How can Rehabilitation Agreement mechanism be implemented?
Rehabilitation Agreement mechanism is preferred in cases where the debtor is willing to keep on operating his business and get into negotiations to find a viable solution for his financially distressed business. Generally speaking, restructuring can be implemented either through article 106b or 106d of the Greek Bankruptcy Law. In the first scenario, debt restructuring takes place in the company which holds the debt, whereas in the second scenario debt restructuring takes place after the transfer of certain assets and liabilities into a third party.
Could you please describe the process and the major change in the restructuring law?
The debtor enters into negotiations with its creditors and after the terms conclusion, the rehabilitation agreement is signed by all the consenting parties. Law requires the rehabilitation agreement to be signed by creditors that represent at least 60% of the debtor’s total liabilities out of which 40% must be secured. At the same time, this procedure is subject to the preparation of a financial report that has to be certified by a chartered auditor – expert.
L. 4446/2016 abandoned the previous cumbersome regime of article 99, which used to allow debtors to apply for the “opening of the rehabilitation procedure”. According to this procedure debtors were granted with individual enforcement stay of proceedings to negotiate with their creditors and sign a rehabilitation agreement. In many cases, debtors exploited this granting without negotiating or willing to conclude a rehabilitation agreement essentially circumventing the law. Right now, the only available mechanism is the “Pre-pack” mechanism in which case debtors can only apply with a prepared agreement.
Can you further describe the article 106d particularities?
Moreover, in case of article 106d procedure, the transfer of the entire or any parts of the Company may be made a) either to a third party, b) or to a new company established by its creditors, c) or to another existing or newly-established company. Law enables all or any parts of the company’s assets to be transferred to the new company plus a part of the company’s liabilities which have to be assumed by the new company. Any non-transferrable liabilities (the ones that are left to the old entity) shall be either paid-off out of the company sale proceeds or/and shall be written off or/and shall remain as liabilities.
In essence, the third company purchases assets leaving a part of them to the old entity and restructures the debts transferred alongside these assets. This mechanism turns out to be very popular in Greece in the last two years, especially among foreign investors who mostly seek to acquire a company under a healthy legal environment of a new company in case that the exposure of the acquired entity is too large.
What is the Special Administration mechanism?
Special Administration is a newly established pre-bankruptcy procedure that was inaugurated for the first time in Greece in 2014. It essentially replaced special liquidation procedure, with a view to introducing a quicker and a more effective process. The petition can only be filed by creditors that represent 40% of the company’s total liabilities and without the debtor’s consent. However, it has to be mentioned that one of the applying creditors must be a bank.
Can you describe the post-court decision issuance procedure?
After the court decision issuance, the Administrator is appointed by the court and constitutes the key person that accelerates the whole process. The first move is to seal the debtor’s estate and categorize every single asset making a detailed description for each one of them. In this way, any potential buyer can be informed by this list drawn by the Administrator about the legal and factual condition of every single asset. Ultimately, the Administrator conducts auctions for the assets either as a whole or in parts with the highest bidder’s offer being subject to the creditors’ and court’s approval.
What are the benefits in Special Administration?
The point in special administration is that the Administrator undertakes the company’s management and purports to sell the business as a going concern. This is something very crucial in terms of efficiency because the company keeps on operating, which entails that the company’s assets value is not reduced to great extent. The result is that the administrator realizes higher price for the assets sold and therefore larger part of the outstanding creditors’ claims can be satisfied.
Apart from that, it is also very important to stress that this procedure is a fast-track process. The ultimate time limit for the completion of the special administration proceedings is twelve months from the petition filing date. If the procedure is not completed within this period, the Administrator is obliged to for bankruptcy. However, a six-month extension may be granted in case that an auction is still pending upon the twelve-month time limit.
How have individual enforcement proceedings been evolved?
Enforcement proceedings are governed by the Greek Civil Procedure Code. For many years, debtors were equipped with many legal tools to defend themselves in case of enforcement measures acceleration; while in some cases they were able even to sabotage the process. Even though 2016 and 2017 reforms restricted the available debtors’ defensive legal tools, the process still remains legitimate while the proceedings conclusion has been shortened considerably.
Can you briefly describe the enforcement phases and the time horizon of the proceedings?
Briefly, the phases are: contract denouncement, payment order issuance, cheque for payment delivery, foreclosure and auction acceleration. The time horizon depends on each case’s particularities, with the final claim collection being estimated to be from 15 to 24 months.
What are the key changes that revolutionize the individual enforcement system?
What improved the previous cumbersome situation? First of all, the debtors’ available defensive legal tools restriction was a key factor. More importantly, auctions now take place solely in electronic form which adds flexibility in the process, as anyone can participate in from everywhere in the world, and external interventions that can suspend the auction are avoided. Lastly, I would also like to highlight the importance of the newly introduced “multiple foreclosures” provision. Up until recently, debtors could circumvent the law with the “friendly” foreclosures which used to delay the procedure time very significantly. Now, every creditor can impose foreclosure actions without being restricted by the old regime.
Please introduce bankruptcy procedure and please highlight one of the advantages?
Bankruptcy proceedings are accelerated either by the debtor or its creditors. In any case, the court needs to confirm during the hearing that the debtor is unable to pay its overdue debts and, as a result, has been led to suspension of payments. The bankruptcy decision, that declares the bankruptcy, appoints a bankruptcy administrator and a judge that is responsible for the legitimacy of the process.
The major advantage of the bankruptcy declaration is the sealing of the debtor’s estate and the suspension of the individual enforcement measures. Nevertheless, this is subject to an exception. Secured creditors can seek to satisfy their claims through individual enforcement measures within the bankruptcy proceedings and, to the extent they were not satisfied, they can seek the rest of their outstanding claims through the bankruptcy.
What is your overall view on the insolvency system evolvement?
Before these last reforms, Greece’s enforcement regime was considered as one of the most lengthy and cumbersome. According to the World Bank research in June 2017, the enforcement time horizon to enforce a contract or for the insolvency proceedings to be concluded in Greece was three to four times lengthier than that of other EU countries, such as UK and Germany. Although further reforms are still needed to be done, Greece has now a modern and more efficient insolvency system.
