George Psarakis LL.M. (mult.), PgCert
Republished from Euro2Day.gr
Summary: The question that is currently on the minds of most borrowers, following the massive outsourcing of loan portfolio management to Funds (Claims Management Companies), is whether or not they will eventually find a more conciliatory interlocutor. This note provides some answers from our experience to date.
The question that is currently on the minds of most borrowers, following the massive outsourcing of loan portfolio management to Funds (Claims Management Companies), is whether or not they will eventually find a more conciliatory interlocutor. Our experience so far has shown the following:
1. The Funds have a desire to liquidate their collateral as quickly as possible (pledges, mortgages etc.) in order to reduce the disinvestment time. This makes them much more aggressive than credit institutions, which, because of the large number of files they had to deal with, did not proceed at a fast pace. Just consider that now the volume of delinquent loans is managed not only by the 5 main credit institutions but also by the 22 Claims Management Companies (according to the Bank of Greece's November 2019 data). The volume of cases that used to be managed by 5 companies (banks) is now serviced by 27 companies (banks and management companies together).
2. It is written that management companies are the continuation of credit institutions with better management programmes and more flexibility in formulating proposals. However, there is no change in claim methodology or any change in the proposed arrangements. The 'expertise and use of modern methods' does not provide different solutions for borrowers when all possible solutions have already been described in detail in the Code of Conduct for Banks. Moreover, the employees of these companies come mainly from the banks' own arrears departments.
3. The aim of these companies is to achieve rapid recovery, which, depending on the investor behind them, can take between 3 and 10 years. This differentiation already makes them less flexible than the existing credit institutions and brings them closer to the credit institutions in liquidation (see PQH). However, since the time factor is much more important than for credit institutions, any legal obstacle to immediate liquidation makes a compromise agreement with the borrower more attractive. So, yes, they are more flexible than credit institutions, but only when they have to face difficulties in collecting the claim.
4. The transfer (assignment) of claims does not require the rejection of a takeover proposal by the borrower or his consent or at least his prior information. There are many borrowers who are consumed by arguments about illegal transfer and so on, when the essence lies elsewhere: the control of the amount of the debt and the obligation to comply with the Code of Conduct and the principles of good faith negotiation.
5. Several times, in their desire to make immediate liquidations, the Funds neglect the existence of the Code of Conduct and send 'ultimatums' of proposals with radical solutions for a definitive settlement (provision of a power of attorney for the immediate sale of property within 3 months, etc.). The Code sets out a specific framework for the behaviour of credit institutions and funds in cases of late or no servicing of their claims, specifying the general principles of good faith and commercial ethics. The same law that provides for the establishment of Management Companies stipulates that they are also required to comply with the Code of Conduct.
6. Even in already terminated contracts entrusted to Funds, if the borrower submits all the necessary documents and requests that the Code be applied, the Fund is obliged to proceed with its compliance. This is information that many borrowers are not aware of.
7. Any proposal for a final settlement and termination of the credit relationship by the Fund is legally possible only if one of the "soft" long-term settlement solutions is not accepted. In other words, the Fund cannot derogate from the explicit obligation to submit a written proposal for a settlement and submit only a proposal for a final settlement, which may provide for the termination of the legal relationship, the voluntary liquidation of the borrower's mortgaged property, the voluntary surrender of the property to the Fund, etc.
8. The Fund's proposal must be suitable and viable for the borrower (see recent decision of the Athens Court of First Instance: "The defendant's proposal for a final settlement of the debt, without any documentation and clearly without taking into account the actual financial possibilities of the opponent, was made on the pretext of a pretext, i.e. in order to comply with the steps of the Delay Resolution Procedure of the Code of Conduct for Banks"). Any rejection of a counter-proposal by the borrower must be justified, so that it can also be judicially reviewable (see recent judgment of the Athens Court of First Instance: "The counter-proposal of the opponent was rejected by the defendant, also without any substantiation and without the defendant coming back with a new proposal or even answering the reasonable objections of the opponent regarding the need to redefine the debt..."). It is also not in line with the basic principles of the Code of Conduct for the Fund to require any amount of money in advance before considering the request for adjustment.
9. Therefore, in the event that the Fund does not comply with the Code of Conduct and intends to proceed with a termination in order to expedite the execution of enforcement actions, the borrower may, if it proves the imminent nature of the termination, request the competent court, through the injunction procedure, to prohibit the termination of the contract until the Code has been complied with and all stages of the procedure have been completed. For example, there has recently been a case where the Fund took over the management of a loan and, refusing to comply with the Code of Conduct, proceeded with a final proposal without the possibility of negotiation and counter-proposal. Of course, in this case the Athens Court of First Instance, through the filing of an application for injunctive relief, prohibited the termination until the Code was complied with.
10. The secret of success in all these arrangements, says a well-known columnist, is to avoid the labyrinth of court proceedings, which in the end burdens the borrower with new interest and costs, even in the event that he ends up with a settlement of his debts. However, the truth is sometimes exactly the opposite: if the debt has risen to unmanageable heights for the company's resources, then the FUND will most likely proceed with a proposal for a final settlement with the liquidation of collateral and ultimately the cessation of all commercial activity. This is where the assistance of the judiciary is required to save the business, if of course there are rights that have been violated.