The ''Collateral'' Benefits for Debtors under the Out-of-Court Debt Settlement Mechanism (Law 4738/2020) Regarding Public Entities and Social Security Funds - Law Firm Psarakis & Kefalas

Legal Insight

May 2025

George Kefalas, LL.M. mult., M.Sc.

Summary: The out-of-court debt settlement mechanism of Law 4738/2020 has proven to be an extremely useful tool, particularly for the settlement of debts to the State and Social Security Funds, as it allows for debt repayment over up to 20 years with a fixed interest rate of 3%. However, the advantages it offers debtors are not limited to these favorable repayment terms. Additional benefits—such as the suspension of enforcement measures, the inactivation of third-party seizures, and the issuance of tax/social security clearance certificates—are especially important for businesses. This article explores these "collateral" benefits from the moment of final application submission through to the start of the restructuring agreement.

1. Introduction

The primary consequence of submitting an application and concluding a debt restructuring agreement under the out-of-court mechanism is the long-term settlement of the applicant’s debts (see more here regarding the settlement of debts to the State and Social Security Funds). However, beyond this core outcome, there are other significant implications for the debtor, both at the stage of final application submission and upon concluding the restructuring agreement. These include the suspension of legal actions, the halting of criminal prosecution for unpaid debts and social security contributions, and the issuance of tax/social security clearance.

2. Effects of Final Application Submission

According to Article 18 of Law 4738/2020: “From the final submission of the application until the procedure’s conclusion in any manner, as provided in Article 16, enforcement measures and ongoing enforcement proceedings against the debtor’s movable and immovable property are suspended, as is criminal prosecution under Article 25 of Law 1882/1990 and Article 1 of Legislative Decree 86/1967, for debts subject to the settlement” (for the issue of suspending any scheduled auction proceedings, see here).

Based on this, the final application submission results in:

Suspension of enforcement proceedings against the debtor’s assets.
Suspension of criminal prosecution for non-payment of debts and contributions.

Per Circular E.2065/2022 of the Independent Authority for Public Revenue, this suspension also covers individuals jointly liable with the debtor.

Important clarifications:

a) Third-party seizures prior to application: Seizures in place before submission remain effective—even for future receivables. For example, if the State has seized rent from a lessee, payments continue to the State post-application. However, new third-party seizures cannot be initiated after submission.

b) Tax/social security clearance during suspension: The debts are still overdue, so clearance is not granted during the suspension period.

c) State offsetting: The application does not prevent the State from offsetting its claims (subject to settlement) against debts it owes to the debtor.

3. Effects of Concluding a Debt Restructuring Agreement

Beyond the debt settlement itself, other crucial effects of concluding a restructuring agreement include:

a) Enforcement suspension continues for all debtor assets.

b) Inactivation of third-party seizures: If the debtor has paid the first installment, resolved other outstanding debts, and filed required returns, existing third-party seizures will no longer affect future claims—though they still apply to receivables up to the date of inactivation.

Full seizure lift requires repayment of 75% of the debt and a formal decision from the Tax Office head.

c) Suspension or cessation of criminal prosecution for unpaid debts and contributions. Execution of any sentence is also postponed or interrupted.

Specific rules apply under Article 8 of Law 4997/2022 for Social Security debts:

For compliant debtors (not having lost a prior arrangement), criminal prosecution ends, and the file is archived.
If a prior arrangement was lost, prosecution is suspended, and the statute of limitations pauses.

A similar provision was recently introduced via Law 5193/2025 (Article 227), amending Law 1882/1990 to also stop or prevent criminal prosecution for debts to the State, improving judicial efficiency by reducing case postponements.

d) Tax/social security clearance granted: As per Article 23 of Law 4738/2020, the restructuring is recognized as an installment-based settlement, making clearance possible if no other overdue debts exist.

However, for money collection from the State or property transfers, clearance requires withholding between 30–70% of the received or sale amount.

These effects benefit not only the main debtor but also co-debtors, as long as the arrangement remains in effect.

Offsets by the State are allowed but are prioritized differently depending on whether the claim arose before or after the restructuring agreement’s activation. If the claim arose after, it offsets the restructuring installments first; otherwise, it applies to other debts.

4. Conclusion

This article highlighted the additional—beyond pure debt restructuring—benefits for individuals and businesses engaging with the out-of-court mechanism, at both the application and restructuring stages. These benefits are particularly valuable for entrepreneurs, as they touch on both legal liability and essential business continuity aspects like seizure management and clearance eligibility.