The new Law on Insolvency (: insolvency warning & early warning)

The new Law on Insolvency (: insolvency warning & early warning)

The new Law on Insolvency (Law 4738/20) is not really a law regarding insolvency. Nor does it, in its content, regulate, exclusively, issues related to insolvency. It is titled: “Debt settlement and second chance”. Its central goal is, and rightly so, the management of the inconceivably high Private Debt – which concerned us in our previous article. We have already explored the basic provisions and innovations of the new law. Among them is a completely new institution: the one that concerns the timely warning of the debtors for their possible insolvency. This institution can, under certain conditions, become a useful tool for those debtors who have only limited possibilities and means to understand and manage their insolvency.

Let us try to approach its individual provisions.


Purpose and tools

This section of the provisions aims to “establish a procedure for debtors to have access to clear and transparent early warning tools, which can identify circumstances that could lead to insolvency”. This is for the purpose of pointing out to the debtor the need for an immediate and, in particular, timely response (Article 1 §1). It is also known that the more timely the understanding and management of a problematic situation, the greater the chances that its consequences will become reversible.

The early warning tools provided for include electronic warning mechanisms of the debtor. A provision of consulting services by Borrower Service Centers and Professional Bodies is also included (indicatively: Chambers, Professional Associations, Institutions of Institutional Social Partners) – (article 1 §2).

The law also provides for the provision of initial information to debtors regarding the above issues through the website of the Special Secretariat for Private Debt Management. Also, for the possibilities, procedures, restructuring measures and their potential debt relief (article 1 §3). It is true, however, that, at least for the time being, the relevant information could only be described as “poor”.


Electronic Warning Mechanism

Early warning of debtors (both individuals and legal entities) will initially take place through an electronic mechanism, which will be supervised by the Special Secretariat for Private Debt Management. Debtors will be classified, through this, in three levels of insolvency risk. Specifically: (a) low, (b) moderate and (c) high. This mechanism will be activated only upon a relevant request of the interested party – neither on the initiative of a third party nor automatically (Article 2 §1).

With making the request for activation of the specific electronic mechanism, the interested party will simultaneously be called to give permission to the supervisory authority for the download and processing of any information regarding the content of their request. That is, for the processing of any data that is useful for the determination of the insolvency risk, and the formulation of proposals for its treatment (article 2 §2).

When the procedure through this mechanism results in a rating for a debtor at a medium or high risk level, the next step follows. This next step differs, depending on the status of the debtor. Specifically, it differs when: (a) The natural persons who do not obtain income from practicing commercial activities or freelancing and (b) The legal and natural persons who obtain such income.


Natural persons who do not earn income from practicing commercial activities or freelancing

Natural persons in this category, who are classified as moderate or high risk, have the right to contact the competent Borrower Service Center (K.E.Y.D.) or the Borrower Service Office (G.E.Y.D.), depending on the place of their permanent residence (article 3 §1). The specific Centers or, as the case may be, Offices gain access (after authorization of the debtor) to the specific electronic mechanism in order to provide them, free of charge, with:

(a) information on the legal framework and terms of the contracts they have entered into and, more generally, the debt settlement agreements and their relevant rights and obligations,

(b) assistance in understanding the terms of any debt settlement that may be offered to them (taking into account their capabilities to repay and understand),

(c) assistance in the preparation of a family budget with a view, in particular, to the arrangement for the repayment of debts,

(d) advisory services on the financial management of their household.


Natural and legal persons earning income from practicing commercial activities or freelancing

The natural and legal persons of the specific category who are classified in a medium or high risk level have the right to address the competent bodies on a case by case basis (article 4 §1). Specifically, they can approach the relevant Professional Chamber or Professional Association or Institute of Institutional Social Partners in order to receive free counseling (and not only) support, in order to avoid the existing risk. More specifically: they are given access to business consulting services, which aim at business support, guidance, encouragement and strengthening of the business thinking and culture of the interested party.

It is noted, however, that the services to be provided by the aforementioned Bodies cannot replace (of course – even according to the law) any kind of technocratic services needed by any legal and natural person facing temporary or permanent financial difficulties. In any case, the debtor involved will need assistance and services from the appropriate consultants, especially from legal and business ones.

In other words, the problem of the debtor will, in fact, be possibly to be addressed (completely) with the assistance of the aforementioned Bodies.


Enabling provisions

The start of the implementation of the new “Law on Insolvency” has been determined for 1.1.2021. This start, however, presupposes a series of ministerial decisions for the activation of its provisions; of course, also in terms of the insolvency warning. Especially with regard to the activation of the provisions of the latter are those concerning (Article 70):

(a) the procedures, the content of the application, the conditions and the technical details, which constitute the operational specifications of the electronic debtor early warning platform.

(b) the details of the procedure of the early warning mechanism in the context of the operation of K.E.Y.D. and G.E.Y.D.

(c) the details of the procedure of the early warning mechanism in the context of the operation of the Professional Bodies.


The institution of early warning of debtors of their possible insolvency is an institution that is new and, without a doubt, very interesting. It is expected to provide significant assistance to those debtors (natural and legal persons) who face (temporary or permanent) financial difficulties.

However, the start of its implementation presupposes (according to the law) a series of ministerial decisions. Will their issuance be timely?

But even after the issuance of the necessary ministerial decisions, how much will the companies that face more complex problems be alleviated and helped? When for every issue that concerns them it will be necessary to turn (not inexpensively) to the appropriate legal and business (especially) consultants?

In any case: This institution is a first, necessary, step. Let us wish for its prompt activation and, above all, for its success.

After all, everyone is entitled to a “second chance”.

However, the provision of this “second chance” is still a stepping stone in the effort to restore the multi-stricken and affected national economy.


Stavros Koumentakis
Managing Partner


P.S. A brief version of this article has been published in MAKEDONIA Newspaper (January 17, 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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