ArticlesThe new Law on Insolvency: Insolvency – the last resort?

This article completes a section aimed at better understanding the new Law on Insolvency. In this context, we started with its basic provisions and innovations, the necessity, the regulatory scope and its importance. We proceeded to analyzing its individual predictions. Our first stop: the early warning. The out-of-court debt settlement mechanism and the consolidation process followed.

We close, for the time being, with what we logically expect from every bankruptcy law (and which, in the end, is, in this case, only one of its units): bankruptcy (: articles 75 to 211 of law 4738/2020).

It is obvious that the exhaustive presentation of the one hundred and thirty six (136) articles goes beyond the purposes and limits of the present. We are therefore limited to the most critical: to highlight, that is, the will of the legislator as to the purpose of the bankruptcy and, consequently, the means of achieving it.


Regarding the purpose and means

The purpose of bankruptcy is the collective satisfaction of the debtor’s creditors. But by what means is it served?

Liquidation as a means of collective satisfaction of creditors

The new Law on Insolvency now highlights liquidation as the only and exclusive possible development of bankruptcy.

On the contrary, the Bankruptcy Code, after the multi-level amendment it underwent – especially in 2016, it provided for the equivalent alternative possibility of the (bankruptcy) reorganization plan and the satisfaction of the creditors with the maintenance of the business. Creditors could choose one way (liquidation) or the other way (business maintenance). This was, after all, consistent with the choice, inter alia, to “(a) maximize the value of the debtor’s assets, in particular by continuing or reorganizing the business when it is to the benefit of the creditors; b) balance between the liquidation of the insolvency assets and the reorganization of the debtor’s business.”

The new Law on Insolvency, on the other hand, explicitly and exclusively aims at immediate liquidation, through which the “rapid return of productive means to potentially productive uses” is expected to be achieved. The new Law on Insolvency deprives creditors and debtors of the right to choose to reorganize their business and thus terminate the declared bankruptcy. (As they would try to prevent bankruptcy during the pre-bankruptcy stage of the consolidation and in the context of the known/familiar procedure of “Article 99”).

The legislator therefore chose not to trust (and further improve) the institution of business reorganization in the event of bankruptcy. It chose, on the contrary, to abolish it. Strong argument pro this decision, we assume, is the small number of reorganization plans that have proven capable of succeeding over time. However, it did not react in the same (drastic) way (and rightly so) to other (to date) low-effectiveness institutions. It sought, for example, to improve (and not abolish) the out-of-court mechanism and thus establish a horizontal Law on Insolvency of automation and of the platform.

In addition: the legislator did not choose to replace the institution of (insolvency) reorganization with another one. This proves the return to a purely economic reception of the bankruptcy phenomenon, freed from its social and other connotations.

It is known that the purpose of the law is a traditional tool of interpretation in the hands of its implementer. In this context, it is understood that this shift (: setback) may be of particular value when a case is brought before a judge.


Liquidation as a means

Under the new Law on Insolvency, the liquidator (who has the right to be nominated by the creditor) proceeds “without delay” to liquidate the assets of the debtor. As long as they have just completed the inventory (assets).

After the completion of the inventory(s) of the liabilities (“credit check”), the liquidator distributes the proceeds of the liquidation of the assets to the creditors.

The “innovation” of the new law lies in the following: the liquidator can proceed quickly to the liquidation of the debtor’s property, while the process of verification of the claims against them has not yet been completed. In fact, at a time when the latter has been significantly simplified by the new law. It is a question of whether it is justified (legally).


The two types of liquidation

As we know, either the debtor’s entire assets (or individual operating totals) or their individual assets are subject to liquidation.

However, the liquidation of all the debtor’s property is subject to strict conditions. It seems, as a result, to end up in the (easier) liquidation of their personal assets as a rule, and under the status of the new law. In more detail:

The liquidation of all or of part of the insolvency estate

In order to liquidate all the debtor’s property or its individually the various operating asset units, a relevant application must be submitted or additional intervention must be exercised. The following persons are entitled to submit them: creditor or creditors of the debtor, who represent at least thirty percent (30%) of the total claims against them. It is clarified that the applicants should include secured creditors representing at least twenty percent (20%) of their category. In addition: such a process starts only when the debtor is a business and bankruptcy is significant. The application / request is decided by the relevant court-in this case the Multi-Member Court of First Instance.

The “innovation” of the new Law on Insolvency therefore lies in the following: under the status of the Bankruptcy Code, the creditors’ assembly had to decide on the sale of the debtor’s business as a whole (or its individual operating units). This decision would then have to be approved by the rapporteur. If no action was brought against it within the prescribed period (or the action brought within the prescribed period was not upheld), then it could be enforced. Today, this process has been abolished.


The role of the creditors’ assembly

The creditors’ assembly, however, has the last word: it’s the one to approve (or not) the sale of the debtor’s business as a whole (or its individual operating units). And it has two options:

First option: to evaluate that the bid submitted in the framework of the necessary public bidding (conducted with the care of the liquidator) is advantageous. In this case, the assembly approves the relevant transaction. This is followed by the conclusion of the relevant transfer agreement.

Second option: to reject the liquidator’s transaction. Then, unless another decision is made, we are led to the liquidation of the debtor’s assets.


The integration of the provisions of special management regime

In the case of the liquidation of the entire property of the debtor or of the individual operating units, the legislator now incorporates the provisions of special management regime (Law 4307/2014), with the necessary adjustments of course, in the spirit of the “holistic” venture that undertakes and subsequent abolition of this specific insolvency procedure.


The tax incentives

Also, regarding the very important tax facilities the new law provides that they cover the “liquidation of Chapter A of the Fifth Part of the Second Book”, without distinction whether it concerns exclusively the liquidation of the entire property of the debtor or individually its operational units (Chapter B of the Fifth Part of the Second Book) (as under the status of the Bankruptcy Code) and / or its individual assets (Chapter C of the Fifth Part of the Second Book). We believe that we accurately assume that the legislator’s intentions is to include both types of liquidation.


The liquidation of individual assets

In the case of the liquidation of individual assets of the insolvency estate, an (electronic) auction is held instead of the public bidding (now electronic, but without a first bid price).

However, it is possible that the auction will be fruitless. In this case, the auction is repeated with an (automatically) reduced first offer price. The price is reduced to ¾ of the average value of the estimates of certified appraisers. A derogation is now established from the provisions of the Code of Civil Procedure (to which it otherwise refers) in the sense that there is no longer a court adjudication. In the event of subsequent fruitless auctions, the reduction rests with the rapporteur’s unchallenged decision. If the phenomenon (of the non-appearance of bidders) is repeated again, then there is the possibility of an auction without a first offer price – before the auctioned assets finally end up to the State.


The “facilitation” of the liquidation process

The new Law on Insolvency brings three main changes in the level of protection provided in this liquidation process:

(a) Eliminates the possibility of bringing an action against any levy of execution leading to liquidation; and

(b) Specifies in a specific way who is entitled to file an objection against the ranking list, instead of the general and abstract provision of the Bankruptcy Code on “legal interest”. This option, however, may lead to a restriction of beneficiaries.

(c) Shortens the deadline within which objections are made before the bankruptcy court-which rules irrevocably.


Liquidations of small value

The scope of application

The legislator of the new Law on Insolvency has further improved the framework governing small business bankruptcies (: “liquidations of small value”).

The idea, moreover, for a shorter and simpler process is well known and was particularly elaborated during the 2016 and 2017 amendments.

It is known that the business burden (which they undertake) and the financial footprint that the “small” businesses have in our country (and not only), seem inversely proportional to their size. It is therefore appropriate to pay special attention to this chapter of the new law.

The new law significantly expands the scope of the regulatory framework for liquidations of small value, given that small entities now fall under them, as defined in Article 2 of Law 4308/2014. Small entities, according to this provision, are those that do not exceed the limits of at least two of the following three criteria: (a) Total assets: € 4m, (b) Net turnover: € 8m and (c) Average number of employees: 50 people.

It is easy to see how huge the number of businesses under it is and what impact it has on the economy.


The “procedures” and the conditions

In liquidations of small value, the competent bankruptcy court is the District Court, instead of the Multi-Member Court of First Instance, which has jurisdiction over the other liquidations.

The relevant application is submitted electronically, which is a significant change. It is accepted if no intervention is submitted within thirty (30) days from its publication, ie only with the expiration of the specific time period.

The (new) presumption of deferral of payment applies in this case, which is determined in 60% of the debtor’s overdue liabilities to the State, Social Security Institutions or credit or financial institutions, instead of the 40% that is for other bankruptcies.


The liquidation of the debtor’s property

The liquidation in this case concerns, exclusively, the liquidation of the debtor’s individual assets. Neither the business as a whole nor its individual operating units.

However, in order to determine whether the debtor’s property is sufficient to cover the costs of the proceedings, the following are taken into account: (a) its elements that are free of any burdens and (b) the debtor’s annual income – their reasonable living expenses taken into account. If these are not enough, then no trustee is appointed either. The rapporteur simply orders the entry of the debtor’s name or company name in the Electronic Solvency Register. In this way, the provided consequences come about.

The existing (general) regulations are simplified. The liquidator enjoys greater freedom. They retain, in this context, the ability to act without the permission of the rapporteur.


The time frame of the whole process and its acceleration

In the event that after the lapse of one year (instead of three – as under the status of the Bankruptcy Code) from the declaration of the simplified procedure the bankruptcy has not been completed, the liquidator is obliged to submit a report to the rapporteur, explaining the reasons for the delay.

It should be noted here that the corresponding, general regulation stipulates that after 5 years (instead of 15 as under the Bankruptcy Code) from the declaration of bankruptcy, the results of the termination of the bankruptcy occur automatically (and without any other procedure).

The speed with which the bankruptcy process unfolds is, of course, an important element. Achieving it, however, requires planning at the level of regulations as well as human resources (rational distribution on the basis of needs and training on the subject of all those involved, in the part of their tasks) as well as infrastructure (digital and non-digital). Otherwise, it will be another empty announcement, another deadline that is not met. Or that, alternatively, it will prove ineffective.

However, the crucial question is whether special provision (incentives) is taken for small businesses in particular, already at the stage of insolvency prevention. The answer, unfortunately, is no. And in this sense the (proclaimed) “holistic” character of the legislation is affected. With it: the economy and the people.

We must, therefore, consider it necessary (and accept) that small businesses need special support to turn to (and utilize) the necessary, already legislated, tools to prevent their insolvency.

An equally urgent need is its prompt processing – when, despite all efforts, it occurs.


Economic over the legal criteria

The new Law on Insolvency was hastened by the Ministry of Finance, instead of the Ministry of Justice.

This transfer of powers may mean more than a bureaucratic “portfolio change”. We consider it demonstrates the proposition of the economic criteria being put before the legal ones.

The rule of law, however, is very important in maintaining a healthy, business-friendly environment: it provides for a rapid, efficient and proper, fair administration of justice.

It is up to the parties involved to assess whether the legislator is “turning a blind eye” to one side or the other or, alternatively, whether it is rectifying a wrong. Unfortunately: in retrospect.


The use of the tools provided by the new Law on Insolvency is not the duty of the legislator. The legislator is limited to providing them; it has already done so. Now it’s our (: companies, lawyers, syndicates, justice) move. Therefore, it is up to us (to the extent of the competence and involvement of each one) to make the best possible use of them.

Only then will bankruptcy prove, as businesses and the national economy need, a “transfer station” in the business process. An important station, however, that will provide the entrepreneur with a new route – possibly to turn or revers their situation.

The bona fide and honest entrepreneur (but also entrepreneurship in general) is entitled (but also deserves) a, substantial, second chance.

Only then will the second chance prove to be not a simple declaration of the European Union or the Greek legislator.

Only then will the second chance prove to be a useful tool for reducing the private debt, recovery and development of our national economy.

Stavros Koumentakis
Managing Partner


P.S. A brief version of this article has been published in MAKEDONIA Newspaper (March 07, 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.

Stavros Koumentakis
Nikis Avenue & 1, Morgenthau st., 54622 Thessaloniki
(+30) 2310 27 80 84

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