SPECIAL ISSUE PREVENTIVE RESTRUCTURING 6. The New Greek Insolvency Law: The Latest Chapter in a Never-Ending Story of Reforms

1.    Introduction

The legal framework in Greece for insolvency and restructuring has witnessed several significant reforms over the past 20 years. It should therefore not be surprising that the introduction of the Preventive Restructuring Directive (PRD 2019) came at a time when the domestic insolvency framework was, once again, in the midst of a major reform process. Nevertheless, as will be analyzed, Greece managed to utilize this window of opportunity to implement the stipulations of the PRD 2019, to the extent that they did not already form part of the legal framework, and finetune existing procedures. While several issues remain to be clarified by practice, the end result is nevertheless a comprehensive preventive restructuring process that goes a long way to conform to European benchmarks and principles and has the potential to contribute in resolving the country’s growing problem of private debt. The following Chapters will consider, in particular, the new rehabilitation procedure, as has been amended by the most recent insolvency legislation^[1] and consider how its provisions fit within the framework established by the PRD 2019.

2.    Brief history of the Greek insolvency and restructuring framework

For the better part of its modern lifetime, Greece lacked a comprehensive insolvency framework. The Commercial Law, which traced its ancestry to the Napoleonic Code de Commerce of 1807, contained certain provisions on insolvency issues, but restructuring tools were severely underdeveloped.^[2] During the 20^th century, mechanisms to facilitate the rescue of troubled enterprises were introduced by means of specialized legislation, which operated in parallel to insolvency law and often pursued different policy objectives.^[3] This mosaic of legal provisions was eventually revamped in 2007, by the introduction of the Greek Insolvency Code (GIC),^[4] which replaced all erstwhile legislation and created a modern framework for insolvency and restructuring. In addition to significantly reforming the framework for insolvency, the GIC also introduced formal restructuring processes by enabling creditors to agree, after the commencement of insolvency, to a plan of reorganization, as opposed to a piecemeal liquidation of the debtor’s assets.^[5] Perhaps more importantly, the GIC also envisaged a pre-insolvency procedure, the so-called “conciliation procedure” (often referred to simply as “Article 99”), which enabled business rescue before the onset of insolvency and quickly became the procedure of choice for distressed debtors.^[6] Unfortunately, conciliation was routinely abused during the first years of its implementation, as its attraction owed more to the liberal tendency of courts to grant interim relief orders (precluding enforcement against the debtor’s assets), rather than the efficiency of its restructuring tools.^[7] Despite these growing pains, the introduction of these new restructuring tools created high hopes that a rescue culture could eventually develop.

Unfortunately, the genesis of the GIC came at an inopportune time. Greece soon spiraled down an unprecedented economic crisis, which led to the failure of numerous businesses and the accumulation of non-performing loans on bank balance sheets in gargantuan proportions. In this context, the insolvency framework came under scrutiny as a means to address the growing problem of private debt. As a result, the GIC entered into a cycle of successive reforms, undergoing five major amendments in a decade, which completely transformed its original provisions and mechanisms.^[8] Conciliation was replaced by a new rehabilitation procedure, which was purported to place stricter requirements on interim relief; rehabilitation however was also remodeled successively and was eventually transformed into a strictly pre-packaged procedure. This constant reform of restructuring mechanisms,^[9] however, significantly undermined their effectiveness and fueled a general perception about their inadequacy among market participants. At the same time, specialized legislation also introduced several quasi-restructuring procedures that directly antagonized reorganization and rehabilitation under the GIC.^[10] In the end, less than 15 years after the introduction of the GIC, the Greek insolvency framework found itself once again in a state of fragmentation and had lost much of its original appeal in the eyes of debtors and creditors alike.

3.    The new Greek Insolvency Law (GIL)

In the face of this unstable setting, the introduction of PRD 2019 and the need for national implementation provided an opportunity to reconsider the country’s insolvency and restructuring framework and address the deficiencies that had accumulated during the previous decade. As a result, the GIC was replaced by a completely new piece of legislation, the new Greek Insolvency Law (GIL), under the aspiring name “Debt Settlement and Facilitation of a Second Chance”.^[11] The main objective of the reform was to consolidate, once again, in a single piece of legislation all procedures relating to the treatment as well as the prevention of insolvency.^[12] While this was a noble goal that gathered support from the academic community and legal practice, the GIL also introduced more fundamental and controversial changes to Greek insolvency and restructuring law, the most striking of which was the extension of insolvency eligibility to consumers.^[13] This marked a sharp break from the previous framework, which relied on a strict conceptual distinction between merchants and non-merchants as regards their eligibility for insolvency but more importantly extended the favourable discharge provisions of the GIL^[14] to millions of individuals, who comprised a significant part of the banking system’s non-performing exposures. As expected, debates on such fundamental aspects of the new regime dominated the policy dialogue surrounding the introduction of the new law.^[15]

Nominally, the alignment of the Greek insolvency and restructuring framework to the stipulations of the PRD 2019 was an additional important impetus behind the latest reform.^[16] This is reflected in the new GIL embracing early warning mechanisms as well as a novel framework for debt discharge. On the issue of preventive restructuring frameworks, however, the constant remodelling of the GIC over the preceding years had already provided numerous opportunities to adjust the framework to the European paradigm as these norms were developing. As early as 2016, the explanatory report to law 4446/2016, the last major overhaul of the GIC, referred to the need to incorporate the provisions of the Commission Recommendation of 2014 on a new approach to business failure and insolvency.^[17] The Greek restructuring framework thus already included a preventive restructuring framework, the rehabilitation procedure, which, to a large extent already conformed to the main stipulations of the PRD 2019. Still, the GIL elevated rehabilitation as the sole fully-fledged restructuring mechanism in Greece, as formal reorganization, after the declaration of insolvency, was abolished owing much to its lack of utilization by debtors and creditors alike.^[18] In addition, the rehabilitation procedure was further streamlined and additional reforms were introduced to ensure that it fully complied with the PRD 2019. In the broader context, the implementation of the PRD 2019 in Greece, unlike other EU jurisdictions, constituted only a sideshow of a wider and major reorientation of the domestic insolvency and restructuring framework.

4.    Main features of the rehabilitation procedure

4.1.   Objective and scope of the rehabilitation procedure

The rehabilitation procedure is the main preventive restructuring framework under the GIL and in fact the only available procedure that can result, as stated by GIL, in the preservation, utilization, restructuring and recovery of the debtor’s business.^[19] It is available only to debtors engaged in a business activity, whether legal or natural persons; consumers are thus excluded from its scope.^[20] There are no special provisions on enterprise groups but it is generally conceded that eligibility is assessed by reference to legal personality and therefore groups cannot access rehabilitation as distinct entities from their comprising members.^[21] The guiding principle of the rehabilitation procedure is the ‘no creditor worse off’ principle, which stipulates that all creditors (unless they agree otherwise) must receive at least what they would receive in the context of insolvency.^[22] On a conceptual level, the rehabilitation procedure is strictly a prepackaged procedure, meaning that the procedure is commenced by the filing of a rehabilitation agreement that is already signed by the requisite creditor majorities for ratification^[23]. Thus, the negotiations for the formulation of a rehabilitation agreement take place out-of-court. Once the plan is filed and the procedure is commenced, the GIL stipulates that a hearing on ratification shall be held no later than two months after the date of the filing.^[24] In general, it is envisaged that the rehabilitation procedure should be completed within a few months as of the date of filing the agreement.

4.2.   Criteria to enter the rehabilitation procedure

4.2.1.      Competent persons to initiate a rehabilitation procedure

The initiation of the pre-insolvency procedure for the ratification of a rehabilitation agreement may be commenced either by the debtor^[25] or by anyone of the contracting creditors.^[26] A debtor is defined as a natural or legal person engaged in a business activity having its centre of main interests (COMI) in Greece. Although this was not expressly mentioned in the law, the term “business activity” falls within the definition set by national tax law, as a series economic transactions with the purpose of obtaining profit, thus excluding consumers or, more generally, non-business entities from the scope of the rehabilitation procedure.^[27] COMI, on the other hand, is defined in GIL,^[28] in a way that follows the definition set by EIR 2015_[29].

The debtor may submit a request for the ratification of a rehabilitation agreement.^[30] However, it is possible that creditors (amounting to the requisite majorities) conclude the rehabilitation agreement on their own without the participation of the debtor. In this case, the GIL allows contracting creditors to commence rehabilitation by filing such inter-creditors agreement for ratification in order to better serve the objectives of this pre-insolvency procedure.^[31] An important question is therefore who should be considered a creditor for the purposes of the rehabilitation procedure. GIL does not provide for a definition of the term “creditor”. However, it is provided that together with the application for the ratification of the agreement, a list should be submitted with all the creditors’ claims against the debtor irrespective of their class or potential securities. These claims should be evidenced by the accounting records of the debtor or acknowledged/presumed by a court decision.^[32] Any creditor holding such a claim participating in this agreement may apply to the competent court for the ratification of the rehabilitation agreement.

4.2.2.      Criteria for opening a rehabilitation procedure

GIL provides for certain flexibility in relation to the criteria for the opening of a rehabilitation procedure. They range from likelihood of insolvency to a general and permanent cessation of payments. In particular, GIL provides for the following: present (not permanent) inability to fulfil pecuniary obligations in a general way (hereinafter “present inability”), potential inability to fulfil pecuniary obligations in a general way (hereinafter “potential inability”), likelihood of insolvency and general and permanent cessation of payments. The first two existed already under the GIC,^[33] whereas the last one seems to have been adjusted during the recent reform and the likelihood of insolvency was introduced in the reform of 2015 in order to transpose in Greek law the principles described in the Commission Recommendation 2014.^[34] They have been designed in order to provide restructuring solutions to debtors from an early stage of their financial difficulties to the vicinity of insolvency.

Chronologically, potential inability precedes the present inability. Present inability refers to a present cessation of payments towards the creditors affecting all the obligations of the debtors, which has not become permanent yet. This implies that the financial distress of the debtor can be remediated with the appropriate restructuring tools. Potential inability corresponds, in practice, to a debtor’s financial forecast in relation to its own financial status. The debtor predicts – based on the current and expecting cash flows as well as on the current and expecting obligations – that it will not be able to pay such obligations as they fall due.^[35] In both cases, inability needs to be general, meaning that should cover all or most of the financial obligations of the debtor in a way that once expressed it may harm the debtor’s market reputation.^[36]

The third criterion is likelihood of insolvency.^[37] Interestingly, likelihood of insolvency is not defined in Greek law although its meaning was ambiguous.^[38] An explanation for this absence could be found to its purpose. A definition could limit the scope of this criterion and consequently, the cases to which debtors could involve likelihood of insolvency in order to achieve an early stage rehabilitation agreement.^[39] In the insolvency spectrum, the likelihood of insolvency happens before any present or potential inability incidents can be confirmed.^[40] However, the absence of a definition does not allow for a clear boundary delimitation between likelihood of insolvency and the other criteria. Likelihood of insolvency is based on a reasonable suspicion that insolvency might occur in the future allowing for an early intervention before the financial problems become definite. In theory, such financial problems should not be sufficient to evidence a present or potential inability, but they should be able to present certain financial impact in order to avoid the abusive use of this criterion.^[41] In practice, present or potential inability and likelihood of insolvency may overlap.^[42] For this reason, it cannot be excluded that, in the future, the latter might absorb the former.

Apart from the above-mentioned criteria, it is also possible to request the opening of a rehabilitation procedure when the debtor is already in a situation of general and permanent cessation of payments. This option could be seen as the link between the preventive restructuring measures and the insolvency framework allowing a last attempt to save the business or permit the smooth transition if restructuring cannot prevent insolvency. GIL clearly provides for this possibility in case of an inter-creditor’s agreement without the participation of the debtor.^[43] In this case, the applicant creditor should also submit a petition for the declaration of the debtor’s insolvency.^[44] A more thorough reading of the relevant provisions reveals that it might also be possible for the debtor to submit a ratification application, while being already in a cessation of payments.^[45] However, the internal coherence of the relevant Chapter seems unbalanced on this matter. There are only two references to such possibility with no clear connection to the criteria for the opening of the rehabilitation procedure: one in the provisions related to the review of the ratification application^[46] and another one in the final provisions of the Chapter.^[47] For coherence reasons and considering that the objectives of the law allow such interpretation, we should accept that this option is also open to the debtor.

4.3.   Involved actors

4.3.1.      DIP and PIFOR appointment

Rehabilitation is fundamentally a debtor in possession (DIP) procedure. However, the insolvency court may, following the application of anyone having a legitimate interest, appoint (after the submission of the application to ratify the rehabilitation agreement) a practitioner in the field of restructuring (PIFOR) (under the GIL this actor is called a special mandate holder) with the authority to exercise certain or all the powers of the debtor’s administration.^[48] This power is discretionary but may be exercised in particular where the debtor has delayed the filing of an insolvency application or has intentionally caused the insolvency, where there have been fraudulent transfers of assets or in cases where the debtor abusively refuses to participate in negotiations for a rehabilitation agreement. These instances do not necessarily align with the circumstances set out in Article 5(3) PRD 2019 regarding the mandatory appointment of a PIFOR. Still, the interests of creditors are safeguarded by the requirement that a rehabilitation plan is accompanied by an expert report, which expresses an opinion regarding the fulfilment of the conditions for the ratification of the rehabilitation agreement (including the requirements for a cross-class cram down) and also certifies the accuracy and validity of the list of creditors that accompanies the rehabilitation agreement.^[49] Yet, such expert is not a PIFOR within the meaning of the PRD 2019. A PIFOR may nevertheless be appointed after the ratification of the rehabilitation agreement for the performance of special acts, as specified by the court, such as the safeguarding of the debtor’s assets or the execution of agreements implementing the terms of the rehabilitation agreement.^[50]

4.3.2.      The rights of shareholders in a rehabilitation procedure

As regards shareholders, it should be noted that their role in the rehabilitation procedure is limited. As a general matter, shareholders do not need to consent, as a class, on the rehabilitation agreement. As already noted, a rehabilitation agreement requires the debtor’s consent, unless the latter is in cessation of payments, in which case the rehabilitation agreement may be concluded by creditors only.^[51] In cases of legal persons, such consent may be provided by the board of directors.^[52] As a result, the board of directors may consent to an agreement that significantly prejudices shareholder rights, by agreeing e.g. to a debt-to-equity swap. Things, however, become more complicated, when the debtor’s Articles of association require the approval of a rehabilitation agreement at a shareholders’ meeting. In these cases, the GIL stipulates that the consent of the shareholders’ meeting is not required, if the expert’s report concludes that the shareholders would have no residual claim against the debtor.^[53] As a result, shareholders have very limited options to prevent the conclusion of a rehabilitation agreement that is detrimental to their interests.

A related issue concerns the possibility that the rehabilitation agreement may, at the stage of implementation, mandate the adoption of measures that require a decision of the shareholders meeting, under the provisions of company law (e.g. share capital increases, exclusion of pre-emption rights etc.). The GIL clarifies that such decision of the shareholders meeting is not required, in cases when the debtor’s consent for the conclusion of a rehabilitation agreement is not required, most notably when the debtor is already in cessation of payments. When this is not the case however, and provided that the shareholders have no residual claim against the debtor’s business, the GIL adopts a scheme to ensure that shareholders do not prevent the implementation of a rehabilitation plan. In particular, the insolvency court, with its decision on the ratification of the rehabilitation agreement, may order the appointment of a special proxy, with the power to convene a shareholders’ meeting and exercise the right to attend and vote for the debtor’s shareholders or partners who do not cooperate.^[54] In principle, the special proxy may overrule the objections of the shareholders and ensure that the rehabilitation agreement is carried through.^[55] In this way the Greek Legislator ensured that equity holders are not allowed to unreasonably prevent or create obstacles to the ratification and implementation of the rehabilitation agreement.^[56]

4.4.   Stay

4.4.1.      Stay at the negotiating stage

In accordance with the provisions of Article 6 PRD 2019, the GIL provides that a court may, at the application of the debtor or a creditor, order provisional measures even before the submission of the application to ratify a rehabilitation plan. Such measures may include a stay, similar to the one that takes effect after the filing of the application. The requirements for such a stay at the negotiating stage are the existence of special urgency or imminent danger as well as a written statement by creditors representing at least 20% of the debtor’s overall liabilities, stating that they participate in the negotiations for the conclusion of a rehabilitation plan.^[57] Any such stay shall remain in force until the filing of the application for ratification and in any case for a maximum duration of four months after the lapse of which it shall cease automatically. In exceptional circumstances, the stay may be extended provided that there is progress in the negotiations, the continuation of the stay does not unduly infringe on the rights of any party, no insolvency petition against the debtor has been heard and the total duration of the stay, including the renewal, does not exceed six months^[58].

The court has a broad discretion to order any measure that would automatically enter into force upon the filing of the application for the ratification of a rehabilitation plan. These would for instance a stay of individual enforcement measures, whether already pending or not, relating to all types of claims. In addition, they could include collective enforcement measures, such as the filing and hearing of insolvency applications, as well as provisional measures, such as conservative arrests or attachments, unless such measures purport to prevent the transfer of the business’ movable assets and the depletion of the value of the debtor’s business.^[59] Still, there are some limits to the scope of the stay. For instance, such a stay cannot infringe rights from financial collateral arrangements or financial leases, as well as the right to terminate and request the surrender of leased property, provided that the debtors is in arrears of rent for six months or more.^[60] More importantly, employees’ salary claims are not covered by the provisional measures, unless the court also extends them to such claims for cause and for a set period, specifically mentioned in the decision.^[61]

4.4.2.      Stay after the filing of the application for ratification

As a general matter, a stay will automatically be put in place after the filing of an application to ratify a plan of rehabilitation.^[62] As already mentioned, such a stay will preclude individual and collective enforcement actions as well as provisional measures, whereas employees will similarly be excluded from its scope, as set out above. The duration of the automatic stay remains a mystery; in theory, it remains in place until the court issues its judgment on the ratification of the rehabilitation agreement but at the same time it may not exceed a period of 4 months.^[63] Things are further complicated by the stipulation that, after the lapse of the initial 4 month period, the court may, at the application of any interested party, order any additional stay at its own discretion.^[64] It seems from the above that, although the initial 4 month stay is automatic, if a judgment on the ratification of the rehabilitation agreement has not been issued within such period, the debtor will need to apply to the court for an extension of the stay.^[65] Although it is not entirely clear, it seems that the duration of such stay, taking into account any extensions, may not extend beyond a period of 12 months.^[66]

4.5.   The rehabilitation agreement

4.5.1.      Scope of the rehabilitation agreement

The rehabilitation agreement aims at the preservation, utilization, restructuring and recovery of the debtor’s business.[67] Hence, it may include all necessary measures affecting any asset and liability of the business that could positively contribute to the restructuring of the debtor and the prevention of insolvency. All affected creditors may be included in this agreement irrespective of their class or potential securities as long as there is a claim evidenced by the debtor’s accounting record or being acknowledged/presumed by a court decision.^[68] As already noted, the plan may also affect shareholder rights.

4.5.2. Persons able to propose an agreement

Considering that rehabilitation is strictly a pre-packaged procedure, there is no actual distinction between the person who can propose a plan and the person who can request for the opening of the rehabilitation procedure. Therefore, the debtor or its creditors may propose a plan that should be submitted for ratification by the court in order for the rehabilitation procedure to be initiated.^[69] In any case, it must be remembered that the agreement will need to have the support of the required creditor majorities, as well as the debtor’s consent, unless the debtor is already in cessation of payments.

4.5.3. Content of the verification application/rehabilitation agreement

In Greek law, the rehabilitation agreement is annexed to the application for its ratification together with other required documents.^[70] The content of the application is described in Article 45(1) GIL, which transposed (almost word by word) Article 8(1) PRD 2019^[71]. On the contrary, the content of the rehabilitation agreement includes only the various measures agreed between the parties for the restructuring of the business and the prevention of insolvency. In this context, Article 39 GIL provides for an indicative set of measures that could be included in the rehabilitation agreement, but the parties may agree on different measures.

On the one hand, the content of the application must include all the necessary information for the identification of the debtor, the elements of its estate, affected parties and their classes, the special mandate holder (if appointed) and the terms of the restructuring plan.^[72] On the other hand, the rehabilitation plan constitutes essentially a private agreement (or a notarial deed if required by law),^[73] which is submitted for ratification to the court in order to be able to produce erga omnes effects.^[74] As such, the parties may agree and include any term they deem necessary or appropriate. This applies when the agreement is concluded between the debtor and the creditors, or only by the creditors with the consent of the debtor. In case of an inter-creditors’ agreement without the consent of the debtor, the agreement cannot create new obligations for the debtor, but it might refer to inter-creditors’ agreements in relation to priority, measures to support the business and other relevant measures.^[75] Despite the large flexibility of the parties based on the principle of the freedom to contract, the law provides indicatively for a potential content of such an agreement, which ranges from simple modifications of debtor’s obligations to the sale of its entire business.^[76]

In particular, the rehabilitation agreement may describe the alteration of the terms in relation to the debtor’s obligations. This may consist in an alteration of the time of the fulfilment of claims, including the modification of the terms under which early repayment of such claims may be requested, the alteration of the interest rate, the replacement of the obligation to pay interest with the obligation to pay part of the profits, the replacement of claims with convertible or non-convertible bonds issued by the debtor, or the obligation of creditors with security in rem to accept a change in the mortgage or lien rank in favour of the debtor’s new creditors.

In addition, a debt-equity swap option can be part of the agreement as well as the reduction of creditors’ claims, the assignment of the administration of the debtor’s business to a third party, the suspension of individual and collective actions by creditors for a set period after the ratification of the agreement^[77], new financing^[78] for the debtor and other measures. Liquidation measures were also considered by the Greek legislator. The law provides for the liquidation of debtor’s individual assets or even the transfer of all or part of the debtor’s business to a third party or to a company belonging to creditors given that the subject of the restructuring is the business and not the debtor itself. This transfer will take the form of an asset deal.

It should be mentioned that the rehabilitation agreement is mandatorily accompanied by a business plan with a duration equal to that of the agreement, which should be approved by the contracting parties.^[79] The business plan describes the operation and the prospects of the business taking into consideration the terms of the rehabilitation agreement. It provides indicators related to the viability of the business assisting creditors with their decisions on the measures for the recovery of the business, but also the court to form a reasoned opinion on the viability of the business. In a debtor-creditor agreement, the business plan is drafted by the debtor and due to its importance it is required to be clear and specific.^[80] In an inter-creditor on the other hand, the business plan is prepared by the creditors but must still meet the same requirements of clarity and specificity.

4.5.4. Verification of the provided information

The information provided for both the ratification application and the rehabilitation agreement are not subject to any kind of verification or review by the affected parties after its submission to the court and there is no legal basis for others to request additional information related to this agreement. Such verification, review or request for additional information can be discussed in the context of the negotiations for the conclusion of the rehabilitation agreement and only between the participants. However, together with the rehabilitation agreement an expert’s report should be submitted.^[81] The objective of this report is to confirm the accuracy and correctness of the list of creditors as well as the debtor’s list of assets,[82] and conclude on whether the application meets the ratification requirements.^[83]

Once the rehabilitation agreement is finalised, it should be submitted to the court, which is competent to verify, review or ask for additional information within the limits set by law. The role of the court is limited and it has no discretion to amend the agreement or partially ratify it. This means that the court can either approve or reject the application. The law provides the court with two alternatives in case certain elements are missing from the application and/or the submitted documents. The first is to defer the issuance of a final decision and order the debtor to provide to the appointed expert all the necessary information for the application to be complete within one month as of the issuance of its non-final decision.^[84] The second is to set a deadline, which cannot exceed a period of 20 days, for the parties to submit any missing document or amend the agreement as necessary.^[85]

4.5.5.      Formation of classes

Article 9(4) PRD 2019 provides that affected parties should be grouped in separate classes in order to reflect commonality of interests based on verifiable criteria. The same article provides that as a minimum, creditors of secured and unsecured claims shall be treated in separate classes for the purposes of adopting a restructuring plan. The Greek legislator transposed this article opting for the minimum by separating the creditors in two classes, namely creditors with secured claims and creditors with unsecured claims.^[86] There is no provision for further optional or mandatory division of classes in relation to the adoption of the rehabilitation agreement. Despite the formation of classes, the Greek legislator chose to offer the contracting parties the option to include in their negotiations the relationship between creditors after the ratification of the agreement, including matters of priority.^[87] Different treatment between creditors in a class is thus conceptually possible and practically relevant for the unsecured creditor class. The limits to such different treatment are set by the principle of the equal treatment of creditors. It should be noted that if business or social reasons can be presented, GIL allows a deviation to the principle of equal treatment. Indicatively, labour claims or claims essential for the maintenance of the creditor and his family may receive a favourable treatment under GIL.

4.6.   Adoption and ratification of the plan

4.6.1.      The consent of the debtor

Once the rehabilitation agreement is concluded between the parties, it should be submitted to the court for ratification. In order for the court to ratify, it should conduct a series of assessments. First, the court shall verify whether the agreement is signed by at least the debtor and the majority of participating creditors from both classes.^[88]

If the debtor is a legal person, then the administration or the managing body has exclusive competence to provide debtor’s consent for the rehabilitation agreement.^[89] However, certain measures/operations included in the rehabilitation agreement (such as capital increase) may require the consent of the shareholders. Considering the risks that such operations may hold for them (e.g. dilution of shares), it is likely that they vote against.^[90] Therefore, GIC provides for deadlock prevention measures that are discussed in section 4.3.2. above.

4.6.2.      The consent of the creditors

In relation to participating creditors, it is required to obtain the consent of affected creditors representing more than 50% in value of secured claims and more than 50% in value of the remaining claims of the affected creditors.^[91] The law clarifies when a creditor is considered as an affected one by determining who is not affected. Thus, a creditor’s claim is deemed not to be affected when its legal position prior to the ratification of the agreement is not affected by the agreement. A claim is not affected if not only the total amount of the claim has not been modified but also any essential term such as the date when the claim becomes due. The consent of the creditors^[92] can be evidenced either by their signature on the rehabilitation agreement or by electronic voting.^[93]

4.6.3.    Cross-class cram-down

GIC provides, in line with Article 11 PRD 2019, for a cross-class cram down mechanism allowing the court to ratify the agreement under certain conditions even if the majority of one of the two classes is not consenting to that agreement.^[94] In particular, the requirements to be satisfied are the following:

• The agreement has been approved by creditors representing more than 60% of the debtor’s total claims and more than 50% of the secured claims;

• The non-consenting affected creditors are treated more favourably than each creditor whose claims has a lesser repayment priority, where this is evident based on their ranking in insolvency liquidation.^[95] Although the explanatory note of the law clarifies that this is a transposition of Article 11(1) PRD 2019, the provision does not make reference to classes but to individual creditors. Therefore, either the Greek legislator did not want to have a clear-cut option between absolute and relative priority rule or the transposition does not reflect its full intention.

• No class of affected creditors can under the rehabilitation agreement receive more than their total claim against the debtor; and

• Finally, it is additionally required that the agreement is proposed by the debtor or has the debtor’s consent. This requirement implies that an inter-creditors’ agreement without the consent of the debtor cannot use the cross-class cram down mechanism.

4.6.4      General ratification requirements

In both a classic ratification scenario and in a cross-class cramdown situation, the court should proceed ex officio to the assessment of whether the agreement respects certain general principles:^[96]

• It is presumed that the rehabilitation agreement has a reasonable prospect of ensuring the viability of the debtor’s business.^[97] The assessment of the viability will be carried out on the basis of the agreement, the business plan and the expert’s report.

• It is presumed that the no-creditor-worse-off principle is satisfied.^[98] This principle is satisfied if the rehabilitation agreement:^[99]

1.   places none of the non-consenting creditors or a creditor whose consent is presumed by law in a worse economic position than would have been in the event of the debtor’s insolvency, and

2.   does not result in any non-consenting creditor, who has ownership of an asset or is the assignor of claims with the right to satisfy its claims against the debtor from the said assets, being compelled to receive less than he would receive or will receive by exercising his contractual rights over the said assets.

In order to ascertain this condition, the court will need to refer to the expert report, which will include an opinion on whether the no-creditor-worse-off principle is satisfied (in practical terms this will involve a valuation of the firm). The satisfaction of this criterion is required to be examined only in relation to creditors whose consent is presumed or may be presumed and those who oppose the ratification of the agreement in any way available by law. This means that creditors, who have consented to the plan actively (i.e. not presumably), may receive less than they would receive in the event of insolvency.

• The rehabilitation agreement is not the outcome of malicious intent and does not breach compulsory law provisions, especially of competition law.

• The rehabilitation agreement treats creditors of the same position on the basis of the principle of equal treatment of creditors. Divergences from the principle of equal treatment among creditors are allowed for a business or social cause, which is specifically described in the decision of the court or if the affected creditor consents to that divergence.^[100]

• The debtor consents in the case of an application for the ratification of an inter-creditors’ agreement. The debtor’s consent is deemed to have been given if the debtor has not lodged an intervention against its acceptance of the application for ratification by the time of the hearing. The court may proceed to such an assessment also ex officio^[101].

The insolvency court should not ratify the rehabilitation agreement if it is presumed that the implementation of the rehabilitation agreement will not stop the cessation of payments. In this case, and if an insolvency petition is pending, the court declares the debtor’s insolvency.^[102]

4.6.5      Objections against the agreement before ratification

In an inter-creditors agreement, the debtor may intervene against the acceptance of the application for the ratification. However, this does not preclude the ratification of the agreement by the court, provided that it follows from the application and particularly from the expert’s report that the rehabilitation agreement will not put the debtor in a worse legal and financial position than it would have been without the agreement.^[103] For example, if creditors agreed for an extension of deadlines for payments followed by an increase to the interest rates, this agreement could be challenged by the debtor.

In both debtor/creditor and inter-creditors agreements, any non-consenting affected creditor may also intervene and object on the ratification of the agreement. Otherwise, a third-party opposition is possible after the ratification.

If no such objection is presented before the court and the requirements presented above are met, then the rehabilitation agreement may be ratified and produce legal effects as per the terms of the agreement against all the affected creditors and the debtor.^[104]

4.6.6      Amendment of the ratified rehabilitation agreement

The ratified rehabilitation agreement may be amended once with a subsequent agreement of all contracting parties, which is submitted to the court for ratification by the debtor or any of the contracting creditors. In this case, the amended agreement will be ratified by the court if the following cumulative conditions apply:^[105]

1. The amendment concerns the time and manner of the repayment of claims or the type of the respective considerations or the amount of the claims for repayment;

2. The amended agreement does not prejudice the principle of equal treatment of creditors and does not result in the non-satisfaction of the no-creditors-worse-off principle in relation to creditors opposing the ratification of the amendment agreement. The benchmark taken into consideration is the recovery value in case of the debtor’s insolvency at the time of the conclusion of the amended agreement;

3. A supplementary report of the appointed expert on the amended terms should be provided with the pleadings.

4.6.7      Third party opposition

A third party opposition against the ratifying judgment may be lodged before the court by a person who did not attend the hearing and had not been duly summoned, within an exclusive deadline of 30 days as of the publication of the ratification judgment.^[106] If the court accepts the third party opposition, it cancels the agreement only if it is not possible to maintain it by recalculating the amounts that the person who filed the third-opposition is entitled to receive.^[107]

4.7   Possibilities for a debt-for-equity swap

A debt-for-equity swap was provided by GIC since 2007. The numerous reforms since then maintained this possibility with certain variations. GIL provides also for this possibility allowing to pursue a debt-for-equity swap in the context of the rehabilitation agreement.^[108] The law does not set specific requirements for the use of this tool other than what is agreed between the parties. However, certain safeguards are in place in line with the PRD 2019 in order to ensure the effectiveness of the restructuring process.^[109] As already discussed in section 4.6.1 above, the GIL includes provisions that make it possible to overcome difficulties caused by a shareholders’ holdout. In addition to that, the law provides for the possibility to proceed to a decrease of the share capital, prior to the debt-for-equity swap, for the amortisation of losses in any case, or for the purposes of forming a reserve.

At the same time, to secure the effectiveness of the restructuring process, it is also required to consider the role of the guarantors. In the case of a debt-for-equity swap, the guarantor may be released since the creditor becomes a shareholder and the debt no longer exists. Such release could be demotivating for creditors to enter into the rehabilitation agreement.^[110] In this regard, the options proposed by the Greek legislator are either a prior agreement between the creditor and the guarantor or the sale from the creditor to the guarantor of the share resulting from the debt-for-equity operation.^[111] Although the second option may raise issues on when the guarantor should be released , both options seem reasonable from a practical perspective since the guarantor is usually the majority shareholder of the debtor, member of the same group or member of the family of a person controlling the debtor.^[112]

4.8   Executory contracts

As a general matter, executory contracts remain in force in the context of a rehabilitation procedure. In particular, the GIL states that the filing of an application to ratify a rehabilitation plan or to request provisional measures (including the granting thereof) does not constitute grounds for the termination or modification of executory contracts in a matter that is detrimental to the debtor.^[113] This suggests that any ipso facto clauses are inoperative and may not be exercised by contractual counterparties. Still, counterparties are able to terminate or modify executory contracts if such termination or modification rests on other grounds^.[114] Even in these cases, however, the court may, as a provisional measure, either at the negotiating stage or after the filing of an application for ratification, forbid the termination of agreements that it considers material for the operation of the business until the ratification or the rejection of the rehabilitation agreement.^[115]

4.9   Jurisdiction for and recognition of court decisions in Europe

The Greek legislator has not requested any new procedures to be added to Annex A of the EIR 2015. The implementation of the PRD 2019 occurred by reforming the rehabilitation procedure which already existing at the time of adoption of the European Insolvency Regulation (EIR) 2015. Therefore, it was already included in Annex A. As a result, the legal basis for assuming jurisdiction and recognition of court decisions in cross-border cases in the EU is the EIR 2015.

5.      Outlook – Concluding remarks

Overall, the legal practice has exhibited a lukewarm approach to the new GIL. As regards the rehabilitation procedure, the overall impression is that there have been no fundamental changes. Still, the law lacks clarity in a number of respects and several issues would thus need to be clarified by practice. The application of the stay as well as the protection of dissenting creditor interests in the context of the rehabilitation agreement are likely to attract the most attention in the application of the new law. Since the law has been completely overhauled, one additional challenge for legal practice will be to draw insights from the pre-existing framework and the case law that had been developed in order to address any gaps and deficiencies in a systematic and coherent way. In addition, the success of certain tools is, to some extent, dependent on the organisation and workload of the court system, which may create obstacles in their efficiency. Nevertheless, despite certain inadequacies, the GIL largely conforms to the PRD 2019 and can thus be regarded a success, as far as the implementation of the PRD 2019 is concerned. It still remains to be seen whether the new framework will prove up to the task of addressing the issues faced by debtors and creditors and the economy at large.

^[1] An English translation of the Greek Insolvency Law, including the provisions of the rehabilitation procedure can be accessed online at: https://www.bazinas.com/media/616d81aae21c4.pdf

^[2] L. Kotsiris, Insolvency Law: Sakkoulas, Athens, 2017, p. 23 (in Greek).

^[3] During the 1980s, the rehabilitation of troubled enterprises was utilized to increase the state’s control over distressed firms in certain crucial economic sectors (Law 1386/1983). Under Law 1892/1990, this approach was reversed and reorganization measures became tools for achieving the privatization of distressed enterprises that had been brought under public control.

^[4] Law 3588/2007, State Gazette (SG) A’ 153/10.7.2007.

^[5] Article 107 GIC.

^[6] L. Kotsiris, ibid, p. 580.

^[7] Y. Sakkas & Y. Bazinas, The Greek Insolvency Code: An Over-Reformed Law, Pratt’s Journal of Bankruptcy Law, 2018, 14(5), p. 223.

^[8] Ibid, 225.

^[9] A special liquidation procedure was introduced in 2012 as a means to encourage going concern sales, only to be dropped a few years later after minimal (if any) application.

^[10] Such procedures included special administration (Article 68 Law 4307/2014), whose main objective was to enable large businesses to restructure their bank debt, and an automated out-of-court workout mechanism (Law 4469/2017), that appealed to corporate as well as consumer debtors and would enable them to write down their bank, tax and social security obligations. Although special administration yielded some high-profile successful restructurings, the OCW mechanism, despite high aspirations, failed to provide any noticeable results.

^[11] Law 4738/2020 SG A 207/27.10.2020.

^[12] Y. Sakkas & Y. Bazinas, The new Greek Insolvency Law: A turning point, Eurofenix, 2022, 86, p. 22.

^[13] Article 76 GIL.

^[14] Article 192 GIL.

^[15] Kathimerini, Greece says new insolvency code gives ‘second chance’ to debtors, available at: https://www.ekathimerini.com/economy/256313/greece-says-new-insolvency-code-gives-second-chance-to-debtors/ (28 August 2020).

^[16] Explanatory Report to Law 4738/2020.

^[17] Commission Recommendation of 12 March 2014 on a new approach to business failure and insolvency (2014/135/EU).

^[18] Y. Sakkas & Y. Bazinas, ibid.

^[19] Article 31 GIL.

^[20] S. Psychomanis, Insolvency Law, Sakkoulas, Athens, 2021, p. 112.

^[21] Α. Paizis, The treatment of cross-border insolvency in groups of companies in the EU, Nomiki Vivliothiki (NV), 2019, p. 137-142 (in Greek).

^[22] Article 31 GIL.

^[23] The relevant application should be filed before the Multimember Court of First Instance in the district where the debtor has its COMI (procedure of voluntary/non-contentious jurisdiction).

^[24] Article 49 GIL.

^[25] Article 32(1) GIL.

^[26] Article 44(1) GIL.

^[27] E. Perakis, Insolvency Law, NV, 2021, p. 73 (in Greek), who refers to Articles 21 and 47 Law 4172/2013.

^[28] Article 78(3) GIL.

^[29] Article 3(1) EIR 2015, see also G. Michalopoulos, European cross-border insolvencies, 2007, NV, p. 110-129, A. Paizis, above note 21, p. 42-86 and G. Michalopoulos, L. Athanasiou (eds.), European & International Cross-border insolvency law, NV, 2020, p. 165-188.

^[30] Articles 34(2) and 44(1) GIL.

^[31] Article 31 GIL.

^[32] Article 34(3) GIL.

^[33] Law 3588/2007, SG A 153/10.7.2007.

^[34] Law 4336/2015, SG A 94/14.08.2015.

^[35] S. Psychomanis, above note 20, p. 60.

^[36] A. Paizis, Likelihood of insolvency as a criterion for the opening of a rehabilitation procedure: First interpretation approach, DEE, 2016(1), p. 12 (in Greek).

^[37] In line with Article 4(1) PRD 2019.

^[38] S. Psychomanis, above note 20, p. 73.

^[39] A. Paizis, The problematic implementation of “likelihood of insolvency” in the Greek legal order, Annual Business Law Conference, NV, 2018, p. 420-423 (in Greek).

^[40] Article 2(2)(a) PRD 2019.

^[41] E. Perakis, above note 27, p. 75.

^[42] A. Paizis, above note 36, p. 13.

^[43] Article 34(2) GIL.

^[44] Article 47(1) GIL.

^[45] E. Perakis, above note 27, p. 79.

^[46] Article 54(4) GIL.

^[47] Article 74(1) GIL.

^[48] Article 51 GIL.

^[49] Article 48(1) GIL. The expert, who is usually a certified accountant, is selected jointly by the debtor and the contracting creditors or only by the latter, where the application is only filed by creditors Article 48 (2) GIL.

^[50] Article 55 GIL.

^[51] Article 54(1) GIL.

^[52] Article 35(1) GIL.

^[53] Article 35(2) GIL.

^[54] Article 35(3) GIL.

^[55] However, according to Article 35(3)(c) GIL, the non-cooperating shareholders maintain their right to compensation against the company and the creditors in the event that it is later proven that they would have had a residual claim after liquidation.

^[56] Article 12(1)(2) PRD 2019.

^[57] Article 53(1) GIL.

^[58] Article 53(2) GIL.

^[59] Article 50(1) GIL. If there is a specific business or social justification, the court may extend the application of such stay to the debtor’s guarantors or other co-obligors see Article 50(5) GIL.

^[60] Article 52(2) GIL.

^[61] Article 52(5) GIL.

^[62] Article 50(1) GIL.

^[63] Article 50(2) GIL.

^[64] Article 50(3) GIL.

^[65] S. Psychomanis, above note 20, p. 150.

^[66] Article 52(1) GIL

^[67] Article 31 GIL.

^[68] Above note 32.

^[69] Section 4.2.1.

^[70] Article 46 GIL. The other documents are: debtor’s financial statements, creditors’ list, expert’s report confirming that all requirements for the ratification of the agreement are met, a certificate of the obligations to the State and social security institutions issued within one month prior to the submission of the application for ratification.

^[71] Article 45(2) GIL provides that if any of the elements of the application are not known to the person filing the application, especially when this person is a creditor, the application must contain the reasons for which such information is not known and the relevant estimations even if these are by approximation or presumptions.

^[72] The restructuring plan must include: the proposed settlement of the debtor’s assets and liabilities, the duration of the proposed rehabilitation measures as applicable, the way of informing and consulting with the employees’ representatives, to the extent required under EU and national law, any general consequences regarding employment, such as redundancies, part time employment or similar, every financing expected in the context of the rehabilitation agreement and the reasoning necessitating the new financing for the implementation of the rehabilitation plan and the reasons justifying why the rehabilitation agreement has a reasonable prospect to ensure the viability of the business as well as the necessary conditions for the success of the rehabilitation plan. Article 45(1) GIL

^[73] Article 42 GIL.

^[74] Article 41 GIL. However, the parties may agree to apply certain terms between them even without ratification.

^[75] E. Perakis, above note 27, p. 90, 92.

^[76] Article 39 GIL.

^[77] The suspension shall not bind a non-contracting creditor as well as the creditors whose consent is presumed for a period not exceeding 3 months as of the ratification of agreement.

^[78] As defined in Article 2 (1)(7) PRD 2019.

^[79] Article 43 GIL.

^[80] E. Perakis, ibid.

^[81] According to Article 48(2) GIL, the expert is selected among the persons registered with the Registry of Experts of Article 65, jointly by the debtor and the contracting creditors, and only by the contracting creditors in case of an inter-creditors’ agreement.

^[82] Article 48(1) GIL.

^[83] For the minimum content of the expert’s report, Ministerial Decision n. 26400 ΕΞ 2001, SG B 865/05.03.2021.

^[84] Article 47(2) GIL.

^[85] Article 54(5) GIL.

^[86] Article 34(1) GIL.

^[87] Indicatively, among other terms, the rehabilitation agreement may provide that a class of creditors may not request the repayment of claims of it before the full satisfaction of another class, Article 31(c) GIL.

^[88] Article 35(1) GIL.

^[89] Idem.

^[90] S. Potamitis & A. Rokas, Debt-to-equity swap as a measure for the rehabilitation of businesses and the methods to bypass shareholders will, Company Law Review, 2017(3), p. 379 (in Greek).

^[91] In compliance with principle outlined in Article 9(2) PRD 2019.

^[92] The law provides for specific rules for the consent of public administration or public entities in Article 37 GIL.

^[93] Article 34(1) GIL.

^[94] Article 54(1) GIL.

^[95] It refers to Article 167(2) GIL.

^[96] Article 54(2) GIL.

^[97] As provided in Article 10(3) PRD 2019.

^[98] It refers to the best-interest-of-creditors test within the meaning of Article 2(1)(6) PRD 2019.

^[99] Article 31(a)(b) GIL.

^[100] Indicatively, creditors’ claims may receive favourable treatment when they are labour claims or their non-satisfaction might essentially harm debtor’s business reputation.

^[101] E. Perakis, above note 27, p. 106.

^[102] Article 54(4) GIL.

^[103] Article 54(3)(e) GIL.

^[104] Article 60 GIL transposing Article 15 PRD 2019.

^[105] Article 59(1) GIL.

^[106] Article 57(1) GIL.

^[107] Article 57(2) GIL.

^[108] Article 39(1)(b) GIL.

^[109] Recital 96 PRD 2019.

^[110] E. Perakis, above note 27, p. 89.

^[111] Article 39(1)(j)(jb) GIL.

^[112] Α. Paizis, Insolvency announcement and the fate of the personal guarantor, DEE, 2014(11), p. 1040 (in Greek).

^[113] Article 44 (2) GIL.

^[114] S. Psychomanis, above note 20, p. 153.

^[115] Article 52 (2) GIL.

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