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Debt Settlement Agreement with a Credit Institution - Application for Suspension of Auction and Application for Reversal of Foreclosure

Debt Settlement Agreement with a Credit Institution - Application for Suspension of Auction and Application for Reversal of Foreclosure

Critical points:

The case concerned a dispute between a company operating a hotel complex on an Aegean island and a credit institution. Following the termination of the loan and credit agreements by the credit institution, payment orders were issued and the property where the hotel premises were located was seized, while actions were also brought to break into the transfers of certain properties allegedly made by one of the guarantors.

The proper support of the case resulted, at first instance, in the annulment of the attachment imposed on the hotel property and the suspension of the proceedings in the bank's actions pending final judgments on the appeals against the payment orders. Because of the significant time delay in collecting its alleged claims, the bank ultimately preferred to enter into a settlement agreement with the debtor company.  

The cancellation of the attachment imposed by the credit institution and the suspension of the proceedings in the actions pending final judgments on the appeals brought against the payment orders, together with the necessary delay in the collection of its claims due to the litigation, forced the credit institution to accept an arrangement favourable to the creditor company.


A company operating in the tourism sector, maintaining a hotel complex on an island in the north-eastern Aegean, had concluded in 2007 a credit agreement with an open account (mutual account) with a credit institution in Greece up to the amount of EUR 1 100 000, which was subsequently increased to EUR 2 000 000. At the same time, two years later, the company issued a bond loan for the amount of EUR 1 700 000, which was fully covered by the same credit institution. The amount of the credit and the loan were used to upgrade the premises of the hotel complex. However, due to the economic crisis that occurred after 2009 in our country and its effects on many sectors of economic activity, including tourism, the company was unable to properly fulfil its obligations under the credit and bond loan agreements. Accordingly, the bank, after first limiting the limit of the mutual account to the amount of EUR 500 000, subsequently terminated both the credit agreement and the bond loan agreement at the end of 2012 and then applied for payment orders before the Athens Court of First Instance. Two payment orders were issued against the company and the guarantors, one under the credit agreement and the other under the bond agreement. At the same time, the bank brought three actions for annulment against a guarantor of the above agreements, seeking the annulment of the transfers referred to therein which had taken place in 2009. Subsequently, in the year 2014, the company proceeded, by virtue of one of the above payment orders, to impose a compulsory attachment on the properties where the hotel complex was located. 

The company brought an appeal against the bank for the annulment of the payment orders and the seizure report, while an application for suspension of the auction of the properties where the hotel was located was also brought against the execution under the now repealed Article 938 of the Civil Code. The application for suspension was heard and was indeed granted, because the seizure report incorrectly indicated the number of the inventory, so that it was not possible to establish on the basis of which of the two payment orders the bank had imposed the seizure. The judgment issued suspended the enforcement procedure until a decision had been taken on the appeal against the seizure report. Finally, the company had also brought an application to the competent Magistrates' Court to have the seizure reversed because one year had elapsed since its imposition - not counting the periods of suspension under the law or a court decision - and no auction of the property had taken place, under the provision of Article 1019 of the Civil Code, but that application was rejected at first instance by the Magistrates' Court. 


The key points for the successful outcome of the case were as follows:

The company's objective was to reach a viable agreement to settle its debts to the bank. To this end, it was necessary, on the one hand, to delay any liquidation process by the bank and, on the other hand, to enhance the chances of success of the legal remedies already brought against the payment orders and the attachment, so that the bank would be forced into an agreement. 

The company sent an extrajudicial statement to the bank, expressly stating its wish to obtain a settlement of its debts and enclosing all the financial information referred to in the Banking Conduct Code. The bank, however, despite the fact that it was obliged to assess the financial data and submit a proposal, refused to include the company in the Code of Conduct procedure. 

At the same time, the company was preparing its defence at the court level. In the first instance, therefore, additional grounds for opposition were raised to annul the payment orders and the relevant pleadings were served on the bank. Additional pleas were also raised in respect of the opposition to the seizure report. 

At the same time, an appeal was lodged against the decision of the Magistrates' Court rejecting the application to reverse the seizure, and the defence to the lawsuit for fraud on creditors was prepared, with a request for a stay of the proceedings until a final decision had been given on the appeals, which included grounds on which the company contested the bank's claim. 

Despite the fact that on the eve of the hearing of the opposition and the additional grounds of objection to the attachment report, the bank, through its lawyer, expressed its wish not to have the opposition heard, the company, weighing the chances and benefit of a possible victory, decided not to consent to the postponement or cancellation of the hearing, but to proceed with the hearing of the opposition in the normal course, and three days later proceeded to hear the three lawsuits for fraud on creditors brought against one of the sureties. 


The company gave two court actions within three days the opposition and its additional grounds against the foreclosure report were discussed and three days later the lawsuits for fraud on creditors brought by the bank were also discussed. The objection to the seizure was supported by additional grounds which highlighted significant defects in the seizure report, namely the completely incorrect description of the seized properties, the vagueness of the report due to the indefinite limitation of the amount for which the seizure was imposed and the fact that the report had been challenged as being false due to the failure of the bailiff who drafted it to go to the site, given that the hotel complex was closed at the time of its drafting. The opposition was finally upheld and the seizure imposed was annulled. In practice, this meant that the bank could not continue the execution and had to appeal against the first instance decision to the Court of Appeal or to waive the attachment or even the order for payment and impose a new one. Both solutions, however, meant a significant time delay for the bank, which had assumed that a few months after the foreclosure was imposed in 2014 it would have been satisfied by the attachment, but the year 2018 had arrived and it still had to wait many months to be satisfied. 

At the same time, the judgment rendered on the lawsuits for fraud on creditors ordered the suspension of their discussion until a final judgment had been rendered on the appeals filed to annul the two payment orders, the hearing of which at first instance had been set for the year 2019. This means in practice that the actions could be brought back for hearing before the Court of First Instance in 2022, while there would be no judgment on them before 2023.

Under these circumstances, and with significant "weapons" on the part of the company, the cancellation of the seizure report, but also the significant delay with regard to the adjudication of the action for forfeiture, and the significant chances of success of the appeals against the payment orders, the bank finally agreed at the end of the year 2018 to proceed with a settlement of the company's debt, which was the company's objective from the beginning.


The company's main objective from the outset was to settle its debts and not to avoid paying them. The bank, however, maintained an intransigent attitude, refusing to enter into any discussion in this respect. However, the company's vigorous defence of the bank's legal actions led the bank to reconsider its position. In particular, realising that its satisfaction through litigation and enforcement would be delayed for many years, it preferred to enter into a settlement agreement with the company.

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