G. Psarakis - Release of Legal Representatives from Liabilities to the State

Legal Insight

September 2025

Giorgos Psarakis, LL.M. (mult), PgCert

(republished from naftemporiki.gr)

It is well known among all those who engage in business that the position of Chief Executive Officer constitutes a position of responsibility not only towards the shareholders of the company but also towards the State and EFKA. For a multitude of types of taxes as well as social security contributions, the CEO of an S.A. is considered accountable and is liable with their personal assets. However, this may discourage executives from taking on the management of a company facing financial difficulties.

For this reason, in 2020 the legislator passed a provision that, for the first time, introduced the exemption of company representatives from the debts of bankrupt companies towards the State and EFKA: Article 195 of the New Bankruptcy Code (Law 4738/2020). According to the explanatory memorandum of the law, one of the reasons that led to this decision was the observation that the personal liability of legal entity representatives in the event of the latter’s bankruptcy acts as a deterrent to entrepreneurship and discourages competent managers from taking over the management of companies in financial distress.

Pursuant to this provision, the respective representative is exempted (after 36 months from the filing of the bankruptcy petition or 24 months from the declaration of bankruptcy) from any joint liability for debts to the State and EFKA of the S.A. that arose 3 to 5 years before the bankruptcy (the duration depends on the time when the company ceased making payments). The representative loses the exemption if, within the 24/36-month period, a successful appeal is submitted by any party with a legitimate interest against said exemption.

Regarding this provision, the following are observed:

The CEO has every reason not to risk delaying the submission of the bankruptcy petition. This is because if the delay is disproportionate, the debts may date back to fiscal years beyond the 5-year limit, where the exemption cannot extend.

The taxes for which the CEO is jointly liable—and for which they may be exempted under Article 195—are mainly the following: income tax, withheld taxes (e.g., payroll tax), passed-on taxes, VAT, and ENFIA.

Equally important is the following: the beneficial effects of the exemption also extend to the criminal aspect of the case. According to a relevant Ministerial Decision (No. 44510 EX 2021), the debts covered by the exemption are not taken into account for the initiation of criminal prosecution against the representative for the offense of non-payment of debts to the State.

The only case in which the legal representative is not exempted is if an appeal is lodged by AADE or e-EFKA and is accepted. The court will mainly examine the good faith of the legal representative. For the CEO to be considered in good faith, they must: (a) have acted in good faith both at the declaration of bankruptcy and during the bankruptcy process, (b) be and remain cooperative with the bankruptcy authorities, (c) not be burdened with acts or omissions that caused or delayed the bankruptcy, and (d) the bankruptcy must not be due to fraudulent actions.

Even more interestingly, this provision also applies to older bankruptcies. Specifically, for bankruptcies declared before 1/7/2021, the exemption of the representatives of bankrupt companies occurs on 1/1/2022 unless an appeal is filed by the State/EFKA by 31/12/2021. For example, the Attica KEVEIS recently issued a debt certificate showing the exemption of a representative of a bankrupt S.A. from total debts amounting to €992,880.91 due to joint liability, considering that they served as a representative of a legal entity that went bankrupt in 2013 and the debts to the State dated back to fiscal years 2010–2012. Specifically, the certificate stated: “In particular, the taxpayer is exempted for debts relating to the 36-month period prior to the suspect period, namely in this case from 26/07/2009 to 26/07/2012.”

Finally, a recent example is the following: a few months ago, Decision No. 252/2025 of the Multi-Member Court of First Instance of Athens was published. With this decision, a société anonyme company providing human resources services was declared bankrupt, for debts to the State and EFKA exceeding €5,000,000. The court accepted that the company’s cessation of payments was due to a “commercial accident” and unsuccessful business choices. According to the court’s findings, the applicant company made efforts to avoid cessation of payments, such as submitting an application to the out-of-court debt settlement mechanism; however, due to the obligation to retain almost 250 employees to remain competitive, it was unable to meet its obligations (especially to EFKA and the State). Therefore, under Article 195, the legal representative of the company filing for bankruptcy, who is also jointly liable for debts to the State and EFKA, will be exempted from them after 24 months from the declaration of bankruptcy, provided that no successful appeal is filed against the exemption in the meantime by the State or EFKA.