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Debt Settlement Agreement with a Credit Institution

Debt Settlement Agreement with a Credit Institution

Critical points:

- The case involved a dispute between a company operating in the technology sector and a credit institution. Following the termination of the credit agreement by the credit institution, negotiations between the company and the credit institution followed with a view to settling the debt. However, while the negotiation process was still ongoing, the credit institution succeeded in obtaining a payment order and seized the accounts of the company and the guarantors.

- The proper support of the case resulted, on the one hand, in the avoidance of the bank's recovery of the sums of money in the company's and guarantors' bank accounts and, on the other hand, in the credit institution giving in on its claims and signing a debt settlement agreement on terms favourable to the company. 

- The suspension of enforcement implemented by the credit institution and the possibility that the payment order that had been issued would be cancelled, together with the necessary delay in the collection of its claims due to the legal dispute, forced the credit institution to accept an arrangement that was favourable to the creditor company.


A company active in the IT sector had obtained a credit line from a banking institution in Greece in 1991. The company's shareholders and members of its Board of Directors guaranteed the full and timely fulfilment of the terms of the contract. At the same time, another company of the same group, active in the construction sector, had similarly obtained credit from the same banking institution, and the same individuals had also provided a guarantee for that credit. As a result of the economic crisis, the second of the above companies went out of business, while the first of these companies continued to operate, but its turnover fell significantly as a result of the adverse economic situation. Unable to pay the interest payments on the credit facilities obtained by both companies, the company started to default on its debts to the bank. The company and the guarantors started to submit to the bank requests for the adjustment of their debts, which the bank, however, rejected, asking for further collateral on the one hand and, on the other hand, for the payment of higher amounts by the company. In April 2018, the bank proceeded to terminate the contracts of the two companies. Following the termination, the company and the guarantors came back, requesting a new arrangement. However, while the bank had requested the company's financial data for evaluation and the company had complied by providing it, it proceeded to apply for payment orders in respect of both the above contracts because it discovered that a transfer of a property from one of the guarantors to a third party had been mediated. Indeed, two payment orders were issued against the two companies and the guarantors for a total amount of approximately EUR 1 000 000. The bank then imposed a compulsory attachment in favour of one of the guarantors. The company and the guarantors wished, on the one hand, to protect themselves from the imposed seizure and, on the other hand, to be able to settle their debts to the bank.


The key points for the successful outcome of the case were as follows:

- In the short term, the seizure proceedings in favour of the guarantor's bank accounts had to be suspended. Within 8 days of the seizure, an interim court order suspending the execution had to be issued. 

- In order to increase the chances of success of the application for an interim injunction, it was advisable to apply to more courts so that there would be more judgments. 

- Since an opposition had already been lodged against both the payment order and the enforcement, it was crucial to strengthen the opposition with additional grounds in order to increase the chances of obtaining an interim order and suspending the enforcement procedure.

- In the long term, the key point was to seek additional grounds of opposition that would ensure the company would win both the suspension and the opposition, which was set for a year later. Consequently, a victory in the suspension court would give the company a strong negotiating position to enable it to reach an agreement with the bank. 


The company fought two battles at the interim injunction level and two more at the injunction level. The first judge dismissed the application for an interim injunction in which the company sought to suspend the enforceability of the payment order. One day later, however, the judge granted a temporary injunction ordering a stay of execution. There followed the hearings on the applications for suspension, in which, in view of the probability that the appeals against the payment order and against enforcement would be successful, the court ordered the suspension of the enforceability of the payment order and the suspension of the enforcement proceedings until a final decision was delivered. Both of the aforementioned judgments accepted, inter alia, the following: 'From the whole of the above development and chronology of the above proceedings, it is likely that the defendant improperly proceeded at the given time [...] to exercise its claims under the above credit agreement by filing the above application for the contested payment order. This is because, in accordance with the above-mentioned detailed considerations, in addition to failing to comply with the above procedure of the Banking Conduct Code and, in particular, the Delayed Payment Procedure in accordance with the distinctions set out above, in the present case, it proceeded with its claims in the midst of negotiations without the knowledge of the applicants and when it had created a reasonable belief in them that the debt would be settled and re-settled, given that the first applicant had been a consistent customer for more than 20 years and the parties believed that they were close to finding a solution, Indeed, the waiting time for the relevant documents requested by the applicants was not such as to negate the exercise of the defendant's rights. The defendant, in accordance with the rules of good faith and commercial morality applicable to commercial transactions, should have waited for the completion of the entire procedure that it had initiated and, in the event of failure, should have expressly communicated this to the applicants, and not negotiated the settlement of the debt in order to avoid legal action and at the same time, in the midst of negotiations in order to avoid legal action, should have taken legal action to enforce its claims. Indeed, since the order for payment must be served on the person against whom it is directed within two months from the date of its issue or it will automatically cease to have effect, any negotiation between the defendant and the applicants, with a time-limit for service of the contested order for payment of [... ] is to be regarded as a negotiation in the nature of a pretext as far as the defendant is concerned, given that the steps to pursue the claim in court are presumed to have been decided already at the time when the procedure for a solution was initiated and the defendant created a reasonable expectation that such a solution would be found. [...] It is therefore likely that the relevant ground of the additional grounds of appeal (misuse of the defendant's claim by means of an application for an order for payment), which essentially concerns the claim, will be upheld and the above attachment will be annulled in favour of the banks as third parties and against the third opposing debtor.  

The company had now secured its protection from any enforcement action for at least a year and a half. The bank, knowing that it now had to wait at least a year and a half and that the invalidity of the payment order and the enforcement had already been presumed in the context of an injunction, returned to the negotiating table. Convinced that the enforcement procedure would delay the recovery of its claim for many years, it decided to proceed with a generous write-off of the debts of the two companies. Thus, while the two companies' debts to the bank amounted to approximately EUR 1 400 000, including interest, it was agreed that the company and the guarantors would repay in the short term the sum of EUR 800 000 in full and complete settlement of all their debts to the bank.


The immediate reaction of the debtors to the bank's seizure of the guarantor's assets has proved to be particularly decisive for the further development of the case. The fact that the bank could not immediately initiate enforcement proceedings because of the suspension granted, and the probable grounds for opposition in the context of the suspension applications, forced the bank to enter into a settlement agreement because of the long delay that any acceptance of the debtors' opposition would entail in terms of satisfaction.

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