New Pre-Bankruptcy Procedures in Greece

New Pre-Bankruptcy Procedures in Greece

 
As of 16 September 2007, a new Insolvency Code governs insolvency and restructuring in Greece. The Code strives to abandon the inefficiency and archaic obscurity of the old law and to institute an efficient and effective insolvency regime drawing on the most current international economic and legal analysis, comparative analysis of foreign insolvency laws, and European cross-border insolvency law and precedent.
 
Mr. Klissouras writes: Insolvency mediation is one of the key new institutions tested under the current international financial crisis, and applications in Greece, as elsewhere, have escalated exponentially since February 2009, bringing to the surface a variety of issues with critical practical implications. Insolvency mediation implements the principle of early recourse to insolvency, or insolvency-like, proceedings for the purposes of solving collective action problems, and instituting a degree of court supervision to fend off moral hazard in distressed situations capable of being reversed. It is a procedure available only to debtors who are not technically insolvent, i.e., debtors that have not ceased payments in a general and permanent way, but who are in current or projected financial distress.
 
Insolvency Mediation. Insolvency mediation seeks to address the debtor's distress and the organization and decision-making process between creditors, through the appointment by the court of a mediator and financial surveyor, who under article 100(1), are allowed a period of two, and conditionally three months, to verify the debtor's position, negotiate a voluntary workout with individual creditors, and propose such workout to the debtor and the creditors for approval, thereafter subject to ratification by the insolvency court.
 
The Notion of Projected Financial Distress. The concept of projected financial distress has, in fact, proved to be a principal area of tension between debtors and creditors. Projected or anticipated financial distress must be based on objective evidence, similarly as in the case of cessation of payments, now expressly defined in article 3(1) of the Insolvency Code as the debtor's general and permanent inability to meet obligations as they fall due. In SC 281/2000, CLJ (2001) 590, the Court held that the default on significant obligations is not sufficient for the declaration of insolvency when debt is serviced in the normal course of business. Conversely, in SC 1399/2000, CLJ (2001) 592, it was held that default even on a single obligation may support the declaration of insolvency, if attributable to general financial inability. [footnotes omitted]
 
 
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