The new Law 4738/2020 on Bankruptcy protects your primary residence and introduces a new extrajudicial debt settlement mechanism. It provides for a single bankruptcy procedure applying to all debtors. It is also known as the Law on Debt settlement and second-chance arrangement.
The Bankruptcy Law introduces two pre-bankruptcy proceedings for debt settlement. One is the new extrajudicial mechanism, where only financing institutions, the State and Social Insurance Funds participate.
New extrajudicial mechanism
The new extrajudicial mechanism replaces the previous OCW provided in Law 4469/2017. It provides for a multilateral negotiation process between debtor and creditors.
Only financing institutions (servicers and banks), the State and Social Insurance Funds can participate in the new extrajudicial mechanism. This is a strictly online and out-of-court process.
Find out the key features of the new extrajudicial mechanism and its major provisions:
Resolution process for an undertaking
The resolution process for an undertaking introduced by the Bankruptcy Law replaces the resolution agreement provided in Article 106b of the Bankruptcy Code, which applied previously.
Large- and small-scale bankruptcies
The Law on Bankruptcy provides for small-scale bankruptcies and other bankruptcies. Find out which entities fall under each category and which is the competent court.
According to the Bankruptcy Law on, small-scale bankruptcies include:
- Undertakings falling under “micro entities” in accordance with the Greek Chart of Accounts (Article 2 of Law 4308/2014).
- Individuals, natural persons, with assets amounting up to €350,000.
The District Court is the competent court.
According to the Bankruptcy Law on, other bankruptcies include:
- Undertakings with sales, assets and employees that exceed the thresholds set for “micro entities”.
- Individuals, natural persons, with asset amounting to over €350,000.
The Multi-Member Court of First Instance is the competent court.
Simplified procedure for small-scale bankruptcies for individuals and businesses
The Bankruptcy Law simplifies the procedure for small-scale bankruptcies, whether the debtor is an individual, or a business, legal or natural person.
For individuals, sole proprietorships and companies
- For individuals, the simplified bankruptcy procedure replaces Law 3869/2010, which is repealed.
- This simplified procedure also applies to “micro entities”, i.e. to companies or sole proprietorships.
- In all cases, the District Court is the competent court (Article 172(2)).
- The application for bankruptcy can only be submitted online, through the Solvency e-Register (Article 173(1)).
- The procedure takes place strictly in writing, with no court hearing (Article 177).
- The creditors may also intervene online, requesting the rejection or the acceptance of the application.
- The creditors may appoint a bankruptcy administrator of their choice. If they disagree, the administrator chosen by the creditor with the largest claim is appointed (Article 177(1)).
- If one year has elapsed since the commencement of the simplified procedure and the bankruptcy has not concluded, the administrator must submit a report to the rapporteur. This report explains the reasons for the delay. If the rapporteur considers that the delay was unjustifiable, they replace the administrator (Article 188).
Single bankruptcy procedure
The Bankruptcy Law provides for a single bankruptcy procedure applying to all debtors: natural persons, sole proprietorships and companies. It introduces new features that protect security in rem, limit stay and facilitate auctions to avoid fruitless ones.
Protection of security in rem (Article 101)
The Bankruptcy Law protects the privileges in rem:
- Bankruptcy does not prevent secured creditors from accelerating enforcement of collateral (mortgage lien on property, pledges).
- Secured creditors may seize the encumbered asset within 9 months from bankruptcy.
- If they do not accelerate enforcement within 9 months, the stay of individual enforcement actions applies to them too, and as a result their claims are satisfied by the same means as the other creditors.
Limiting the stay (Articles 175, 101(3) and 79(1))
The Bankruptcy Law limits the stay:
- It does not automatically provide for a stay once one files for bankruptcy. A stay may only be granted by virtue of a court order (preventive measures).
- The stay does not apply to enforcement actions by secured creditors.
- The stay only applies to secured creditors when the Court has ordered the liquidation of the entire business, provided that 30% of the total creditors, including 20% of the secured creditors, consents.
Facilitating liquidation – Preventing fruitless auctions (Article 94)
The Bankruptcy Law provides for arrangements that prevent fruitless auctions:
- If the 1st auction is fruitless, a new auction takes place within 20 business days, starting at 75% of the average value of the valuations provided by the certified valuers hired by the administrator to determine the starting bid.
- If the 2nd auction is also fruitless, a 3rd auction takes place starting at 50% of the average value of the valuations provided by the certified valuers hired by the administrator to determine the starting bid (within 20 business days).
- If the 3rd auction is also fruitless, the administrator, without delay, submits an application to the rapporteur for decreasing the starting bid or for approving terms that will facilitate the liquidation of the asset. The application may also include a request to find individual buyers to liquidate the asset based on a predefined price or to conduct an audit of the legal or real situation. The rapporteur decides on the administrator’s application by reasoned order. This order cannot be appealed. The rapporteur issues their order within 30 days from the date the administrator submitted the application.
- If liquidation has not been achieved within 120 days from the issue of the rapporteur’s order, an auction takes place with no starting bid. If liquidation is again not achieved:
- If the debtor is a legal person, the asset is transferred to the State by order of the rapporteur following the administrator’s proposal.
- If the debtor is a natural person, the asset is transferred to the debtor, unless there are amounts due to the State or Social Insurance Funds. If there are such amounts due, ownership of the asset is transferred to the State by way of order of the rapporteur following the administrator’s proposal. This order is registered, with the administrator’s diligence, to the competent Cadastral Office, Land Registry, Shipping Register or other public register, as required.
Discharging the debtor with or without payment plan
The Bankruptcy Law provides for the discharge of the debtor. Find out in which cases, for how long and under which conditions, in accordance with Article 192 of the Bankruptcy Law.
Case 1: 3-year discharge period with payment plan
In principle, the debtor is discharged once 36 months (3 years) have elapsed from:
- the date of bankruptcy (Article 192(1)) or
- registering the name or corporate name, as applicable, of the debtor in the Solvency e-Register provided in Article 213.
The debtor is not discharged if any person with legal interest appeals against the debtor’s discharge within the above period.
During the 3-year period, the debtor must pay to the creditors the part of their income exceeding the reasonable living expenses, according to the respective payment plan. The rapporteur decides on the acceptance of the payment plan by reasoned order.
Case 2: 1-year discharge period without payment plan
The discharge period is set to only 1 year from the date of bankruptcy, provided the following conditions are met:
- If the debtor owns assets of a value equal or higher than €100,000,
- If the said assets have a value over 10% of the debtor’s total liabilities.
If the above conditions are met, no payment plan is provided, i.e. the debtor is not liable to make any further payments to settle their debts.
Key features of the new extrajudicial mechanism
The Bankruptcy Law introduces a new extrajudicial mechanism. Find out when it applies, what is the procedure, and what it provides for mediation and for reaching an agreement.
Debts: The new extrajudicial mechanism procedure applies only to debts to financing institutions (servicers and banks), the Greek State and Social Insurance Funds. It does not apply to other creditors, e.g. employees, suppliers etc.
Applicants: All natural or legal persons with bankruptcy capacity may apply for an extrajudicial debt settlement. However, the scope of paragraph 1 excludes:
- investment firms and branches of foreign investment firms operating in Greece
- undertakings for collective investment in transferable securities (UCITS) and alternative investment funds (AIFs) and their managers
- credit and financing institutions, as well as branches of foreign credit and financing institutions operating in Greece
- insurance or reinsurance undertakings.
The procedure is carried out through an online platform. No court intervention is provided (not even to ratify the agreement).
This is a consensual procedure. The creditors submit a settlement proposal only if they wish to settle the debts of the particular debtor.
Maximum duration of the procedure
If no restructuring agreement has been signed within 2 months from the date of application, the procedure is considered completed and fruitless.
If the creditors submit a settlement proposal, the debtor has the right to request mediation within 10 calendar days from receiving the proposal. For a mediator to be appointed, the consent of the majority of the financing institutions is required.
Find out more about mediation, the procedure and the benefits to the debtor.
Entering a restructuring agreement
A restructuring agreement is entered into if financing institutions representing a minimum of 60% of the claims against the debtor, including a minimum of 40% of the secured claims, consent to the settlement.
The Bankruptcy Law provides for the use of a computational tool (algorithm). Find out what it determines and when it is used.
What the algorithm determines
The algorithm determines the final repayment amount in instalments, as well as the repayment period, per creditor bound by the debt restructuring agreement, taking into consideration:
- the debtor’s repayment ability in net present value terms
- the liquidation value of the debtor's assets
- the terms of the restructuring agreement – instalments, final repayment amount, repayment period for each creditor
- the ranking of creditor claims as to the liquidation proceeds, to determine the minimum recovery amount per creditor bound by the debt restructuring agreement.
When it is used
For financing institutions (servicers and banks) the tool is optional.
According to the new extrajudicial mechanism, once the application is submitted and until the procedure is completed in any manner, the following actions are suspended:
- taking enforcement actions
- continuing enforcement proceedings on claims, movable and immovable assets against the debtor
- criminal prosecution for the offences provided in Article 25 of Law 1882/1990 (A/43) and Article 1 of Emergency Law 86/1967 (A/136) on debts for which settlement has been requested.
During the stay from criminal prosecution, the offence does not become stature-barred, and the time limit provided in Article 113(2) of the Criminal Code does not apply.
In all cases, the stay:
- does not apply to auctions that have been scheduled within three (3) months from the date the debtor submitted their application,
- does not apply to any procedural steps taken to prepare the auction by a secured creditor (including seizing),
- shall automatically cease once the debtor is notified of the decision to not submit a restructuring agreement proposal or once the application is rejected in any manner.
When a debt restructuring agreement is entered into in the context of the new extrajudicial mechanism, instalment subsidy applies under certain conditions.
To receive the subsidy, the debtor must meet all of the following conditions:
- They must have a right in rem, exclusive or a fractional share, full or bare ownership, or enjoyment on the property that is their primary residence and is in Greece.
- The debt must be secured with a mortgage or a mortgage lien on a property that is used as the primary residence of the debtor, before submitting an application for extrajudicial debt settlement.
- The total debt due to financing institutions, the State and Social Insurance Funds should amount to a minimum of €20,000.
- The remaining balance of the loan secured with the debtor’s primary residence should not exceed the amount of €135,000 in case of a single-member household. This amount increases by €20,000 for each additional household member, with a maximum amount of €215,000 per creditor.
- The loan must not have been denounced for a period longer than 1 year from the date the application for extrajudicial debt settlement is submitted.
- Family income must have decreased, as provided in Article 28(2)(f) of the Law on Bankruptcy.
- The debtor must meet income, property and other criteria that apply, in accordance with Article 3 of Law 4472/2017 (A/74), as a result of the decrease in family income, provided under (f).
- The debtor must have accepted the settlement proposed by the creditors in the context of the extrajudicial settlement, in case the debts were non-performing.
- The debtor must not receive any other subsidy or grant or state aid for the primary residence loan subsidised through this subsidy.
- The debtor must have no outstanding tax or social insurance debts once the total debts have been restructured.
- If a subsidy is granted for debt that is subject to the provisions of Law 3869/2010 (A/130), the debtor must waive their right to request the State’s contribution. The waiver is in accordance with subparagraphs 5, 6, 7 and 8 of Article 9(2) of Law 3869/2010 (A/130).
Settling claims of the State and the Social Insurance Funds
The new extrajudicial mechanism provides for the settlement of State and Social Insurance Funds claims according to the amount of debt and under certain conditions.
Settling State claims less than €1.5 million in value
The State and the Social Insurance Funds consent to restructuring solutions reached within the extrajudicial mechanism (i.e. “presumed consent”), provided that:
- The content of the restructuring agreement was derived from the Algorithm.
- The claims of the State and the Social Insurance Funds do not exceed €1.5 million.
- The State and the Social Insurance Funds represent a lower claim amount than the total claims of the financing institutions.
- There is compliance with the specific arrangements on settling claims of the Greek State and the Social Insurance Funds provided in Article 22 of the Bankruptcy Law – e.g. a minimum instalment of €50, mandatory monthly instalments, a maximum of 240 instalments etc.
Settling State claims over €1.5 million in value
If the above conditions are not met, the State may still consent to the restructuring agreement, provided that:
- The financing institutions (servicers and banks) have already consented.
- There is a positive reasoned opinion issued by an insolvency manager, according to which:
- the agreement does not treat the State or the Social Insurance Funds less favourably than in the case the debtor went bankrupt,
- implementing the restructuring agreement allows for the debtor’s sustainable operation (when it is a business) or renders the debtor solvent, and
- there is compliance with the specific arrangements on settling claims of the Greek State and the Social Insurance Funds provided in Article 22 of the Bankruptcy Law.
Sale and Leaseback Entity – Eligibility criteria
The Bankruptcy Law provides for a Sale & Leaseback scheme for the primary residence of vulnerable debtors, where a State entity established to this end repurchases the property.
By virtue of Article 217 of the Bankruptcy Law, a debtor classified as vulnerable may apply for transferring or leasing their primary residence to the Sale and Leaseback Entity, provided that:
- The debtor has gone bankrupt, or
- A secured creditor accelerates enforcement on the debtor’s primary residence.
Who is classified as vulnerable debtor
Vulnerable means a debtor who meets all of the income, property and other criteria in force, in accordance with Article 3 of Law 4472/2017 on granting a housing benefit.
The conditions are determined by way of a Ministerial Decision (Greek Government Gazette 792/B/06.03.2019).
The debtor’s total income does not exceed €21,000. In particular:
- for a single-member household, up to €7,000
- for each additional household member the amount increases by €3,500, up to the maximum of €21,000
Objective value of property
The total objective value of the debtor’s property must not exceed €180,000. In particular:
- for a single-member household, up to €120,000
- for each additional household member the amount increases by €15,000, up to the maximum of €180,000
The value of the primary residence is included in the total property value.
Deposits and/or current value of shares, bonds etc.
The household’s total deposits and/or the debtor’s current value of shares, bonds etc. must not exceed €21,000. Specifically, for a household with:
- a single member, up to €7,000
- 2 members, up to €10,500
- 3 members, up to €14,000
- 4 members, up to €17,500
- 5 members, up to €21,000