The new Law on Insolvency. The Consolidation Process

The new Law on Insolvency. The Consolidation Process

In our previous article, we approached the key sections of the new Law on Insolvency. We examined its basic provisions and innovations, its necessity, its regulatory scope and importance. We proceeded mention its specific provisions. We started with the early warning and proceeded to the out-of-court debt settlement mechanism.

The pace of the legislator, which we follow in our articles, leads us to the thematic unity of the pre-insolvency process of consolidation (articles 31 to 69 of law 4738/2020).

We focus on its main predictions, the basic points of which we try to highlight.


Introductory remarks

The pre-insolvency settlement process concerns the well-known “procedure of article 99” (Law 3588/2007). The specific procedure had already been fundamentally reformed (with Law 4446/2016 which replaced articles 99 to 106f and repealed articles 106g to 106k of Law 3588/2007).

The principle of not worsening the position of creditors remains fundamental under the status of the new law (see article 99 par. 2 of law 3588/2007 and article 31 of law 4738/2020).

The corresponding regulations (of the consolidation process) extend (only) in articles 99 to 106f of law 3588/2007. Under the new regulatory framework, it occupies a number of articles (: articles 31 to 69 of Law 4738/2020).

The question arises, whether this is a total (and fundamental) change of what was provided for until today.

The answer, however, is no.

The critical changes (some of them positive) that have taken place are limited. The legislator chose, in principle, the reformulation of the relevant chapter in many small articles — as opposed to the fewer and longer ones. This is an option that makes the text of the law more comprehensible and easy to use. On this occasion, the legislator proceeded, as the case may be, to additions and rewording.


Purpose of consolidation

The purpose of the consolidation process remains the same: the “maintenance, utilization, restructuring and recovery of the company” (see article 99 par. 2 of law 3588/2007 and article 31 of law 4738/2020).


The only collective, pre-insolvency, process

Unlike in the past, the consolidation process is now the only collective pre-insolvency process. For three main reasons:

(a) It concerns all creditors

Non-institutional creditors are excluded from the out-of-court debt settlement mechanism (see Article 5). The suppliers, for example, of the debtor are excluded. It is therefore neither a collective nor, after all, a strictly equal process: preferential treatment is reserved for financial institutions. Instead, the consolidation process concerns all creditors.

(b) Inability to submit new applications for submission to a special management regime

From the entry into force of the new law, the option of submitting new applications for submission to a special management regime based on the provisions of articles 68 to 77 of law 4307/2014 (see article 265 par. 1c), which was a pre-insolvency tool of particular value in recent years ceases to exist. The new law uses only the liquidation provisions of the institution of special management and, exclusively, in the stage of insolvency.

(c) Abolition of inter-insolvency proceedings

The new law abolishes the institution of the inter-insolvency settlement process with the submission of a consolidation plan (articles 108 et seq. of Law 3588/2007), which ensured a way out of liquidation in case of insolvency. The new law highlights liquidation as the only means of collective satisfaction in the event of insolvency (see Article 75).

In the light of the above, the pre-insolvency settlement process is the only alternative to collective satisfaction, which does not simply precede the time of insolvency. It aims to prevent it.


Field of application

The new law expands the scope of the institution of consolidation:

(a) Regarding those subject to it

It concerns every person who “carries out a business activity” (and not “every natural or legal person with insolvency capacity”, as defined by article 99 par. 1 of law 3588/2007). The persons engaged in business activity may, under the other conditions of article 32 par. 1, request from the competent court the ratification of the co-submitted consolidation agreement (article 34). Let us not forget, after all, that insolvency is now recognized in every natural person. (It should be noted here that the insolvency capacity is now disconnected from the capacity to practice commercial activities (article 76) – in contrast to the regime of law 3588/2007). Moreover, the integrated directive 2019/1023 also refers to entrepreneurs (see article 2 par. 1 par. 9 of the directive).

(b) Regarding its scope

Entrepreneurs have the right to resort to the consolidation process. And this even when there is no “present or threatened failure to fulfill their obligations” (as was required by the previous law). The possibility of insolvency suffices, as long as it can be removed by subjecting them to consolidation (see article 32 par. 2).


Consolidation agreement and the required majority of creditors

Article 34 is key for the institution of consolidation (see in conjunction with Article 100 of Law 3588/2007). More specifically, Article 34 refers to two possibilities:

(a) The debtor consents to the consolidation agreement

In this case, it is necessary for the creditors representing fifty percent (50%) of the preferential claims and fifty percent (50%) of the other claims to agree (§1). Under the regime of Law 3588/2007 the corresponding percentage amounted to sixty percent (60%) of the total receivables, which included forty percent (40%) of any secured or mortgaged receivables (Article 100 par. 1 of Law 3588/2007).

(b) The debtor does not consent to the consolidation agreement

Creditors may attempt to ratify a consolidation agreement even if the debtor does not consent. Based on what was in force under the previous law (Law 3588/2007), “forced consolidation” was provided only when the debtor was at the time of concluding the agreement in suspension of payments. The new law provides for three additional new cases (see articles 34, par. 2, b to d). The one we find more “interesting” is the one that the debtor has failed to submit for registration financial statements of at least two (2) consecutive financial years.


Ratification of the consolidation agreement

Related to Article 34 is Article 54, which deals with the ratification of the consolidation agreement.

Article 54 introduces, in the context of the integration of Directive 2019/2013, the ” crossclass cram-down mechanism”, which was not provided for under the corresponding article 106b of Law 3588/2007.

It is therefore possible that unsecured creditors do not consent. In order to avoid (or work around) any possible negative reactions by them, it is provided [under conditions-alternative to the aforementioned majorities (Article 34 §1: 50% & 50%)], that the ratification of an agreement can approved by creditors representing more than sixty percent (60%) of the total claims against the debtor and more than fifty percent (50%) of the preferential claims.


Legislative decisions, beyond the transposition of Directive 2019/1023.

In addition to the necessary improvements and adjustments under Directive 2019/1023, the legislator has made some additional choices. Indicatively, the following:

The presumption of the consent of the State and the Public Entities

The consent of the State and public entities in the consolidation process does not always have to be explicit. With article 37 par. 2, a presumption of their consent to a consolidation agreement is introduced (under certain conditions), even if they do not sign it. With this provision the legislator seeks to solve the problem that arose in practice, of the State and public entities consenting in general “almost never” (see explanatory memorandum on Article 124).

The lack of responsibility of public servants

Article 38 establishes the exemption of any public servant from any liability, within the meaning of Article 13a of the Penal Code, who signs the consolidation agreement or votes in favor of it, from any criminal, civil or disciplinary liability. An explicit reference is made to the provisions of article 65 §§1 & 2 of law 4472/2017. It is pointed out, however, that with regard to the other participating executives, namely the financial institutions, the respective provisions of par. 3 and 4 of article 65 of law 4472/2017 are abolished (see article 265 par. 2). The last and only protective provision: the provisions on the violation of the fiduciary obligation of article 390 PC (the activation of which presupposes the submission of a complaint).

The (brief) reasoning of the relevant court decisions

Article 93 par. 3 of the Constitution requires court decisions to provide specific and detailed reasoning.

However, Article 56 of the new Law on Insolvency introduces for the first time (not only in the field of consolidation but also in the legal order in general) the provision that the court decision ratifying the consolidation agreement can contain only a brief reasoning with a simple reference to the chapter of the expert report, from which the contribution of each element required for the ratification of the agreement is obtained (provided that no intervention has been exercised against the ratification of the agreement). The difficulty of reconciling this provision with the right of third-party proceedings against the ratifying decision of a person who did not attend the hearing and was not legally summoned is already apparent (see Article 57).


Out-of-court debt settlement mechanism and consolidation process: Similarities and differences

Both the out-of-court debt settlement mechanism and the pre-insolvency settlement process are included in the second part of the first book of the new Law on Insolvency, which aims to prevent insolvency. In this sense, it is appropriate to record some prima facie differences between the two institutions.

The out-of-court debt settlement mechanism is an out-of-court procedure. The pre-insolvency settlement process, on the other hand, is an out-of-court procedure, but requires judicial ratification of the agreement that may be reached (see Articles 33, 54).

The debtor may be forced to participate in the process of consolidation. On the contrary, the voluntary participation of the latter in the out-of-court mechanism is presupposed as a given (in this case the goal is the general support of the institution by the financial institutions).

In order for a consolidation process to succeed, among others interim funding is provided (see article 39 par. 1.I) and so are greater margins for the suspension of prosecutions of individuals (see articles 50, 52) etc.


The pre-existing law and the utilization of its provisions

The Greek legal order already had a sufficient pre-insolvency framework before Law 4738/2020, especially regarding the process of consolidation, according to the legislator (see explanatory memorandum on article 122, law 4738/2020).

The legislator of law 4738/2020 therefore correctly used the framework of law 3588/2007, which, after all, had been harmonized (with law 4446/2016) with the then under development new EU framework to a great extent. Also, the legislator correctly incorporated in the Greek legal order the finally crystallized regulations of directive 2019/1023, updating the current regime in the missing part.


The balancing of opposing interests

However, the legislator also attempted some changes in relation to the previous provisions. Changes that concern the theory of law ˙ possibly its implementation as well.

The legislator chooses (and correctly) a flexible scheme in order to prevent insolvency, providing tools to achieve the elimination of any delays (caused eg by shareholders, according to article 35 par. 3 and 101 of law 3588/2007, and also by the State and / or even by the debtor).


The importance of the institution of consolidation as the only, in essence, tool of collective preventive restructuring is given and accepted by all. It is up to all of us (lawyers of theory and practice, of those who apply the law but also, above all, creditors and debtors – to the extent of each individual’s responsibility), to make the most of this tool – to prevent and deterrent insolvency. Also: the constant effort to utilize and optimize it, e.g. by providing incentives for its use, ensuring guaranteed credible business plans (see Article 43), involvement of continuously trained experts (Articles 65 et seq.) and so on.

In the event of insufficient utilization of this institution, insolvency will remain the only alternative. Undesirable, of course, for sustainable businesses.

Let us not forget that every healthy business will sometimes have temporary (more or less significant) financial difficulties. In some cases, those difficulties will have been brought on them by themselves. In some others, the cause of said difficulties will be linked to unexpected phenomena – such as the current health and financial crisis. Providing them with the right tools to overcome them, saving (and why not) multiplying jobs, is, of course, imperative.

It is a moral and political demand for a socially just development.

It is, therefore, the duty of all of us.




Stavros Koumentakis
Managing Partner


P.S. A brief version of this article has been published in MAKEDONIA Newspaper (February 21, 2021).


Disclaimer: the information provided in this article is not (and is not intended to) constitute legal advice. Legal advice can only be offered by a competent attorney and after the latter takes into consideration all the relevant to your case data that you will provide them with. See here for more details.



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