residence preservation scheme for vulnerable individuals, as well as loan subsidies and rental subsidies. The tendering process for the selection of the private entity to be entrusted with this task (the Scheme Entity) has commenced and the scheme should come into operation within 2022. However, social measures neither interfere with individual or collective enforcement nor limit the degree or speed of creditor recovery. The mechanism involves the purchase of the primary residence of an applicant who is characterised as vulnerable and is either declared bankrupt or is having their primary residence auctioned off by the Scheme Entity. That entity acquires the residence at a market price without imposing any delays on the proceedings, thereby also providing the estate (and therefore also its creditors) with reasonable recovery and liquidity. The Scheme Entity is then required to lease back the primary residence to the vulnerable debtor for a period of 12 years and also provide them with a buy-back option at a then current market value. The availability to vulnerable debtors of a mortgage payment subsidy in the OCW process may further facilitate debtor–creditor deals.