We experienced a long economic crisis. We already are aware, since the spring, that we have entered a new one – hopefully not deeper. We realized (even the non-economists amongst us) that high public debt creates serious problems not only in the economy but also in the daily lives of each of us. We also realized that private debt is an equal source of legitimate concern in terms of macroeconomic stability. The State perceives, and rightly so, the private debt as equivalently capable of overturning its financial planning. It is therefore obliged to manage it effectively and deal with it successfully. The new Law on Insolvency (as well as any previous relative legislation) is moving in this direction. We have already gone through its basic provisions and innovations. But was its implementation necessary at this stage? Why is this legislation so important? Why does it concern, after all, all of us without exception? Is it coming at the right time?
Let us attempt to give some initial answers to these important questions.
The total Private Debt in Greece and the need to tame it
The causes of private debt in Greece are varied. Some are due to our choices (at individual, family and business level) others due to government / political choices and others due to external factors.
Regardless of the causes, however, one thing is certain: the problem of Private Debt has taken, for a long time now, explosive social and economic dimensions. The ongoing pandemic (and its dramatic consequences) further exacerbated it. As the phenomenon is still ongoing, we are not able to predict, with certainty, the magnitude of the recession. All the more so as international, European and national organizations make forecasts which are often re-evaluated.
However, what we are able to take into account are the following data: Based on the data available to the Bank of Greece and, more specifically, according to the intervention of the BoG Deputy Governor Mr. Mitrakos on 20.10.20, the total of the country’s private debt (of both individuals and companies) amounts to € 315 billion or 184% of the country’s GDP. In more detail:
(a) The balance of the total financing (loans, corporate bonds, securitized loans with managers being credit institutions, financing from the BoG) of €147.7 billion of the private sector of the domestic economy (an additional €45.2 billion amounts to General Government funding). More specifically:
(aa) €73.8 billion is the balance of funding to enterprises (of which: € 67.6 billion to non-financial enterprises and €6.2 billion to insurance enterprises)
(ab) €65.3 billion of the rest is the funding to households (€ 49.6 billion in housing loans and €15.1 billion in consumer loans)
(ab) €8.6 billion of the rest is the funding to freelancers, farmers and sole proprietors.
(b) €106 billion is the debt of individuals to the tax authorities
(c) €36 billion is the debt of individuals to the insurance funds
(d) €30 billion is in loans sold by commercial banks outside the banking system
Taming this dramatically high private debt has been (and still is) a national need: behind these numbers are people – all of us. Of course, the country as well.
The political scene did not lack efforts and good intentions. However, judging by the outcome, they proved ineffective. The necessity of the drastic management of the problem is more than obvious. Did we not have enough laws already?
The existing institutional framework
The institutional framework until 31.12.20 is a product of multiple legislative interventions.
The Greek Insolvency Code, which has existed since 2007, has undergone several amendments in recent years: nine amendments (excluding the most recent on of October 2020) in the last thirteen years.
During only the last five years, it was revised (in the technical sense of the term) six times: Law 4336/2015 (A’ 94), Law 4446/2016 (AI240), Law 4472/2017 (A’ 74), Law 4491/2017 (A’ 153), Law 4512/2018 (A’ 5), Law 4549/2018 (A’ 105). Related issues were included in the regulatory framework of, among others, Law 4469/2017 (A’ 62), Law 4605/2019 (A’ 52). Also, with the multiple amendments of law 3869/2010, as well as law 4307/2014. Total: innumerable…
Of course, it is important to note that the above-mentioned reforms (of the last five years) took place in the context of fiscal adjustment or stability programs. This fact is indicative of the importance of the Law on Insolvency in times of economic crisis. Of course, during the current times as well – to a significant extent due to the health crisis.
But the same fact also suggests something else: the regulations abolished by this law followed at the most part the at the time current European and international best practices.
However, in order to completely follow [: provisions of Directive (EU) 2019/1023] the existing institutional framework, it had to be adapted.
The Directive (EU) 2019/1023
The issuance of the Directive (EU) 2019/1023 of the European Parliament and of the Council of 20.6.2019 (which is in force along with Regulation (EU) 2015/848 of 20 May 2015 regarding insolvency proceedings) was the occasion for the new Law on Insolvency.
The basis for its adoption was, inter alia (recital 7), an attempt to remove uncertainty about insolvency rules in individual Member States. Also, the effort to shorten time-consuming and simplify complex procedures that are a major disincentive to invest and / or initiate business relationships in another member-state. And the effort, lastly, to remove such elements that undermine the proper functioning of the Internal Market.
It has also been assessed (: recital 11h) that even cases of purely national insolvency cases can affect the functioning of the Internal Market through the so-called domino effect. This is because the insolvency of a debtor can trigger (and indeed triggers) further insolvencies.
Its goal was:
(a) Regarding viable businesses and entrepreneurs in financial difficulty: for them to have access to effective national preventive restructuring frameworks that will enable them to continue operating,
(b) Regarding honest (insolvent or over-indebted) entrepreneurs: to be able to be completely relieved of their debts after a reasonable period of time, so that they can enjoy a second chance; and
(c) Regarding the improvement of the efficiency of the restructuring and insolvency procedures: their faster completion but also the faster return of the companies to operation.
This directive follows two main axes:
Sustainable businesses should be assisted in order to continue to operate (provided that the financial difficulties they may face do not invalidate their viability). This assistance should take place through effective preventive restructuring tools, to which they should have access as soon as possible.
Unsustainable businesses should enter the liquidation phase as soon as possible to avoid the accumulation of losses. For honest entrepreneurs / debtors who have failed in some of their business activities, the possibility of a (new) beginning should be ensured so that, more experienced now, they can be active, once again, in the business arena.
It is also worth noting that the spirit of the EU legislator is a spirit of balanced safeguarding of the interests of everyone involved: interested businessman, employees, third parties, financial system, national economy, EU market.
Prevention of insolvency with tools of early warning and early effective restructuring on the one hand, rapid liquidation but also rapid return to business and real economy on the other.
The necessity (?) Of the adoption of the new legislation
It is a given that legislative diversity and multiple laws are not beneficial. It is also a given that it does not prove at all useful or proper to deal with related issues by more than one legislation.
It is also a given that the concentration of the individual legal issues and logical sections in the new Law on Insolvency will prove to be, without a doubt, beneficial. However, the necessity of passing the new legislation is already being discussed. In the scientific community as well.
It would be desirable, however, (as it is such an important piece of legislation) for it to be scrutinized (openly) by a well-respected law-making committee (but without at all underestimating the scientific status of its authors). It would be preferable that the (final) text goes through the consultation process. The holistic approach of the whole issue and of the individual provisions would also be preferable. It did not happen.
And even importantly: Most of its delegating provisions unfortunately refer to the incomplete elaboration of this legislation. It raises doubts around the “readiness” of the law to be implemented immediately. And, further, it raises the issue of completeness of the law and compromise with the provision of paragraph 2 of article 3 of 4048/2012 “Regulatory Governance: Principles, Procedures and Means of Good Legislation” (A’34)
Conclusion: The choice of the comprehensive and holistic approach to the individual issues that the new Law on Insolvency deals with is excellent. However, it would be desirable to follow the course of Good Legislation that the reform of laws and codes of such seriousness requires.
Who and what does the new Law on Insolvency concern?
As an introduction, let us remember that this law is entitled “Debt Settlement and Provision of a Second Chance”.
We could say, in purely legal terms, that it is divided into five major sections:
(a) Insolvency Warning & Early Warning- (Articles 1 to 4)
(b) Insolvency Prevention Procedures (: Out-of-Court Debt Settlement Mechanism and Bankruptcy Settlement Procedure) – (Articles 5 to 74) and
(c) Insolvency (Articles 75 to 211)
(d) Vulnerable Debtors (Articles 212 to 224) and last
(e) Insolvency Administrators (Articles 225 to 259)
From the enumeration of the specific sections only a safe conclusion is drawn:
The new law concerns all those (legal and natural persons- those who do or do not practice commercial activities, households and businesses-regardless of their size) who face financial difficulties-even liquidity issues.
But it does not only concern them!
It also concerns every healthy business and entrepreneur who does not face financial problems. This is because some (maybe many – maybe too many) of those with whom they deal will be included in the regulatory scope of this law.
It also concerns investors who will want to invest in the country.
It concerns financial institutions and their finances.
It concerns, in the end, the country and each of us.
Conditions of drafting and the “rush” to start implementing the new Law on Insolvency
The new Law on Insolvency is not “just another law”.
It is a very important piece of legislation with consequences on many levels in the economic spectrum of each place it is applied. Of course, with consequences on the national economy as well.
With the pretext of alignment with Directive (EU) 2019/1023, its authors proceeded to a complete re-approximation of completely recent (and in fact modernized) regulations. It is noteworthy that this (overall) rapprochement took place between the consultation stage of the bill (of a different bill) and its submission for voting. The timing of the entry into force of such an important piece of legislation raises questions. Let us remember the law on SAs (: Law 4548/18). It was published in the Government Gazette on 13.6.18 and its entry into force was set for the first day of the following year (: 1.1.2019).
What is the point of the rush for the new Law on Insolvency?
A reasonable proposal has been made to postpone its entry into force for the new judicial year. Among other things, because an important part of the reform is now shouldered by the District Courts, whose serving judges have at the same time been in charge of settling the pending cases of Law 3869/2010 until 15.06.2021. Familiarity with the new framework and the preservation of necessary human resources are factors that should be taken into account.
It will be easy, once again, to accuse for all evil the slow-moving Justice.
But it will also be unfair, as the choices and the relevant responsibility will be borne, exclusively, by the legislature. Even if the executive authority comes forward and demands the impossible.
The new Law on Insolvency is a crucial piece of legislation for the national economy.
To assist its (absolutely necessary) revitalization but also its recovery.
To assist the (desirable) development of the country.
The circumstances under which it was drafted raise concerns.
Respectively, the suffocating deadlines until the beginning of its implementation.
Let us hope that the specific choices will not be to the detriment of the (aspiring) goals of its authors but also of the needs of our national economy.
P.S. A brief version of this article has been published in MAKEDONIA Newspaper (January 3, 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.