George Kefalas, LL.M. (mult.), Μ.Sc.
(republished from capital.gr)
Summary: The out-of-court procedure provides for the suspension of enforcement acts for the period from the submission of the application until the completion of the procedure. But what does this suspension cover? What happens if, although the statutory time limit for the proceedings has elapsed, the proceedings have not yet been completed? How can the debtor be protected from any enforcement action while still waiting for the out-of-court proposal? What is the attitude of the courts in these matters? With this article we examine these issues from a practical point of view and set out the answers given by the court practice.
According to the provision of Article 18 of Law No. 4738/2020 entitled "Suspension of enforcement measures of participating creditors":"From the submission of the application and until the conclusion of the proceedings in any way, in accordance with Article 16, the taking of enforcement measures and the continuation of the enforcement proceedings on claims, movable and immovable property against the debtor, as well as the criminal prosecution for the offences of Article 25 of Law No. 1882/1990 and Article 1 of the Act on the enforcement of debts 86/1967 in respect of the debts whose adjustment is sought".
Under the above provision, therefore, from the final submission of the application, the taking of enforcement measures is suspended, as well as the continuation of any enforcement proceedings against the debtor, if the claim for which enforcement is being accelerated is subject to the extrajudicial procedure. However, the aforementioned automatic suspension of enforcement, on the one hand, is not general, as mentioned in particular below, and on the other hand, it may create problems when the extrajudicial procedure has not been completed within the period of time specified in Article 16 of Law No. 4738/2020 (two months in principle).
2. What is covered by the suspension of enforcement of article 18 of Law No. 4738/2020
The suspension of article 18 of Law no. 4738/2020 is not general, but is subject to exceptions set out in the same article. Thus, it is stipulated that "the present suspension does not include the holding of an auction scheduled within three (3) months from the date of the application by the debtor, as well as any procedural action preparatory to the holding of an auction by a creditor with a letter of credit (including foreclosure)".
Based on the above provision, we conclude that the suspension of Article 18 of the Law on the extrajudicial mechanism does not include:
- An auction, provided that it is set to take place within three months from the final submission of the application (e.g. if the final submission takes place on 10.12.2022, an auction set to take place by 10.3.2023 is not covered by the suspension).
- Seizure or other preparatory acts of enforcement (e.g. service of a cheque for execution), if carried out by a creditor with a letter of credit, i.e. a creditor with a security interest (e.g. a mortgage lien on the debtor's property).
On the basis of the above observations, we can also answer the question of what is covered by the suspension of enforcement of the out-of-court mechanism. In particular, it covers the following:
- An auction, provided that it is set to take place more than three months after the final submission of the application (e.g. if the final submission of the application took place on 10.8.2022 and the auction is set to take place on 15.12.2022).
- Seizure or other preparatory acts of enforcement, if they are carried out by an insolvent creditor, i.e. a creditor who has no security in rem.
- Seizure in the hands of a third party (e.g. seizure of a bank account by a third party).
3. The specific problem of the suspension of the auction
However, in practice, the out-of-court procedure usually takes well over two months. This may be due either to the fact that, despite the two months from the submission of the application, it is still being processed by the creditors, or to the fact that requests are made to correct data on the platform, with the result that the process of processing the application has not even started.
Indeed, in practice, creditors often generate correction requests addressed either to the debtor or to themselves, which may have a variety of content. They may thus ask the debtor, for example, to post a valuation of movable property which he has omitted, or they may ask 'themselves', for example, to post a more recent valuation report of a property or to correctly complete the order of a mortgage, etc.
This procedure for correcting errors is provided for in Article 7 of the CPR 66648/4.6. 2021 and is summarized as follows: a) if the error concerns an item completed by the debtor, the creditor shall identify the error and the debtor shall correct it within 5 days of the notice; and b) if the error concerns an item completed by a creditor, the latter shall correct it within 10 days of the notice and, thereafter, the debtor shall review the correction within 5 days and re-finalize the application. In this case, an extension of the deadline for submitting the out-of-court proposal is also provided for.
In practice, especially in applications where more than one creditor is involved, several requests for rectification may be submitted, resulting in significant delays in the procedure. The question then reasonably arises: what happens to the suspension when more than two months have elapsed and the application has not yet been processed by the creditors or is still being processed by them?
4. Suspension of enforcement following a decision on interim measures
Following on from the above, let us take the following example: Suppose the debtor has finally submitted his application to the out-of-court mechanism on 1.9.2022. A foreclosure has been imposed against him by a credit institution and the auction has been set for 21.12.2022, i.e. beyond three (3) months from the date of final submission of his application. On 10.12.2022, however, the out-of-court process is still ongoing, as creditors are constantly submitting correction requests in order to fill in data on the platform themselves.
So the problem is this: The out-of-court procedure has not been completed, and creditors are actively participating in it by submitting information on the platform. Furthermore, the auction is covered by the suspension of Article 18 of Law No. 4738/2020, because it has been set for a period of more than three months from the final submission of the application. However, according to the law, if two months have elapsed since the filing of the application, the application is deemed to be closed. The debtor is therefore at a dead end, seeing the auction day approaching and the out-of-court procedure not yet completed (!).
This history has been brought before the courts, following an application by the debtor under the interim measures procedure, requesting the temporary regulation of the situation by suspending the accelerated auction until the completion of the out-of-court procedure. The courts have, by way of illustration, ruled as follows:
- The decision no. 7529/2022 of the Athens Court of First Instance, in the case of applications that were finally submitted on 12 and 13.8.2022 and the procedure was still at the stage of evaluation by the creditors, suspended an auction that was scheduled for 16.11.2022.
- Similarly, the decision no. 157/2022 of the Ioannina Single Judge Court of Appeal suspended the auction that had been set for 8.6.2022, as the out-of-court procedure that had started with the submission of the relevant application on 7.3.2022 had not yet been completed. In the said decision, the credit institution claimed that, due to the expiry of two months from the final submission of the application, the out-of-court procedure had already been completed, a claim that was rejected by the court "as unfounded, because it is presumed that in this particular case, the processing of the application submitted by the applicants has not yet been completed, nor has the procedure provided for in the decision No. 76219 EX 2021 (Government Gazette B' 2817/30. 06.06.2021) of the Ministers of Finance, Digital Governance and Territory, which specifies the stages of the out-of-court debt settlement mechanism through the electronic platform".
- The same result was reached in decision No 153/2022 of the Patras Court of First Instance, suspending an auction that had been set for more than three months from the final submission of the application, considering that the procedure had not been completed within three months due to the inability of the system to process the large volume of applications that had been submitted.
On the other hand, the recently issued decision No. 8063/2022 of the Athens Court of First Instance rejected a relevant application of a debtor, arguing that two months had elapsed since the final submission of the application and, therefore, the procedure had been completed as fruitless. This was despite the fact that the application appeared active on the relevant platform and, in fact, a request for correction had recently been submitted to a creditor who had not yet made the correction.
5. Final thoughts and conclusion
The legislator of Law no. 4738/2020 was intended to create an easy and fast procedure for the settlement of debts. Based on this purpose, it stipulated that if the procedure is not completed within 2 months from the final submission of the application, the procedure is considered to be completed as fruitless. At the same time, however, it has stipulated that the deadline for submitting a proposal from the platform is extended in the event that a creditor receives a request for correction.
The legislator has therefore set an indicative period of 2 months, considering it sufficient for the completion of the out-of-court procedure. This also follows from the fact that, in the case of a request for rectification, the legislator himself stipulated that the deadline for the institutions to submit a proposal to the debtor should also be extended.
Many times, however, this period proves to be insufficient in practice, either due to delays of creditors in the process of evaluating the request or due to corrections taking place. In such cases, in accordance with the above-mentioned judgments of the courts cited above, it must be accepted that the proceedings have not been completed and that the Article 18 suspension is still in force.
After all, suspension in collective proceedings, such as out-of-court proceedings, is not only in the interests of the debtor - it is primarily in the interests of the creditors, so that one creditor does not gain an unfair advantage over the others. It is a statutory 'breathing space' to allow the necessary negotiations to take place calmly in the interests of both the debtor and the creditors as a whole.