Who can enter the out-of-court debt relief mechanism

The changes introduced by the Greek Ministry of Finance are aimed at reviving interest in settling private debts through an out-of-court mechanism, seeking to expedite the processing of the 34,600 new debts that have been excluded so far.

These are cases that are at the initial stage of application and stagnant with an uncertain future, compared to 12.9 thousand cases worth 6.3 billion euros that are either completed or under negotiation. Of the latter, debts of only 1.5 billion euros have been repaid, that is, they have been accepted by both debtors and creditors, reports cathimerini.

The extrajudicial mechanism allows you to settle debts both to the state and to banks or funds and management companies, and is part of the bankruptcy law that came into force in 2021. It is based on an algorithmic settlement proposal, i.e. without creditor or human factor intervention and without the need for judicial confirmation.

An application for the settlement of their debt can be submitted by both individuals and legal entities, regardless of the turnover or amount of debt. The only condition is that the debt must be more than 10,000 euros. The condition that you do not have to have 90% of your total debt to a financial institution, which has so far excluded most debts from out-of-court coverage, is removed. The law prohibits filing an application for inclusion in the process three months before the date of the auction.

In addition to those who have overdue debts either on loans or on debts to the state, debtors with current loans can also apply to the out-of-court mechanism. The condition for adjudication of the case is accepted if the debtors can prove that they have suffered from a proven reduction in their income by at least 20%.

Regulation
The automated solution is based on an algorithm that calculates the ability of a business or individual to repay debts based on its income and its obligations to all creditors, taking into account living needs based on reasonable expenses when it is an individual or liquidity needs if it is a business. The automated solution includes an installment that the debtor must pay to each creditor and a possible debt haircut. Payments for loans with mortgages are calculated based on euribor +2.50%, for loans without mortgages with euribor +3% and for debts to the state with euribor +3%.

The parameters generated by the online platform may include:

Borrowers with informed loans can also apply.

a) Partial cancellation (“haircut”) of debts, which may amount to:

• Up to 75% for the principal debt and up to 95% for the increase in overdue debt to the state (AADE, e-EFKA and debts to municipalities).
• Up to 80% on principal and up to 100% on interest on non-performing loans to banks and credit and receivable management companies

or

b) Long-term repayment of debts:

• Up to 240 government payments (AADE and e-EFKA).
• Up to 420 installments for banks and credit and receivables management companies.

In practice, the “haircut” of debt according to the standards today is much lower, namely, 22% of the average rate of writing off debts to the state and 31.5% of debts on loans. This is due to the fact that in order to provide a haircut, additional conditions of the law are also checked, such as, for example, the financial situation of the co-debtor or co-guarantor, if the commercial value of the property is less than the amount of the debt, if there is no residual income after covering reasonable living expenses, etc. .

The “key” to the agreement is the value of the debtor’s property

A key factor that debtors usually “ignore” is that creditors take into account the value of the debtor’s liquid assets in order to agree to the resulting agreement. This parameter also explains the very high percentage of refusals of applications by both creditors and debtors themselves, which, according to the Ministry of Finance, reaches 46% and 44%, respectively. That is why the amendments submitted to Parliament provide justification for the rejection of the application on both sides.

Thus, the debtor must pay at least the value of his liquid assets (regardless of whether this amount is covered by his declared income). For real estate, the liquidation value is defined as the maximum amount between the taxable value and the commercial value, reduced by 3% due to the costs of the liquidation process. Thus, the minimum monthly loan payment following from the algorithm is calculated based on the income and value of the property of the debtor, his co-debtors and guarantors.

The restructuring agreement, as the settlement agreement is called, is signed after obtaining the consent of the debtor and the majority of the creditors involved. Thus, the offer is not binding either for the creditor, i.e. the bank or management company, or for the debtor. However, it is mandatory as long as it is agreed by banks and management companies for the state, since regulated debts, of course, include government debts. It is assumed from the agreement that the agreement makes the individual creditworthy and, accordingly, the debtor’s business viable, thereby preventing bankruptcy.

The restructuring agreement is signed within two months from the date of application and is binding on all participating creditors (prolongation is possible at the request of the parties or in the event of an error). If this period passes without agreement, the procedure is terminated as ineffective, but without the exception of submitting a new application after 12 months.

When a restructuring agreement is reached, the occupied creditor is not allowed to expedite enforcement, and individual and collective enforcement measures against the debtor are automatically suspended to meet the regulated claim.

In addition, confirmation of tax and insurance awareness is provided in relation to state and social protection bodies, criminal prosecution for an offense related to non-payment of debts to the state and third parties, and insurance premiums is suspended. Automatic cancellation of earlier settlement of debts under a restructuring agreement, the limitation period for regulated debts is suspended for the entire period of regulation.

Three basic rules
The regulation rules are subject to the following principles:

1. Solvency, i.e. the debtor must pay on the basis of his income, as well as the income of his guarantors.
2. Non-deterioration of the position of the creditor, that is, no creditor can receive less money than he would have received in the event of the liquidation of the property of the debtor and his guarantors.
3. Symmetrical satisfaction of creditors, i.e. the debtor’s money should be divided proportionally to cover all creditors (public and financial sector).

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