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Posted by Calavros Admin
Posted Sep 2007
After several decades of discussions and preparatory works an Insolvency Code was finally submitted earlier this year before the Greek parliament and ratified by Law 3588/2007. The new law abolishes the obsolete provisions of any previous legal act which proved to be inefficient to tackle all the particularities of an insolvency procedure.
The new Code consists of thirteen chapters, contains 182 articles and uses a simple and understandable language. It is based on the pertinent need to protect creditors of an insolvent debtor and to rescue its business in case it is still viable, thus, establishing efficiency in insolvency proceedings.
According to the official explanatory report, the main pillars of the new Insolvency Code are first, the introduction of a “common system” for bankruptcy and restructuring of a business by amending and codifying both procedures and second, the enhancement of the autonomy of creditors and others interfering in the insolvency procedure under the surveillance of the judicial authority. The autonomy of creditors is evident from the fact that the meeting of the creditors has the authority to take decisive resolutions about the future of the availing business and in particular to decide whether the “syndic” (i.e. appointed lawyer who manages the process) continues the business of the insolvent debtor, or whether the business is leased to a third party or liquidated as a whole or each of its assets separately (article 84).
One of the main objectives of the new regime is to prevent bankruptcy and premature distribution of the assets of the debtor by giving priority to the “rescue” of viable businesses as it enhances the adoption of “a reorganisation plan” by the creditors of the insolvent debtor. Restructuring or reorganisation, as this process is called, allows for a company to maintain its production and, thereby, employment and to try to resolve its insolvency on the basis of a detailed reorganisation plan, which proposes specific steps to remedy the company’s operations and, at the same time, recommends a method of settling creditors’ claims. Under the new regime, a Reorganisation Plan is submitted by the insolvent debtor (within four months upon the courts’ decision for the declaration of bankruptcy) who is normally more motivated to save his business or by the “syndic”. Law provides for the minimum context of the plan and the measures that must be taken so as to satisfy the claims of creditors. The plan is submitted to the bankruptcy court which examines the legality of the plan and sets a time-limit (not exceeding three months) for the acceptance of the plan by creditors (art.115) for which, a majority of 60% of the total of the claims including 40% of secured claims is required (art.121). The plan following its approval by creditors is submitted to the bankruptcy court for its ratification upon which comes into effect. The court denies ratification only in particular cases described by law including, inter alia, if the plan is detrimental to creditors who did not agree with the plan (see article 124). In case a reorganisation plan has not been accepted by the creditors or ratified by the court, the liquidation of the assets of debtor’s property comes into play so as to distribute the proceeds of the sale to creditors. Transparency is ensured in the whole process by the provision that the value of the business and the terms of the public action are determined by the court which takes into account the investigation by an appointed expert as well as the report of the syndic. In case the public auction of the whole business is fruitless for a second time, there is a sale of each one of the assets of the debtor separately (art.145).
Furthermore, the new law contains detailed provisions in relation to the intricacies of some insolvency issues that have arisen in practice filling up legal “lacunes” of the previous regime such as the exact duties and authorities of the organs of the bankruptcy, the impact of the bankruptcy on pending contracts between the insolvent debtor and its counterparties and on employment contracts, the revendication right of the counterparty who has a right to claim back assets given to the insolvent e.t.c.
There are also some novelties introduced by the new Code. Firstly, the introduction of the “cοnciliation procedure” in case the debtor is not in a permanent cease of payments and upon filing a petition to the bankruptcy court by the debtor (article 99). In this case, the court appoints a “negotiator” who has as its mission to conclude an agreement between the debtor and its creditors representing as a minimum the majority of the claims against him, so as to tackle the financial difficulties of the debtor and assist him in the continuance of his business and to propose solutions for the rescue of the business such as the diminution of the claims, the extension of the time the debts become due, the sale of assets of the business e..t.c. In case a “conciliation agreement” is reached between the debtor the majority of its creditors, the negotiator submits it to the bankruptcy court for ratification. The court does not ratify the agreement in case, inter alia, that the debtor is not in a state of permanent cease of payments, or in case the rights of the minority creditors are harmed or in case the duration of the agreement is agreed to be more than two years from its ratification (article 103). Secondly, law provides for the civil liability of the members of the board of directors of a S.A. or a Company limited by Shares (“E.P.E.”) which becomes insolvent (article 98). This provision is of outmost importance and it aims to prevent the abuse of the institution of bankruptcy by companies which are not in a state of a permanent cease of payments but are rather trying to avoid their debts by the declaration of bankruptcy i.e. “iconic” bankruptcies. Henceforth, an ipso iure liability arises against the members of the board of directors who because of their willful misconduct or gross negligence caused the bankruptcy of the company. Thirdly, a new and simplified procedure has been introduced in case the property of the insolvent is less than 100.000 Euros.
To sum up, the new Code modernizes the Greek insolvency regime so as to respond more effectively to the socio-economic reality and finds the right balance between the need to rescue companies in distress and to satisfy the claims of creditors by ensuring more equitable distribution of proceeds from the realisation of debtor’s assets.