The liquidation of the debtor’s property
In the process of liquidation of the property of the debtor, the element which mainly differentiates the position of each creditor is such creditor’s repayment rank on the basis of creditor category.
The Greek Bankruptcy Code (GBC) governs the rules of priority for repayment by means of the proceeds of the liquidation. Under the GBC the order of repayment depends actually on the type of claims being notified to the bankruptcy administrator following the auction. These, mainly, may be (art 154 et seq. GBC):
- claims of unsecured creditors of the debtor;
- claims of priority creditors under general privilege (e.g. claims by the Greek state on taxes);
- claims of priority creditors under a special privilege (e.g. mortgage or pledge); and
- claims of super-priority creditors, such as employees of the debtor.
The payment waterfall derives from a complex system which takes into account the category in which each creditor is classified and the time when each claim was created.
Restructuring plan
The restructuring plan is an alternative solution to the liquidation of the debtor’s assets in the context of the bankruptcy procedure. It is similar to the rehabilitation procedure in the course of the pre-bankruptcy period, under articles 99 et seqq. of the GBC.
According to the law the restructuring plan can provide for the rescuing of the company, its exploitation, the distribution of the bankruptcy estate and the satisfaction of the creditors’ claims after the lapse of the bankruptcy procedure.
Is it possible, and if yes under which criteria, for the creditors to file a proposal for a restructuring plan?
A proposal for restructuring can be filed either by the debtor or by the creditors.
As regards the proposal filed by the creditors, this can be filed along with the petition for bankruptcy of the debtor. A majority of creditors representing 60% of the total claims is required for the plan to be approved. The above percentage should include creditors representing at least 40% of any claims secured in rem either with a special privilege or with a pre-notation of mortgage.
The minimum content / admissibility criteria for the restructuring plan are the following:
- General information regarding the financial situation of the debtor, and a comparison between the estimated satisfaction of the creditors according to the restructuring plan compared to their anticipated and estimated satisfaction through the liquidation process,
- Description of the restructuring measures; the main decision that needs to be taken at this stage is whether the operation of the company will be continued or whether the company will be transferred,
- Determination of the rights and of the legal position of the creditors according to the respective category of bankruptcy creditors that each creditor belongs to.
How are the creditors being treated in the context of the restructuring plan? Are their rights affected? Is it compulsory to accept the plan? What are the consequences of the validation of the plan by the court?
The creditors are divided into groups according to the type of security/collateral they hold and creditors being part of the same group should be treated equally. In principle the creditors’ secured claims, other rights securing the claims and privileges related to the nature of the claim at the enforcement stage are not affected by the restructuring plan except if differently stipulated therein. In any case such rights are preserved in favor of the new claim as formulated by the plan.
The bankruptcy court sets a deadline of two months for the acceptance of the plan by the creditors (in case that the plan has been filed by some of the creditors this deadline refers to the acceptance of the plan by the rest of them and by the debtor).
A majority of creditors representing 60% of the total claims is required for the plan to be approved. The above percentage should include creditors representing at least 40% of any claims secured either in rem with a special privilege or with a pre-notation of mortgage. Even after the approval of the plan by the creditors, the plan produces no legal effect prior to its acceptance by the debtor and its validation by a court decision, which is subject to appeal.
Should the plan be validated and the respective court decision become final, the plan is binding upon all creditors, including those who voted against it, objected or abstained from voting or did not participate in said voting. As of the finalization of the above decision, the bankruptcy procedure is deemed concluded, the debtor undertakes the administration of his estate in order to fulfil the terms of the plan and the rights of the bankruptcy creditors to initiate the individual recourses against the debtor in compliance with the terms of the plan are reactivated. The administrator has to supervise the fulfilment of the terms of the plan.
THE POSITION OF THE CREDITORS IN CASE OF THE SPECIAL ADMINISTRATION PROCEDURE (L. 4307/2014)
The special administration procedure is a pre-bankruptcy procedure which in essence is a procedure of liquidation of a business as “going concern”. In order for such procedure to commence, the debtor must have already reached the state of the “cessation of payments” i.e. the debtor is unable to fulfil its due and payable obligations in a general and permanent manner, or the conditions for the dissolution of the company as per the provisions of company law must be met in the last two financial years. It is noted that the viability of the debtor is not a precondition for the acceptance of the application. All in all, it is noted that such procedure is mainly a liquidation and not a rehabilitation procedure.
How is the special administration procedure commenced?
The application is filed to the Court by creditors, including at least one credit institution, representing at least 40% of the total claims against the debtor. A special administrator who has already accepted his appointment must be nominated with the application.
What are the main consequences in case of acceptance of the application?
The key concept in the special administration procedure is that the company remains in operation until the time of its transfer. In this respect, after the acceptance of the relevant application by the Court:
- The enforcement actions of creditors are suspended,
- The managerial powers of the statutory bodies of the company are transferred to the special administrator,
- The submission of the debtor in the special administration procedure does not constitute a serious ground for the termination of outstanding agreements or a valid reason for the revocation of administrative permits.
- The special administrator issues an invitation for the conduct of a public auction(s) for the sale of the totality or individual sectors or assets, setting the date(s) for the submission of binding bids and generally the terms of the bidding procedure.
The transfer of the 90% of the assets of the debtor must be completed, in principle, within 12 months. In case that all of the creditors’ claims are satisfied, the administration of the company returns to its organs as foreseen by its articles of association. If the aforementioned deadline is not followed, or if the liquidated assets of the debtor do not suffice for the satisfaction of the creditors, then the special administrator must file a petition for bankruptcy.
After the sale of the assets of the debtor, the special administrator must proceed to the publication of invitations to creditors for the announcement of their claims.
THE POSITION OF THE CREDITORS IN CASE OF REORGANIZATION PROCEDURE ESPECIALLY UNDER ARTICLES 106(B) AND (D) OF THE GBC
In general, the reorganization procedure is a collective pre-bankruptcy procedure, aiming at the preservation, development, restructuring and improvement of the business without causing any harm to the collective satisfaction of the creditors.
The process as currently in force is a one step process and starts with the submission of an application to the competent court for the ratification of the reorganization agreement, which must have been already concluded between the parties thereof at the time of the application (the “Application”). The intervention of the court is -in general- limited only to the issuance of a decision on the ratification (or not) of the reorganization agreement.
What are the minimum requirements of the application?
The Application must be accompanied, among others, by the following: (a) the reorganization agreement (the “Reorganization Agreement”), which must be already concluded either (i) between the debtor and its creditors, representing at least 60% of the total claims against the debtor (which must include at least 40% of the total claims that are secured in rem) or (ii) only between the creditors (holding the aforementioned percentages of claims) in case the debtor is in a state of cessation of payments; and (b) a report of an expert (appointed by the parties of the Reorganization Agreement) who must express their views on, among others, the fulfilment of the conditions required for the ratification of the Reorganization Agreement by the court.
What are the consequences arising from the submission of the Reorganization Agreement?
Any individual or collective mandatory enforcement measures, as well as any preliminary measures (including any seizure order) are automatically suspended as of the submission of the Application until the issuance of the court decision on the ratification (or not) of the Reorganization Agreement.
It should be highlighted that the suspension of the aforementioned measures may be granted by the court (only once) before the submission of the Application, as long as the petition to the court is accompanied by a written statement of creditors representing at least 20% of the total claims against the debtor (the duration of such suspension may not exceed four (4) months as of the relevant court order imposing the suspension).
Under what conditions is the Reorganization Agreement ratified?
The court shall ratify the Reorganization Agreement, as long as the following conditions are met: (i) it is considered possible that, following the ratification of the Reorganization Agreement, the business of the debtor will become financially viable, (ii) it is considered possible that the collective satisfaction of the creditors will not be harmed, i.e. the creditors who are not parties to the reorganization agreement will not be brought into a financially worse position than the one in which they would have been in the case of liquidation and distribution of the bankruptcy estate, (iii) the Reorganization Agreement is not the outcome of any wilful misconduct or any other unlawful act or bad faith behaviour of the debtor or a creditor or a third party and does not breach mandatory provisions of Greek law, including those
of competition law and (iv) the Reorganization Agreement does observe the principle of equal treatment in respect of creditors of the same rank (a deviation from such principle may be accepted in case of existence of a material business or social purpose).
What are the key features of the sale of the debtor’s business (Article 106d of the GBC)?
In cases where the Reorganization Agreement or an agreement entered into pursuant to the Reorganization Agreement provides for the transfer of the debtor’s business, in part or as a whole, the acquirer obtains the assets of the business or part thereof and may undertake part of the liabilities of the business, to the extent this is provided for in the agreement. The remaining liabilities may be repaid using the proceeds of the sale of the business or of part of the business, are discharged, or, in the case of a transfer of part of the business, remain as obligations of the debtor or be capitalized.
As regards the transfer of existing contractual relationships, the transfer is permitted irrespective of the existence of contractual terms that preclude or restrict it, if the transfer is in the interest of the creditors and the debtor’s counterparty consents. When the counterparty does not consent, the insolvency court, following application, can approve the transfer subject to the terms stipulated in the GBC.
The Reorganization Agreement and the transfers contemplated thereby are exempt from any tax, duty, right of the Greek State or third party, as well as stamp duty.
