November 2019
The Practices of Funds (Claims Management Companies) in the Battle of "Red" Loans
George Psarakis LL.M. (mult.), PgCert
Legal insight
June 2022
(original version of article 2019 - update 2022 - article updates in red)
George Kefalas, LL.M. (mult.), Μ.Sc.
Summary: Already in the year 2019, the year of the original writing of this article, in the aftermath of the multi-year financial crisis, banks and management companies had begun to accelerate auctions to satisfy their claims on loans and credits they had granted. This was followed by the Covid-19 pandemic and, more recently, the energy crisis, which have created new conditions of financial distress for a large number of borrowers, with the result that a new wave of auctions of residential and commercial property is imminent in the coming months. The relevant case law has in the meantime, since our original publication, been enriched with a number of new decisions that have ruled on the relevant issue, while recently new avenues have been offered by the legislation on vulnerable borrowers.
1. Introduction
The period of credit expansion in our country during the 2000s was followed by the period of economic crisis, when creditors, especially banks, started procedures to enforce their claims. This process was temporarily halted during the pandemic, following a legislative provision, but has been back on the agenda since last year, and has recently become even more pronounced due to the energy crisis, which has resulted in a reduction of income for the majority of citizens. In this context, once they go to court and obtain a court judgment or a payment order, they often proceed to seize the debtors' real or personal property or even seize accounts held by their debtors in banks. In such cases, the debtor must react immediately and within the short time limits laid down in the Code of Civil Procedure, either by bringing before the competent court defects in the instrument (i.e. the judgment or payment order), by contesting the creditor's claim or, finally, by alleging errors in the enforcement procedure initiated by the creditor. This article examines only one of the grounds which the debtor against whom enforcement proceedings are brought (the 'defendant in enforcement' in the legal terminology) may raise, namely the issue of the improper acceleration of the enforcement proceedings or the improper issue of the instrument on the basis of which they are brought, with case studies of judgments of the Greek courts.
2. Cases of improper performance
Many times cases of enforcement have been brought before our courts, where the debtor claims that they are being carried out in an abusive manner. Below are several cases that have been held to be abusive and from which some indications are drawn that an enforcement proceeding is abusive and, therefore, should be annulled.
2.1. Seizure of a large amount of the debtor's assets in order to satisfy a disproportionately small claim of the creditor.
The acceleration of the auction of assets of high value in relation to the creditor's claim has been found to be invalid on several occasions, as such an action violates the principle of proportionality, simply put, it is considered to be an excessively burdensome measure compared to the purpose pursued. Thus, the decision No. 759/2013 of the Single Judge of the Court of First Instance of Corinth ruled that the seizure of a property worth 12,303,000.00 euros for the satisfaction of a claim of 1,087,365.00 euros was abusive. Similarly, the decision No. 402/2014 of the Athens Court of First Instance regarding the seizure of property worth EUR 1,200,000.00 for the satisfaction of a claim worth EUR 56,842.00, as well as the decision No. 4242/2014 of the same court regarding the seizure of property worth EUR 92,868.00 for the satisfaction of a claim worth EUR 2,320.48.
More recently, decision 42/2019 of the Lamia Court of First Instance ruled that the seizure of three horizontal properties with a total value of 206,600 euros (68,400, 68,400 and 69,800 euros, respectively) for the satisfaction of a claim of 63,502.18 euros was abusive and annulled the contested seizure report in respect of two of them.
Similarly, by judgment 109/2020 of the Single Judge of the Court of First Instance of Trikala, the seizure of properties with a total value of EUR 135 965,27 for the satisfaction of a claim of EUR 6 093,40 was held to be abusive.
2.2. Seizure of the debtor's assets (in particular movable property) of disproportionately low value in relation to the creditor's claim.
A seizure imposed on the debtor's assets of insignificant value in relation to the claim whose satisfaction is sought is also invalid on the grounds of abuse, particularly when it results in the debtor's incapacity as a natural person or business. The decision of the Piraeus Court of First Instance No. 220/2014 annulled, as abusive, the seizure imposed on movable property of the debtor company with a total value of EUR 3,870.00 for the satisfaction of a claim of EUR 750,000.00, as it held that, on the one hand, the lender did not expect any substantial benefit from the execution, and on the other hand, the debtor company would suffer significant damage to its operation from the seizure of its equipment.
2.3. Imposition of an attachment on an asset, the auction of which will not satisfy the creditor imposing the attachment because other creditors have priority.
This case concerns debtors who have debts to several creditors, usually credit institutions. In such cases, a creditor's seizure of the debtor's property may be considered abusive when it does not expect to satisfy its claim, either because the seized asset is already secured (usually a mortgage lien) in favour of another creditor or because the debtor has high debts to creditors who are senior to the auctioneer (e.g. the State or insurance funds).
Thus, the already mentioned decision 759/2013 of the Single Court of First Instance of Corinth ruled that the seizure of a property worth 12.303.000,00 euros for the satisfaction of a claim of 1.087. 365,28 euros was abusive, because - apart from the disproportion between the lender's claim and the value of the property - there were claims of IKA and the Greek State with a total value of 31,000,000 euros, so the seizure enforcer would not receive anything from the auction - the price that would be achieved in the auction. Similarly, the seizure of a property, which was auctioned at a price of EUR 150,000 and on which there was a mortgage of another lender worth EUR 1,200,000.00, was found to be abusive. In the same vein, the decision No. 37354/2005 of the Thessaloniki Court of First Instance, where the seizure of a property for the satisfaction of a claim of 3.465,29 euros was considered abusive, because the property had been registered with a total value of more than 35.000 euros and at the same time the debtor had debts to the State and the IKA of 170.000 euros. In these cases, the courts have held that 'due to the amount of the debts against the debtor covered by security in rem, even if the auction were to take place, the auctioneer would not receive any money'.
More recently, the Athens Court of Appeal, in its decision No. 2134/2019, ruled that the seizure imposed by a bank against the debtor's property worth 50,000 euros for the satisfaction of a claim of approximately 300,000.00 euros was abusive, because the property was already subject to a mortgage lien of another bank up to the amount of 70. 000 - and the debt to the second bank amounted to EUR 42 300,00 at the time of the opposition proceedings - while the enforcement agent had not previously proceeded with an auction against the property of the co-debtor, on which there was a first-class mortgage for EUR 190 000. It was therefore considered that the bank which had imposed the attachment and conducted the auction would not benefit from the auction because the price obtained from the auction would be received by the other bank which had registered the lien.
2.4. Abuse of enforcement taking place in view of the debtor's attempt to collectively settle his debts.
Another case of particular interest to borrowers, individuals or companies, is where the debtor has initiated the necessary procedures for the settlement of his/her debt - for example, out-of-court mechanism, reorganisation, negotiations under the Code of Conduct for Banks, the law on over-indebted individuals - and the credit institution imposes a seizure of his/her assets. Thus, the Athens Court of Appeal, in its decision No. 2604/2019, presumed that the seizure imposed by a bank, which had already declared its intention to participate in the procedure of the out-of-court debt settlement mechanism, to which the debtor company had appealed, is invalid as improper. A similar case is the case of decision 5352/2011 of the Athens Single Judge Court of First Instance, where the bank's enforcement was found to be abusive, even though the debtor had already expressed its intention to join the law on over-indebted individuals (Katseli Law), which was in force at the time.
The decision No 49/2020 of the Kalamata Court of First
Instance declared the payment order, which was issued upon the bank's
application, invalid, pending the decision on the application of the
over-indebted debtor (including the claim of the bank in question), which had
taken place just one month earlier and was awaiting a decision.
2.5 The bank's acceleration of enforcement when the debtor has already initiated legal proceedings to contest the debt is abusive.
The recent decision of the Single Judge of the Court of First Instance of Ioannina, No. 290/2019, has been a success. The court ruled that the enforcement by a bank against borrowers who had taken out a loan in Swiss francs was abusive, because the borrowers had challenged both the validity of the loan agreement and the amount of the alleged claim of the bank against them. The bank's conduct, which did not wait for the decision on the borrowers' claim to be delivered, but initiated proceedings to enforce the recovery of its claim, was therefore considered abusive.
The reasoning of the above judgment may be of great importance in the context of enforcement against borrowers and guarantors who have already had time to contest the banks' claims against them in court.
2.6. Issue of a title and initiation of enforcement proceedings in the course of negotiations between creditor and debtor
The behaviour of the debtor's creditor, who, while negotiating with the debtor to settle his debt, proceeds to issue an enforceable title against him, has been found by the courts to be abusive. This results in the invalidity of the instrument and, as a consequence, of the further enforcement proceedings. By way of example, the decision of the Athens Single Judge Court of First Instance No. 5095/2019 presumed the invalidity of the payment order issued by a bank against a debtor company, because it had appealed to the courts for the issuance of the payment order during the negotiations between the company and the bank for the settlement of the debt. The court held that the bank's conduct was abusive because, by issuing the order, the bank had acquired a position of strength in the negotiations, since it could at any time proceed to enforce the recovery of its claims.
More recently, the decision 11/2020 of the Single Court
of First Instance of Corinth ruled that the execution of 50% of a hotel unit
was abusive, while the debtor had already submitted two proposals for the sale
of the property - hotel complex, the price of which would cover a large part of
its debts and the bank, the first time delayed to consent to the sale, while
the second time did not even respond, resulting in the potential buyers to
withdraw their proposals.
Similarly, the decision 20/2022 of the Single Judge of the Court of First Instance of Ioannina annulled the report of forced seizure, which imposed a seizure on the debtor's only residence, considering that the execution was improperly accelerated against him, while he was in constant communication with the bank's employees and with repeated requests had asked to settle his debt to the bank..
Characteristically, the decision No. 465/2017 of the Single Judge of the Court of First Instance of Kos ruled that the seizure imposed on the main residence of the ex-wife, where she lived with her new husband, was abusive, as it was considered that she owned another property in Athens, from the auction of which the ex-husband who imposed the seizure could satisfy his claim.
2.8. The case of the Vulnerable Debtor
A seizure imposed on the main residence of a debtor, who met the
criteria for inclusion in the protective provisions on vulnerable borrowers,
was deemed abusive by decision No 109/2022 of the Piraeus Court of Appeal. In
fact, the debtor had serious health problems that prevented him from working,
while during the discussion of his opposition in the Court of Appeal, a
certificate of vulnerable debtor under Law No. 4738/2020.
3. In conclusion
At a time when creditors, in particular banks, are proceeding with enforcement proceedings to recover their claims, it is important for the debtor to react promptly to enforcement actions in order to avoid the auctioning of his property. This is often done in order to put pressure on the debtor to accept a burdensome arrangement more easily. Such behaviour has often been found by the case law of our courts to be abusive and leads in the majority of cases to the invalidity of enforcement proceedings. What must be pointed out is the short time limits provided for in the law of enforcement, which require the immediate mobilisation of the debtor in order to avoid the effects of enforcement.
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