George Kefalas, LL.M. (mult.), Μ.Sc.
(republished from ot.gr)
Summary: With the recent law 5024/2023, but also the ministerial decisions no. In addition, significant changes have been made in the regulation of the out-of-court debt settlement system in the form of the new legislation of the out-of-court debt settlement system of Law 4738/2020, i.e. the famous "out-of-court platform". These are the most important changes to date to this procedure, with the aim of making it more "attractive" for debtors. In this article we briefly examine the most important of these changes.
The platform of the out-of-court debt settlement mechanism of Law no. 4738/2020 started its operation on 1.6.2021 and has since then, as we have mentioned in our previous articles, made significant progress. Besides, the relevant procedure is promoted as the most basic piece of legislation in the context of dealing with the insolvency of individuals and companies.
However, despite the above objective and the great ambitions that had already accompanied the out-of-court procedure since the adoption of the law, the reality has been different, as the number of settlements through the out-of-court mechanism remains small today. In this context, since the launch of the platform, efforts have been made to improve the procedure, the most important of which took place with the adoption of Law No. 5024/2023. This is, moreover, the most important reform of the procedure, as it amends the law of the out-of-court mechanism itself, while the changes made so far have mainly concerned the simplification of the out-of-court platform, i.e. they have been mainly of a technical nature.
2. The changes to the out-of-court procedure
The most important of the changes brought about by Law 5024/2023, but also by the subsequent ministerial decisions No. 40953 and 40992, in the procedure of the out-of-court mechanism are the following:
- The, at least apparently, most important change brought about by Law no. 5024/2023 in the out-of-court procedure is the obligation of the financial institutions, but also of the debtor, to justify their non-consensus to the settlement proposal resulting from the calculation tool. The text of the justification will not be free but, instead, there will be for the financial institutions predefined justifications which have been elaborated by the Hellenic Banking Association and the Association of Loan and Credit Management Companies.
This is an important change because the debtor, in the event that the reasons for rejection are not 'convincing', will be able to invoke the abusive behaviour of his creditor in any future litigation. Indeed, the proposal derived from the calculation tool, which has taken into account both the debtor's income and the value of his assets in order to determine his ability to repay and the recovery amounts of each creditor, is undoubtedly an indication of a suitable and viable solution.
However, the significance of the change appears to be limited, as the debtor, in the event that the proposal of the instrument is not accepted by the financial institutions, is not informed of the content of the proposal, but only of the reasons for its rejection. However, it will thus not be easy - except in obvious cases - to challenge the creditor's reasons for rejection.
Indeed, the Hellenic Banking Federation and the Association of Loan and Credit Claims Management Companies have already submitted their joint letter of 16.3.2023 to the Hellenic Banking Federation with a list of the proposed grounds for rejecting the proposal of the out-of-court mechanism. As it is clear from this list, some of the reasons suffer from untreated vagueness, e.g. with regard to the reasons: 'History of anticompetitive behaviour' or 'The out-of-court mechanism is not the appropriate means of settling the debt because of its amount and/or nature'. At the same time, as can be seen from the above list of reasons, both the appointment of an auction within three months of the final submission and the non-participation of any co-debtors (e.g. guarantors) are grounds for rejecting the proposal for the out-of-court mechanism, as the list also includes the following reasons: 'Non-participation of all interested parties (co-debtors and/or guarantors)' and 'Auction pending within the next three months'.
It should be noted that a new tab entitled "Vote" has already been created on the out-of-court platform, where there is a relevant field in which creditors can enter the reasons for any rejection of the proposal of the calculation tool, while a corresponding field has been added to the "Restructuring Agreement/Representation" regarding the debtor.
- The second most important change, which was implemented by Ministerial Decisions No. 40953 and 40992, is the reduction of the interest rate for arrangements with public entities (State and Social Security Institutions - hereinafter referred to as the FSA) from a floating quarter Euribor + 5%, which was previously a fixed rate of 3%. This is a significant reduction, especially if we consider that today the quarterly Euribor has now exceeded 3% (with an upward trend), i.e. the total interest rate for public and social security schemes would have exceeded 8%. It is also important that this reduction in the interest rate will also cover arrangements that have already been implemented, resulting in a significant reduction in the interest that debtors are required to pay. The importance of this change becomes even more understandable if we consider that until now any write-off of principal, interest or surcharges was in practice often cancelled out in practice due to the high interest rate of the arrangement.
- Furthermore, the debtor will now have the possibility to request, when applying for inclusion in the out-of-court debt settlement mechanism, that any outstanding or already settled debt to a financial institution be kept intact and that only other debts to other financial or public institutions be settled. However, as more specifically stated in the law, the instalments of the total of the applicant's current or adjusted debts should not deviate by more than 15% from the instalment calculated for the same debts on the basis of the calculation tool.
The application of this provision in practice is likely to create several problems. For example, what will happen if the debtor has, before applying to the out-of-court mechanism, concluded an arrangement providing for a grace period or interest-only payment for a certain period of time? In this case, the instalment resulting from the calculation tool is very likely to deviate from the instalment of the arrangement by more than 15% and therefore cannot be exempted. Therefore, we will have to wait for any further specification of the above provision in the upcoming ministerial decisions or the testing of this provision in practice in order to draw firm conclusions on its effectiveness.
The relevant modifications have already been implemented on the platform, where the debtor can select in detail from the debts that appear as non-overdue, those that he wishes to exclude from the out-of-court procedure.
- Also very important is the discount on the total outstanding interest on the payment of the arrangement to public entities, which is granted in case of full prepayment of the arrangement. In other words, suppose a debtor settles his debts to the public authorities over a period of 20 years through the out-of-court settlement mechanism. If, in the fifth year, he manages to collect the remaining principal of the arrangement and proceeds to a prepayment, he is exempted from the remaining 15 years of interest.
It is important to note that this change also covers out-of-court arrangements that had already been implemented before the law came into force.
- Now, not only debts owed to financial institutions (banks and debt management companies), the State and Social Security institutions are settled through the out-of-court mechanism, but also debts owed to third parties that are established and collected by the State, such as debts owed to municipalities. In fact, debtors who have completed the out-of-court procedure are given the opportunity to submit a new application within two months of the entry into force of the law in order to settle debts owed to third parties or debts owed to the State and the Social Security Treasury that were established until the submission of the application.
- The exception whereby the applicant could not apply to the out-of-court debt settlement mechanism under Law No. 4738/2020 if 90% of the debts were concentrated in one single financial institution. In other words, a person can now apply for inclusion in the out-of-court mechanism even if he/she owes only one bank, provided that the amount of the debt exceeds EUR 10,000. In other words, what was already in force in relation to debts to the State and the tax authorities is now extended to financial institutions.
- It is now expressly stipulated that if the debtor's application is rejected by the financial institutions, the bilateral procedure for the settlement of debts to the State and the EFKA is mandatory. Under the previous provision, the bilateral procedure was only followed in the event of a late submission of a proposal by the creditors.
- Another change, which, although not directly linked to the out-of-court mechanism, will largely benefit debtors, is the possibility for any natural and legal person to request through the online platform the issuance of a certificate for any debts to financial institutions, the State and the FSAs. However, the submission of this request implies the debtor's consent to the lifting of the confidentiality of bank deposits and tax secrecy. This arrangement is being introduced because it was observed that many debtors were creating an application to the out-of-court mechanism of Law no. 4738/2020 only in order to obtain information on the amounts of their debts and without any real intention of settling through this tool.
- Furthermore, Ministerial Decision No 40953 stipulated that applications that have not been finalised and for which no request for rectification is pending will be deleted within 90 days and will be considered as not submitted.
- Finally, at a technical level, an important difference concerns the assessment of the value of movable property. Thus, while up to now an appraisal by an appraiser certified by the Ministry of Finance was required for movable property worth more than 10,000 euros, this threshold has been changed to 50,000 euros, making it even easier and less costly to submit an application to the out-of-court mechanism.
3. Instead of an epilogue
The out-of-court debt settlement mechanism was established to be the main tool for dealing with the insolvency of individuals and companies. However, to date, the procedure has not been able to produce the desired results. Law no. 5024/2023 and the subsequent ministerial decisions certainly make the whole procedure more "attractive" and simpler for debtors, while, at the same time, by introducing the obligation to justify the rejection of proposals, they try to make banks and management companies responsible for cases where they reject proposals without justification in order to satisfy them through enforcement proceedings. Whether these legitimate objectives will actually be achieved will be seen in practice in the near future.