The rehabilitation procedure of the Greek Bankruptcy Code

Written on July 19, 2017.

The purpose of this report is to provide you with the essential information regarding the basic legal framework in bullets concerning the rehabilitation procedure of the Greek Bankruptcy Code (‘GBC’). Nothing on this report or any external hyperlink should be considered as a legal advice or as a substitute for legal advice.

General outline of the rehabilitation procedure of the Greek Bankruptcy Code (‘GBC’)

A debtor, in case of a present or imminent “cessation of payments” (defined as a general and permanent inability of the debtor to meet his financial obligations as they become due), may file a petition before the Court requesting the ratification of an already structured rehabilitation agreement, which has been negotiated and accepted by the required majority of its creditors. The rehabilitation procedure may also be a solution for the debtors who have not yet reached the aforementioned state, if there is a possibility that they become insolvent. Τhe purpose of the rehabilitation procedure is to avert bankruptcy. To this direction, the creditors may conclude to a rehabilitation agreement without debtor’s involvement, and submit it to the Court for ratification, in case the debtor is in cessation of payments at the time the agreement was concluded. The pre-pack rehabilitation agreement can be signed by the creditors representing the prerequisite qualified majority (namely creditors representing at least 60% of the debtor’s total claims, 40% of which, should be secured) and filed for ratification directly to the court in accordance with article 104 of the GBC. In that case, the debtor may obtain the ratification by the court of a restructuring agreement that has already been structured, negotiated and accepted by the required majority of the debtor’s creditors.

As per the filing process itself, the debtor files with the Bankruptcy Court the application for the ratification of the pre-pack agreement accompanied by the following documents:

a) The signed rehabilitation agreement; b) The annual financial statements of the debtor for the last corporate year; c) Certification of competent financial authority regarding the debtor’s debts against the State; and d) An Expert’s Report.

As of the submission of the pre-pack agreement to the Court for ratification, individual and collective enforcement actions against the debtor, either pending or not, are automatically suspended, until the court issues its decision on the ratification of the agreement. In any case, the above suspension cannot exceed a time period of four (4) months. Following the lapse of the above fourth month period, the suspension of individual and collective enforcement actions against the debtor, either pending or not, may be ordered, as well as any other preventive measure provided by law within the context of the rehabilitation process.

As per article 106d of GBC, in cases where the rehabilitation agreement provides for the transfer of the debtor’s business in part or as a whole, the acquirer undertakes the assets of the debtor and to the extend provided by the relevant transfer agreement may undertake part of the liabilities of the business, whereas the remaining liabilities may be repaid with the proceeds of the sale, or capitalized or even deleted; the law provides for the possibility such acquirer to be a societe anonyme established by creditors through contributions in kind of part or the whole of their claims against the debtor according to the provisions of the Greek Corporate Law.

An agreement made under this procedure should at least meet the requirement that, the creditors receive in reference with the attached business plan, at least the value that they would receive through the liquidation procedure (“no worse off creditor” principle).

Beyond that, article 103 of GBC provides the debtor and his creditors with a wide flexibility in structuring the terms of the rehabilitation agreement, according to their needs. On the basis of the above, the object of a restructuring agreement may be any settlement of the debtor’s assets and liabilities, including but not limited to:

Changes to the terms of debtor’s liabilities (e.g. extension of the repayment date, alteration of the interest rate or replacement of the obligation to pay interest by the obligation to provide the creditor with a share of the profits).
Capitalization of the debtor’s liabilities by issuing shares (debt-for-equity swap).
Write-off or write down of claims against the debtor.
Regulation of the future relationship between creditors and equity holders after the ratification of the agreement.
Payment of additional amounts to creditors in case the financial position of the debtor improves.
Disposal of the debtors’ assets.
Assignment of the management to a third party.
The transfer of the enterprise of the debtor to a third party, either in whole or in part according to article 106d GBC.
Suspension of the individual enforcement actions against the debtor, as well as his co-obligors and for a certain period after the ratification of the agreement (which cannot exceed a period of three (3) months for the non – consenting creditors).
The appointment of a supervisor for the execution of the terms of the ratified agreement.

The insolvency court ratifies the rehabilitation agreement provided that the following are met cumulatively:

If it is signed by creditors representing the necessary (60% – 40%) majority.
If following the ratification, considers that debtor’s business will become viable.
If the collective repayment of the creditors is not impaired, which means that non-signatory creditors receive at least as much as they would receive through enforcement proceedings or bankruptcy liquidation.
If the agreement is not the result of malice intention or other unfair act or male fide conduct of the debtor, creditor or third person, or violates any mandatory legislation, such as competition.
If the agreement does not deliver the debtor out of cessation of payments, or if it does not prevent the debtor from reaching this state.
If each creditor is not treated less favorably than any other creditor of the same rank (principle of equal treatment).

However, the competent court may ratify the rehabilitation agreement without inspecting the viability of the debtor’s business, provided that certain requirements are met, which ensure that all creditors have full knowledge of the agreement and the accompanying business plan. This provision aims to facilitate the ratification of agreements between debtors and creditors, since the judgment concerning the viability of the enterprise does not longer depend on the court’s inquiry, but on the creditors firm belief in the viability of the enterprise.

A third party not legally summoned to attend the hearing for the ratification of the agreement has the right to file for a third-party objection requesting the annulment of the ratification decision within 30 days as of its publication.

Upon its ratification by the Court, the rehabilitation agreement binds all creditors whose claims have been regulated thereunder, even those who have dissented or those who have not been involved as contracting parties (cram-down effect). In addition, following the ratification of the agreement:

any previous prohibition concerning the issuance of cheques is lifted;
any criminal prosecution of misdemeanor, relating to bounced cheques or to payments in default towards the State or social security funds is suspended;
all debts towards the State and social security organizations are considered to be updated under the condition that the terms of the pre-pack agreement are met; and
the rehabilitation agreement is considered to be enforceable with regard to obligations regulated therein.