Legal Insight
February 2022
George Zaouris, Trainee lawyer
(republished from ot.gr)
Summary: With the introduction of Law 4738/2020 in the domestic legal order, the landscape in the field of bankruptcy law has changed to a large extent. The most important change is that, unlike the previous bankruptcy law, Article 76§1 of Law 47472038 has made a major change in the field of bankruptcy law. 4738/2020, the bankruptcy proceedings are decoupled from commercial status and the possibility is provided for the possibility of all natural persons without exception, who now acquire bankruptcy capacity, to be subject to the provisions of the above-mentioned law. This article presents the basic elements of the procedure for the discharge of natural persons from their debts.
With the introduction of Law 4738/2020 in the domestic legal order, the landscape in the field of insolvency law has changed to a large extent. The most important change is that, unlike the previous bankruptcy law, Article 76§1 of Law No. 4738/2020, the bankruptcy proceedings are decoupled from commercial status and the possibility is provided for the possibility of all natural persons without exception, who now acquire bankruptcy capacity, to be subject to the provisions of the above-mentioned law. At the same time, all "misconduct" proceedings (such as the Dendia Law, i.e. Law 4307/2014) that were not part of the Bankruptcy Code, as well as the institution of "civil bankruptcy" introduced in Greece by the very widespread and applied in practice Law 3869/2010 ("Katseli Law" - which has already been repealed by Law 3869/2010), are no longer applicable. 4735/2020 and applies only to pending proceedings) for over-indebted households, have now either been abolished or incorporated into the new Insolvency Code, as it has been dubbed. The new provisions were applied for the first time to bankruptcy proceedings commenced as of 1.3.2021. However, exceptionally, the provisions of Articles 172-188 of Law No. 4738/2020 regulating "simplified small-scale bankruptcy proceedings" were applicable from 1.6.2021 (see 263§1, Article 308 and Article 265§1(a) of Law 4738/2020).
This article tries to clarify the new changes and how the "simplified small-object bankruptcy procedure" (Articles 172-188 of Law 4738/2020) can lead to a "second chance" (fresh start - cf. (see also an earlier article on our site regarding this issue here), providing a solution to their financial impasse.
1. When can one become "bankrupt"?
In order to be declared bankrupt, a debtor must be in a state of default, i.e. "unable to meet his/her outstanding financial obligations in a general and permanent manner". Indeed, 'payments made by fraudulent or destructive means do not constitute fulfilment of obligations' (Article 77(1) of Law No 4738/2020). For 'small-scale' bankruptcies in particular, there is, unless proven otherwise, a presumption (analogous to a. 77§2) of cessation of payments for the debtor "when he fails to pay his overdue obligations to the State, Social Security Institutions or credit or financial institutions in an amount of at least 60% of his total overdue obligations for a period of at least six (6) months, if his defaulted obligation exceeds the amount of thirty thousand (30,000) euros". This means that if the creditors do not prove otherwise in their submitted intervention and the above criteria are met, it is automatically presumed that the suspension of payments required for the debtor to be included in the bankruptcy proceedings exists.
2. What does the term "small-scale bankruptcies" mean and who does it apply to?
The most important thing is to identify who is affected by these provisions. According to Article 78§2 of Law No. 4738/2020 small-scale bankruptcies are defined as "those in which the debtor meets the criteria for determining a very small entity under Art. 4308/2014 (Α' 251)". The next question that immediately arises is what is included in the concept of "micro entity". More specifically, micro entities are therefore considered to be those that "at the date of their balance sheet do not exceed the thresholds of at least two of the following three criteria:
a) Total assets (assets): EUR 350 000.
(b) Net turnover: EUR 700 000.
(c) Average number of employees during the period: 10 persons.
The above criteria refer to legal persons, however, the legislator indicates that they can be applied proportionally to natural persons on the basis of their assets. That is, for inclusion in the bankruptcy proceedings of a small object, the assets of the person's property should not exceed 350,000 euros. More specifically, the real estate of the individual person, if it is located in Greece, is valued on the basis of the taxable value for the calculation of the EN.F.I.A. (under Law 4223/2013), as it results from the last tax determination act (a. 11 § 1 of Law 4738/2020 - unless it is located outside the city plan and is calculated on the basis of the objective value of the property), while, if it is located abroad, on the basis of the commercial value from a real estate appraiser's report (a. 11 § 2 of Law 4738/2020).
3. What is the procedure followed in "small property" bankruptcy and what are the possible obstacles that the debtor will encounter?
A "simplified" procedure is followed for "small-object bankruptcy", according to the law, which, as we shall see, aims at saving the cost of litigation and speeding up the debtor's entry into the protection of the bankruptcy law.
In particular, pursuant to Article 172 § 2 of Law No. 4738/2020, the competent bankruptcy court for these bankruptcy proceedings is always the Magistrate's Court, notwithstanding what Article 78 § 1 of the same Act provides. In order to determine which is the locally competent insolvency court, we then examine whether or not the debtor is engaged in business activities. If the answer to the last question is in the affirmative, the decisive factor is the centre of the debtor's main interests (a. 78 § 3 of Law 4738/2020), otherwise, it is the place of the debtor's main residence, as shown in the debtor's last tax return. For creditors who file the bankruptcy petition themselves, they can obtain the relevant information by requesting the AADE. For legal persons, the centre of main interests is presumably their registered office.
The bankruptcy petition may be filed by the debtor himself, by his creditors or by the Public Prosecutor, if there is a reason of public interest (a. 78 § 2, 79 § 1 of Law 4738/2020). The application shall be submitted electronically to the Electronic Solvency Register (hereinafter referred to as the 'E.M.F.') at https://www.gov.gr/upourgeia/upourgeio-oikonomikon/oikonomikon/katakhorise-sto-elektroniko-metroo-pheregguotetas.
Some magistrates' courts require the filing of the petition in physical form as well in order to obtain a General and Special Filing Number (G.A.K. and S.A.K., as traditionally every petition filed receives) and to form the relevant file in physical form as well. This is justified by the fact that these Magistrates' Courts have not been certified in the electronic system, with the consequence that the petition does not receive a filing number as provided electronically and the 30-day period provided for in the law within which the bankruptcy petition must be made public does not start.
According to Article 79 § 3 of Law No. 4738/2020 we are informed that, in order to avoid the petition being rejected as inadmissible, "the petition must state the name, surname, patronymic, surname, Tax Identification Number (TIN) and the address where the debtor has his residence or, where applicable, the centre of his main interests and any secondary establishments. The application concerning a trader must also include the debtor's General Commercial Register number', while according to paragraph 4 of the same article 'The application must also indicate the proposed receiver with his name, surname and address and the application must be accompanied by a written declaration by the proposed receiver that he accepts the appointment and a declaration that he is not incapacitated'.
It should be stressed that it is not necessary to mention a receiver if the application is submitted by the debtor and the application contains a statement that it has not been possible to find a candidate receiver who will accept the appointment. In addition, the application must contain the debtor's financial statements, if they exist, otherwise, it is necessary to have: a) the latest income tax return, b) the real estate statement and c) the statement of financial data from business activity, if the debtor has developed such activity (Article 174 of Law 4738 /In any case, the application must be accompanied by a list of all creditors of the debtor, a certificate from the competent tax office for debts to the State (if any) and an original, under penalty of inadmissibility, a deposit slip from the Deposits and Loans Fund of two hundred and fifty (250) euros to cover the first costs of bankruptcy. The certificate must include not only the certified debts of the applicant, both individual and joint and several, but also any outstanding tax debts of the applicant. It is emphasised that if the debtor's property (in particular its unencumbered mortgaged or pledged assets) is found to be illiquid and his annual income "does not exceed reasonable living expenses", then bankruptcy is not declared, but the debtor is registered in the register and the two hundred and fifty euro promissory note is returned to him if he has already paid it. As will be explained below, the favourable effects of the discharge can also be obtained in this case. If the application is submitted by the debtor himself, his consent to the lifting of his banking and tax secrecy is necessary. Where the bankruptcy petition is filed by the creditors, it must be notified within ten working days to the other parties to the bankruptcy proceedings so that they can take cognisance of it, but without specifying the starting point of that period.
The main obstacle that the debtor may encounter in this bankruptcy procedure is the interventions that his creditors may make through the EMF. In fact, under Article 213, all procedural acts and remedies are carried out electronically through the EAPC. If the creditors do not file at all or file an additional intervention concerning the appointment of a receiver (i.e. the person appointed by the court and in charge of supervising the proceedings, managing and disposing of the debtor's property), then upon the expiry of thirty days (30) from the publication of the bankruptcy petition in the U.M.F., the petition is automatically accepted (Article 173 of Law 4738/2020). On the contrary, the filing of a main intervention requesting the rejection of the petition diversifies the procedure, since within sixty (60) days from the filing of the bankruptcy petition, both parties must file motions, with the possibility of adding/countering within five (5) working days after the sixty (60) days have elapsed. Upon the expiration of the deadline for addition/rebuttal, the Magistrate Court is required to issue a decision within two (2) months. In other words, this is a formal and written procedure in principle, in which the bankruptcy petition is heard without a hearing. This is in contrast to the main bankruptcy proceedings, where the rules governing voluntary jurisdiction are followed (747 - 781 CCP). The decision issued by the court and, if the bankruptcy petition is accepted, a trustee will be appointed and a date for the suspension of payments will be set (Article 177 § 5 of Law 4738/2020). The legislator stipulates that the decision of the bankruptcy court is subject only to the remedy of appeal (§ 187 of Law No 4738/2020).
In order for the bankruptcy court to complete the proceedings and declare bankruptcy, it is necessary, on the basis of the financial data brought to its attention, to assume that the debtor's assets or income are sufficient to cover the costs of the proceedings. Otherwise, the court shall order the registration of the debtor's name or surname, as the case may be, in the Electronic Insolvency Register (a. 77 § 4, 178 Law 4738/2020) and, as emphasised above, the fee shall be refunded if it was paid.
4. Is the debtor finally discharged from his debts?
The answer is that yes, he can be discharged, three (3) years after the declaration of bankruptcy or the registration in the register of bankruptcy regardless of the announcement of the claims (art. 192 of Law 4738/2020). There is also the possibility of exemption at one (1) year, when the bankruptcy property includes the debtor's main residence and/or other fixed assets that exceed in value ten percent (10%) of the debtor's total liabilities and their minimum value is not less than one hundred thousand (100,000) euros, excluding those acquired during the twelve (12) months preceding the filing of the bankruptcy petition (a. 92 § 3).The debtor's exemption applies to individual debts (i.e. debts established in the debtor's VAT number) or debts from joint and several liability (i.e. debts established in the VAT number of a third person, for the payment of which the debtor is jointly and severally liable with that person), which date back to a time prior to the filing of the bankruptcy petition, regardless of the time of issuance of the legal title of collection and regardless of whether the debts have been announced or not. We note that the salary and pension are included in the unseizable assets (under 982 § 2 of the CCP), so that most of the annual income is automatically excluded from the bankruptcy estate, by virtue of the fact that the law does not include income corresponding to reasonable living expenses in the latter anyway.
However, the privilege of discharge is not guaranteed, because any person with a legitimate interest can challenge the debtor's discharge. The content of the appeal can be based on fraudulent actions of the debtor consisting of concealing income or assets and, in general, non-cooperation in the bankruptcy proceedings (a. 173 § 1 of Law 4738/2020). This is the last - and perhaps the most important - obstacle that the prospective "bankrupt" debtor will encounter on the way to a healthy reintegration into the market and economic activity in general.
5. Instead of an epilogue
The newly created Insolvency Code consists of provisions not sufficiently tested in practice, with gaps and ambiguities - provisions 172 - 188 on "small-scale" bankruptcy are no exception. In one of the first decisions in this new institution, our client's bankruptcy petition was recently granted, with the Court relying on the letter of the law and finding that she is in default of her outstanding monetary debts in a general and permanent manner (more on the decision here).
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