George Psarakis LL.M. (mult.), PgCert
Summary: By a recent decision of the Bank of Greece (EPATH 182/1/4.4.2016) all credit institutions under special liquidation ("SSS") passed under the control of the limited liability company "PQH Eniaiaia Special Liquidation S.A." which is a joint venture of PwC Business Solutions S.A., Qualco S.A. and Hoist Kredit Aktiebolag. This consortium is now the special liquidator of these credit institutions and the one that proposes to the Bank of Greece the strategic restructuring plans, gives orders for debt collection operations, and finally undertakes the forced collection or debt adjustment. Although the identity of the creditor is always important as regards the degree of severity of the enforcement measures, the existing legislative framework provides solutions for borrowers in order to treat them on an equal footing with customers of other credit institutions in operation.
By a recent decision of the Bank of Greece (EPATH 182/1/4.4.2016), all credit institutions under special liquidation (16 in number) were transferred to the control of the limited liability company "PQH Eniaiaia Special Liquidation S.A." which is a joint venture of PwC Business Solutions SA, The following credit institutions have now passed to this special liquidator: a) Agricultural Bank of Greece S.A. in special liquidation, b) Postal Savings Bank of Greece S.A. (PwC). T.E. in special liquidation, c) Proton Bank S.A. in special liquidation, d) Probank Bank S.A. in special liquidation, e) FBB - First Business Bank S.A. in special liquidation, f) Panhellenic Bank S.A. in special liquidation, g) Achaiki Cooperative Bank SYN.P.E. in special liquidation, h) Cooperative Bank of Lamia SYN.P.E. in special liquidation, (i) Cooperative Bank of Lesvos - Lemnos SYN.P.E. in special liquidation, (j) Cooperative Bank of Dodecanese SYN.P.E. under special liquidation, (k) Cooperative Bank of Evia SYN.P.E. in special liquidation, (l) Cooperative Bank of West Macedonia SYN.P.E. in special liquidation, (m) Cooperative Bank of Peloponnese SYN.P.E. in special liquidation, (n) T-Bank Bank SA in special liquidation, (o) Old Bank of Crete S.A. (Law 2330/1995) in liquidation; p) ATELIZING Financial Leasing Company Limited under special liquidation.
2. POSSIBILITIES FOR LOAN RESCHEDULING/WRITE-OFFS
The objective of the YEI Credit Institution is to satisfy its claims as far as possible within a relatively short period of time, without, however, compromising the smooth continuation of relations with borrowers and respecting the legal framework protecting the debtor. Obviously, since the most unsecured claims, i.e. the 'red' loans, have remained with the ECAI (the loans that are still in good standing are usually transferred to solvent credit institutions in the context of the implementation of reorganisation measures for credit institutions), and since borrowers should be given facilities to enable them to gradually repay their debts, the existing legal framework offers two possibilities in this respect:
α) Firstly, there is the possibility to settle loans, even those that have been terminated, on the basis of a strategic settlement plan drawn up annually by the liquidator of the credit institution and approved by the Bank of Greece. For example, PQH's current programme for the credit institutions of the SIBs provides for a maximum of 10 years for the settlement of loan debts. As long as the loan claim is up to EUR 250 000 (including principal, interest and expenses), the Bank of Greece's approval is not required again but it is at the discretion of the liquidator to proceed with the arrangement. Otherwise, i.e. for claims in excess of EUR 250,000, the content of the proposed arrangement is submitted to a special Committee of the Bank of Greece in order for the latter to approve or reject it.
EPAT 77/1/30.5.2013 includes the more specific regulations on the permissible content of such agreements, which may contain an extension of the repayment period, cancellation of debt related to interest, costs, commissions and expenses, provision of a grace period (with repayment of e.g. (e.g. interest only), cessation of interest, adjustment of the interest rate (base and margin), elimination or limitation of excessive collateral, possibility of periodic payments, etc.
b) In a second stage, there is the possibility of a compromise in the form of a partial write-off of the loan principal (partial debt forgiveness). Such a decision for claims below EUR 20,000 (including principal, interest and costs) requires only the agreement of the liquidator, whereas for claims above EUR 20,000 the agreement of the special committee of the Bank of Greece will be required following a detailed and sufficiently justified request by the liquidator. The Committee must within 60 days either approve or reject the proposal, or finally accept it by proposing certain amendments to it, by means of a reasoned decision. It is worth noting here that the above special procedure takes place only if the deletion concerns part of the capital. If it relates to interest, it is carried out freely by the special liquidator, within the framework of the strategic restructuring plan drawn up by the special liquidator, who may, even without the approval of the Bank of Greece, proceed to debt forgiveness to the extent he deems necessary (see point (a) above).
3. OTHER POSSIBILITIES FOR OUT-OF-COURT SETTLEMENT
There are, however, many instances where the loan agreements under which the SIBs' credit institutions claim their claims are full of defects, abusive - invalid terms and illegal charges. In addition, the specific legal framework for 'pawnbrokers' will often be called into question. Finally, there are many other pieces of legislation which protect bank debtors and which also apply to the loans of SIBs. In particular:
Α. Deficiencies in the Loan Agreement - Unfair terms - Invalid terms
The legal defects and abusive terms that can be found in a loan agreement are numerous and are due either to a deliberate choice of the credit institution or to the negligence of its employees. For example, there have been cases where, in the absence of an agreement on an essential element of the loan agreement, namely the interest rate, the loan agreement was allegedly not drawn up. What happened was that the responsible official of the credit institution had not ensured that the interest rate (base and spread) was entered in the loan agreement. In this case, not only is it not possible to claim any alleged debt through the procedure of a payment order, but it can be argued that there is no agreement at all due to the lack of concurrence of the declarations of intent on an essential element (essentiale negotium - the disagreement of the parties on an essential term results in the non-conclusion of the contract; SC 882/2010).
We have also stressed in an earlier briefing note that a clause that allows the interest rate to be adjusted on the basis of "the change in the financing conditions of banks" or "the cost of money" is not clear and transparent. The same applies to wording that makes the adjustment conditional on 'changes in the reference rate' or on 'changes in the cost of money' or 'the general level of interest rates'. The same applies to a clause stating that the interest rate on the loan 'will be variable and will be based on the reference rate of the European Central Bank' or stating that 'the interest rate will be equal to the bank's current own funds lending rate'. In addition, a contractual term which defines the criteria for the variation of the interest rate on the basis of 'market risk', 'general product risk' and 'market and competitive conditions' has also been found to be abusive as being vague. Moreover, Act No 2501/2002 of the Governor of the Bank of Greece (Government Gazette A 277/2002) on 'informing persons dealing with credit institutions of the conditions governing their transactions' provided that the minimum obligation on the part of credit institutions in respect of lending transactions also applies to '.... in the case of variable-rate loan agreements, the general reference rate clearly defined on the basis of the prevailing money market rates, its periods of validity and information on key factors, the possible change of which will affect the total cost of the corresponding loan (such as European Central Bank intervention rates)'. The Bank of Greece subsequently clarified in a letter (No 53/2003) that in the case of variable rate contracts 'it is possible to use more than one reference rate, accessible to the trading public, and that the contribution of the above key parameters to the change in the interest rate can be determined either at a fixed level or with a specific range of variation'. Subsequently, by Decision No 178/2004 of the Banking and Credit Committee, the Bank of Greece, in application of the above-mentioned PTE 2501/2002, clarified that 'the change in the variable interest rate is linked exclusively to indicators of a general and widely accessible interest rate nature, such as ECB intervention rates, Euribor, bond yields, short-term securities, etc., which must be specified in the contract. The contract shall also explicitly specify how the contractual interest rate is to be adjusted, as follows: (i) as a maximum multiple of the current change in the interest rate index; or (ii) as the resulting sum of the amount of the interest rate index plus a margin determined up to a maximum limit'.
In summary, the most common abusive terms found in YEI Credit Institutions' loan agreements (the older the agreements, the more likely such terms are to be identified) relate to clauses on: interest rate, imposition of costs, imposition of insurance charges, reduction of trading books into evidence, imposition of N. 128/1975, fictitious recognition of debt, three-monthly compounding and discretionary termination.
Β. Specific legislative framework for overdue debts
At the same time, because of the usual age of these credit agreements, questions of recalculation of the debt under the legal provisions on 'overdue debts' often arise. For example, under the current Art. 39 par. 5 of Law 3259/2004, the total amount of the debt under a credit agreement with a farmer contractor using a mutual account cannot exceed twice the amount of the debt as it was at the time of the last disbursement. In the same direction, paragraph 1 of the same Article provides that the total outstanding debt under any type of credit agreement may not exceed three times the amount of the debt as it stood at the time of the last disbursement of the account in respect of agreements operated through a mutual account. The provisions of Law no. 3259/2004 'generally consist of limiting the total debt to twice or three times (for farmers) the amount of the capital paid and deducting from this amount the payments already made' and '... the limitation of the total debt ... covers not only debts already due, but also debts arising from loan or credit agreements concluded after the entry into force of the above-mentioned Article 39 ...'. . i.e. for all loans, credits or mutual accounts, irrespective of when they were contracted, a ceiling was set on the total outstanding debt, which may not exceed three times, or where appropriate twice, the capital granted, from which all payments, not only those made up to 4.8.2004 but also those made thereafter, are then deducted. To the extent that the debt exceeds these multiples, it is considered by law to be partially (or even fully) amortised (see judgment of the Supreme Court No 1127/2005).
C. Special legislative framework for the protection of bank debtors
The above framework for settlements and reconciliations (see point 2) does not apply where there is a specific legislative framework for the settlement/arrangement of the debt. This is the case, for example, in the application of Law 3869/2010 on over-indebted households, the special legislative framework for loans guaranteed by the State and ETEAN (see our earlier information note) or more specific categories of loans that are subject to mandatory regulation under regulatory provisions (see, for example, Law 3816/2010, Law 4224/2013, Law 4161/2013). Indeed, this was confirmed by the Bank of Greece in a relevant document to the Minister of Finance in response to a question in the context of a parliamentary control on 24/11/2016: 'The main criterion for the formulation of the proposed regulation is its viability, which, as far as possible, is ensured by extending the repayment period, granting a grace period, but also by writing down part of the claim, mainly the off-balance sheet interest. As a result, the debt settlement framework of credit institutions in special liquidation does not deviate from that applied by commercial banks in operation, while the provisions of the existing legal framework apply to real estate auctions.
Moreover, already for the loans of the ATE in liquidation to farmers, under the recently adopted Article 70(1)(b) of the Law, the Commission has already taken a decision on the loans to farmers. 2(2). c of Law 4235/2014: "In any case, however, the amount of the total amounts paid (those already paid and those to be paid) may not exceed 120% of the loan principal, provided that the total of the aforementioned claims of all kinds of the Bank arising from the loan does not exceed twice the original principal, and is limited to twice the loan principal received, if the total is more than twice, at the time of the entry into force of this article". Therefore, the total amount paid by the farmer borrower (both those already paid and those to be paid) cannot in most cases exceed 120% of the loans under the contract in question. It should be noted that any failure to issue implementation instructions by the relevant ministries with regard to Article 70 of Law 4235/2014 is in no way a reason for non-implementation of a passed and substantive rule of law with a detailed description of the factual and legal consequences.
4. LITIGATION WITH THE CREDIT INSTITUTION UAE
Ultimately, however, it may be necessary to resolve the dispute through judicial recourse. It will be difficult for the credit institutions to accept the existence of unlawful charges, unfair terms or even the application of the specific legal framework for 'pawnbrokers', for example by invoking the lack of consumer status on the part of the creditor, the lack of agricultural status with regard to the application of the above-mentioned law, the lack of consumer status on the part of the creditor, or the lack of agricultural status with regard to the application of the above-mentioned law. 4235/2014, the correct calculation of interest, the validity of all contractual terms, etc... In fact, the discretion of the special administrator to draw up settlements, as noted above, is limited compared to the management of the credit institutions in operation, making it difficult to reach a beneficial settlement between the borrower, who raises valid objections to the debt, and the credit institution. In such cases, the only way forward is to go to court by way of a declaratory action, in the absence of a payment order, or by way of an appeal to have the payment order cancelled. As regards the possibility of bringing an action against the YEI Credit Institution, it has already been ruled that this procedural possibility exists, even though the suspension of individual prosecutions in favour of the latter is generally applicable (see decisions No 665/2014 and 11/2014 of the Piraeus Court of Appeal and the Chios Court of First Instance respectively). Therefore, within approximately one year (based on the new procedure of the Code of Civil Procedure) the borrower may have in his hands a final court decision which will resolve in the first instance the issue of the debt and the validity of the contractual terms.