Collection of trade receivables - The armoury of the business lender

Legal Insight

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

June 2016 - upd Ιούνιος 2019

Summary: With one of the biggest problems of businesses in Greece today being the difficulty in collecting their unpaid receivables, and given the mistrust of the business world towards the Greek justice system in terms of the speed with which it resolves disputes that come before it, it is not rare to find economic units in a state of insolvency due to unpaid receivables, with the risk of the final dissolution of the business. This note gives a realistic picture of the "weapons" provided by the Greek legislation on the recovery of commercial claims, with the aim of showing that the legislative arsenal exists and is available for use by the creditor concerned.

For some years now, the collection of unpaid debts has been a major obstacle to the operation of commercial enterprises. Particularly in cases where the major part of the outstanding debt is owed by a single counterparty-customer, the inability to collect puts the very survival of the lending business at risk. In this case, the most appropriate solution is to pursue the debt directly through the courts, but through rapid procedures that must be brought to a successful conclusion within a few months rather than several years, because in the latter case it may be too late.

Most traders are under the impression that the judicial recovery of debts, whether they arise from unpaid invoices or from various other causes (leases, etc.), will take years and will require generous funding. As a result, they are often discouraged, with the consequence that they lose valuable time at the expense of the final recoverability of the debt. 

However, Greek law, and in particular the Code of Civil Procedure, provides for a multitude of methods and ways through which the recovery of a commercial claim can take place successfully within a short period of time. The recovery procedure is divided into two stages: 

a) the issuance of the enforceable instrument (judgment, payment order, etc.) on the basis of which enforcement will take place; and 

b) the enforcement procedure (with the assistance of a bailiff) on the basis of which the debts are finally collected.

Α. For part (a) of the procedure the following should be noted:

- The fastest method for issuing an enforceable title is the procedure of issuing a payment order (issuing time from 1 day to 3 weeks depending on the Court of First Instance/Peace Court). In order to issue a payment order, we must prove the claim with documents bearing the signature of our debtor, or with our own commercial books (detailed ledger, etc.). It is therefore not accurate to say that a payment order is only issued if we have in our hands securities (cheques, bills of exchange, etc.) or delivery notes signed by the debtor. A payment order can also be issued by a combination of various documents proving the claim, up to and including an e-mail message. In this respect, a payment order has been issued using a mail message from the debtor, using a simple signed document accepting the debt, using a receipt for an advance payment when in the end the intended contract was never concluded, by means of an electronic ledger of the lending commercial enterprise, the original signed project contract between the debtor and the creditor, a claim or an extrajudicial statement by the debtor who takes his debt for granted but raises various objections, etc.

- However, even if there is no possibility to issue a payment order, based on the recent changes in the Code of Civil Procedure, the diagnostic procedure that starts with the filing of a lawsuit, lasts much less time compared to the law in force until 2015, with the further facilitation of conservative seizure even with the first instance decision. That is, whereas previously the creditor was waiting for his decision to become final (i.e. for his case to be heard by the Court of Appeal in most cases), today he can use the first instance judgment to carry out a conservative seizure of his debtor's assets ("freezing" bank accounts, goods, etc.), making a compromise solution more likely. 

Β. For part (b) of the procedure, the following should be noted: 

- The enforcement procedure is practically the most difficult part of the recovery of a commercial claim. We may have an enforceable title in our hands but lack the means to proceed with its collection due to, for example, the failure to find visible assets in the name of the debtor. In any case, prior to the commencement of the procedure, a thorough check of the debtor's property situation should be carried out through public databases (Official Gazette of Companies, GEMI, other issues of the Official Gazette, DIAYGEIA, Chambers of Commerce/Industrial Chambers, Land Registers/Mortgage Registries), on-site investigations, investigations of any other litigation of the debtor, contractual relations with third parties, etc. As long as we stick only to checking the debtor's real estate, it is very likely that we will not have any immediately visible result. Moreover, property seizure should, in many cases, be the lender's last resort due to the costly and time-consuming nature of the procedure. Therefore, once a detailed inventory of the debtor's assets has been made, a decision should be taken on the prioritisation of the available enforcement measures.

- The Code of Civil Procedure offers numerous means of enforcement for use by the creditor concerned. Some of them are indicative (with some typical examples):

a) Seizure of movable (securities, shares, company shares, goods, vehicles, money, etc.) and immovable property. In the case of the seizure of movable property, the debtor should take into account that the movable property is removed from his possession and remains in the custody of a third party - the bailor - for a period of more than 7 months until the auction takes place. Therefore, no one will be able to make use of the seized chattels for that period of time, and based on the recent changes in the Code of Civil Procedure, no suspension can be granted by injunctions in the execution and therefore the removal procedure (because the removal of the chattels will take place in the context of the seizure, which is an indirect form of execution and not a direct one). 

Examples: in the context of an enforcement seizure of vehicles (trucks) and equipment of a wholesale business, a compromise solution of repayment has been found to avoid removal; in the context of an attempted enforcement in an operating retail business, the removal of money from a cash register has been initiated with the aim of continuously removing each individual cash collection, resulting in a final compromise and settlement of the debt; in the context of an enforcement in the residence of a trader; the removal of money from a cash register has been initiated with the aim of continuously removing each individual cash collection, resulting in a final compromise and settlement of the debt; in the context of an enforcement in the residence of a trader; in the context of an attempted enforcement in a retail business, the removal of money from a cash register has been initiated with the aim of continuously removing each individual cash collection, resulting in a final compromise and settlement of the debt; in the context of an enforcement in the residence of a trader checks have been found in a debtor's residence which have been seized; in the context of the simultaneous seizure of equipment in two shops of the same retail business, a compromise solution has been found for repayment to avoid seizure; in the context of the opening of a procedure for the seizure of movable property from public utilities and electricity supply companies, the claims have been paid to avoid seizure, etc. ά. 

b) attachment of claims held by the debtor against third parties (attachment in favour of a third party). The debtor may himself have claims against third parties which he could not or did not wish to collect for various reasons. These are not only claims against credit institutions but also against companies, e.g. insurers of commercial receivables, insurance companies for any insurance claims, etc. The most common, however, in the commercial world is to have claims against third party traders which the creditor, by substituting himself in the position of the third party debtor-lender, can claim. 

Examples: in the context of enforcement proceedings against a construction company, seizure notices have been served in the hands of a third party on the District, municipalities and public funds; before the commencement of the enforcement proceedings and in order to avoid the withdrawal of any sums of money from the debtor, the enforcement has taken place without notice to the debtor, a conservative seizure of deposits in credit institutions (freezing of deposits); following the identification of the debtor's business claims against a third party trader, a seizure has taken place in the hands of a third party and an enforcement order has been obtained against the third party in order to recover the amounts owed from the most creditworthy third party; and the debtor's debtor; in the context of enforcement proceedings, a seizure has taken place in the hands of a third party in the hands of the tax authorities of an amount payable under a supply contract, which was finally paid to the creditor Mr. ά. 

c) seizure of the debtor's estate, even if he has not accepted it in writing for fear of seizure, provided that the time limit for renunciation has not expired.

d) Application for a list of assets. The new Article 952 of the Code of Civil Procedure has improved the wording of the relevant provision so that the debtor who is requested to declare his assets to the court must now also indicate any claims he has against third parties and any property transfers he has made within the last five years. The debtor must certify on oath that the list of assets submitted to the court contains all his assets, otherwise he will be guilty of perjury. As stated in the explanatory memorandum of the 2015 law that amended this provision, "The amendment of the current provision seeks to provide fuller protection for creditors. The debtor's obligation to disclose his assets refers to all assets that are susceptible to enforcement, which is required by the need to realize the claim of the attaching creditor, while ensuring transparency in enforcement and combating fraudulent tactics on the part of the debtor." 

Examples: in the context of a compulsory execution against a hotel business, the manager was forced to take an oath with a list of the assets of the business so that his expropriatory actions became apparent and a lawsuit was won against him personally, etc. 

ε) Forced administration of a debtor's business. Sometimes the debtor company owns real estate and various other assets which are, however, mortgaged/pledged to third parties and therefore a possible auction would have no practical effect in terms of debt collection. However, it continues to operate the business generating wealth and collecting money, which may also be assigned to third parties (usually credit institutions). In this case, the enforcement procedure should be considered, as provided for in the Code of Civil Procedure. In this form of enforcement, in simple terms, the creditor may, among other things, take over the management of the debtor's business until the full amount due has been collected. 

Examples: in the context of an enforcement procedure against a company with encumbered real estate that it leased after having assigned its leases to credit institutions, an application for compulsory administration was made, with the result that the control of the company was transferred to an auditing company in order to ensure optimal and transparent management with a view to repaying the creditor, etc. 

Moreover, it should be stressed that even if a delay in the enforcement procedure is expected, the creditor may be able to take injunctive measures, thus ensuring future recovery on the one hand, and putting pressure on the debtor and creating an environment suitable for a compromise on the other. Such measures include the conservative seizure of real estate, movable property, bank deposits, etc., the registration of a lien on real estate, etc. 

With regard to the trend towards "criminalisation" of non-payment of commercial debts, it should be noted that it rarely produces significant results, apart from the fact that it is usually difficult to prove that a complaint for the commission of a criminal offence caused by non-payment of a commercial debt (e.g. a complaint for the alleged commission of fraud, etc.). In any case, the primary objective of the creditor is to collect his claim and he is usually not interested in getting involved in a costly and time-consuming criminal litigation, although there are of course exceptions to this rule. 

There are also many cases of debtors 'hiding' behind various corporate schemes or who have transferred their assets fraudulently to third parties or who have tried to 'disappear' their property in anticipation of enforcement proceedings. The Greek legislation and case law also offers solutions in these cases, through proceedings for the proof of tortious acts, the removal of the autonomy of a legal person, actions for burglary, actions against governors of legal persons, the issuance of payment orders against governors of signatories of cheques of legal persons, etc., legal issues which are the subject of a separate information note. However, it is worth noting that if a debtor company of the capital type (e.g. limited liability company, limited liability company, limited liability company, limited liability company) ceases its activity and has no assets in its name, this does not mean that the claim should be considered as unpaid. Even if there is no liability on the part of the company's director from the issue of any bounced cheques, it is possible that various torts may be established against the directors, legal representatives, board members, managing directors from any illegal management actions or even from any destructive exploitation of the company's assets for the purpose of satisfying their own personal enrichment. The Greek courts accept such legal bases and have issued numerous judgments against directors of debtor companies who are deprived of assets.

Finally, the lender should not overlook the following parameter: an aggressive move to collect a debt will on the one hand send a corresponding signal to the market and discourage would-be debtors, and on the other hand will often result in a compromise and a settlement of the debt without the enforcement procedure proceeding to its final stages; this is because when the debtor is faced with a swift and legally sound enforcement procedure, will prefer to come to an agreement with the enforcing creditor rather than jeopardise his own business and the fate of his assets.