Legal insight
May 2025
Vassiliki Tolia, LL.M.
Summary: The action for fraudulent conveyance of creditors (Paulian action – Articles 939 et seq. of the Greek Civil Code) aims to safeguard the creditor's ability to satisfy their claim through enforcement proceedings. Such proceedings require the existence of debtor assets upon which the creditor can enforce. Therefore, the debtor's fraudulent disposal of assets (often to relatives) before the creditor can seize them is addressed through this legal action. However, the debtor's constitutionally protected right to freely dispose of their property should not be overlooked or restricted, except under specific conditions. This right is enshrined in Article 5(1) of the Greek Constitution and Article 361 of the Civil Code, reflecting the principle of freedom of contract and personal development. This article examines one of the prerequisites for a creditor to seek the annulment of a disposal as fraudulent: the insufficiency of the debtor's remaining assets (debtor's insolvency) to satisfy their creditors.
1. A debtor's disposal of an asset does not, in itself, establish the creditor's right to annul the transaction. There must also be harm to the creditor, occurring when the debtor's remaining assets are insufficient to satisfy the creditor's claim. Jurisprudence equates "asset insufficiency" with "harm", using the terms interchangeably (see Rizοs E., Doctoral Thesis, "Conditions for Annulment of Fraudulent Disposal," p. 166; also, Court of Appeal of Thessaloniki decision no. 458/2019, Court of Appeal of Larissa decision no. 150/2022, among others).
2. For a disposal to be annulled, it must frustrate the creditor's satisfaction due to the absence of other debtor assets suitable for seizure. Asset insufficiency is not only when the debtor lacks other assets but also when remaining assets are difficult to liquidate or are encumbered (e.g., pledged or mortgaged), effectively preventing creditor satisfaction. Notably, the presence of co-debtors does not affect the assessment of asset insufficiency, which focuses solely on the disposing debtor.
3. The critical question is: At what point in time is asset insufficiency assessed under Articles 939 et seq.? When must the debtor's assets be insufficient to justify annulling the fraudulent disposal?
4. According to established jurisprudence, the critical time is when the creditor files (serves) the lawsuit. Asset sufficiency or insufficiency is evaluated at this point. Distinctions include:
- If, at the time of disposal, the debtor had sufficient assets, but lost them by the lawsuit's filing, asset insufficiency is met. However, fraudulent intent may be absent.
- If, at the time of disposal, the debtor lacked sufficient assets but acquired them before the lawsuit's filing, rendering their assets sufficient, the action should be dismissed as unfounded.
5. A more accurate view suggests the critical time is not the lawsuit's filing but its hearing (see Rizοs, op. cit., p. 175). However, under the new procedure introduced by Law 4335/2015, this shifts to the final day for submitting pleadings under Article 237.1 of the Code of Civil Procedure. Any acquisition of assets after this date, sufficient to satisfy the creditor and warrant dismissal of the fraudulent conveyance action, can be raised as an argument no later than 20 days before the formal hearing, per Article 237.5.
6. It's important to distinguish between the timing for assessing asset insufficiency (objective condition) and the debtor's intent to harm creditors (subjective condition). The former is evaluated at the lawsuit's filing, while the latter is assessed at the time of the asset transfer.
7. Among the conditions for annulling a transaction as fraudulent is the debtor's intent. The debtor must know and intend, or at least accept, that the asset transfer will frustrate creditor satisfaction. This intent
is assessed at the time of the disposal (see
here our earlier article on the requirement of intent to harm creditors), as that's when the debtor exercises their right to dispose of assets, and their culpability must be evaluated at that moment.
8. Therefore, two distinct conditions (objective and subjective) are examined at different times:
- The subjective condition (debtor's intent to harm creditors through disposal) is assessed at the time of the asset transfer.
- The objective condition (insufficiency of the debtor's remaining assets to satisfy creditors) is assessed at the time the creditor files the Paulian action.
9. Occasionally, jurisprudence improperly conflates these two timings. For instance, decision no. 1795/2019 of the Athens Court of First Instance notes: "...This evidentiary conclusion (i.e., the debtor's fraudulent intent) is not negated by the fact that at the time of the disputed transfer, the first defendant held 52% of the shares of the primary debtor company, valued on 15/12/2010 at €1,991,232.00. This is because, at the time of the lawsuit's filing (in 2015), which is when the debtor's insolvency is assessed, and harm to creditors exists only when the debtor's assets are insufficient at that time, these shares had no value...". Similarly, decision no. 77/2022 of the Patras Court of Appeal states: "...From Articles 939 et seq. of the Civil Code, it follows that a creditor whose claim existed at the time of the disposal may seek annulment of a disposal made with intent to frustrate satisfaction of that claim... Conditions for creditor protection include: ... b) disposal with intent to harm creditors, presumed when the debtor knows that the disposal will render their remaining assets insufficient to satisfy creditors; c) harm to creditors exists when the debtor's remaining assets are insufficient to satisfy the plaintiff creditor, making the debtor's insolvency, which is part of the action's basis, necessary at the time of the lawsuit's filing, the critical time for determining creditor harm, which exists only when the debtor is insolvent at that time...".
10. These decisions show that jurisprudence assesses the debtor's intent at the time when asset insufficiency is evaluated. Influenced by the debtor's financial state at the lawsuit's filing, insufficient to satisfy creditors, courts fail to consider the debtor's mindset at the time of the asset transfer. Consequently, they paradoxically conclude that the debtor intended to harm creditors then because their assets are insufficient now.
11. A proper judicial assessment of the debtor's intent would require examining the debtor's subjective perceptions at the time of disposal. Factors such as a) the creditor's security through real guarantees, b) the existence of other debtor assets (e.g., shares, regardless of subsequent value loss), c) the presence of co-debtors, are circumstances that can negate the debtor's fraudulent intent. If, at the time of disposal, the debtor believed creditor satisfaction was possible due to their own and co-debtors' financial situations, intent to harm creditors should be excluded. This holds regardless of a) the subsequent devaluation of the debtor's remaining assets by the lawsuit's filing (which may occur years after the disposal), b) the jurisprudential stance that asset insufficiency is assessed solely concerning the disposing debtor. This position pertains to the objective condition of insolvency and is unrelated to the subjective element of intent.
Conclusion
Intent pertains to the debtor's internal state. While conclusions about its presence or absence in a Paulian action rely on objective external facts, these must coincide with the time of the disputed disposal. However, the debtor's asset insufficiency cannot serve as such a fact, as it's a separate condition for annulling a disposal as fraudulent, assessed long after the asset transfer.
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