Out-of-court Workout: the arrangements with the banks and the

legal insight    

October 2023

George Psarakis, LL.M., LL.M., PgCert

(republished from euro2day.gr)

Summary: "Secret" for borrowers remains the result of the calculation tool in the out-of-court debt settlement mechanism. This article explains how the result of the platform's algorithm is generated and points out the inappropriateness of the prohibition of informing debtors about it in cases where financial institutions refuse to accept it.

The out-of-court mechanism has entered our lives with particular intensity in the last year (although the law has been in force since 2021). More and more debtors are becoming interested in learning about the procedure and eventually several are achieving beneficial arrangements, especially with regard to debts to the State and Social Security Institutions (SSIs).

For debts to financial institutions, however, conditions are not so favourable, for the simple reason that lenders (banks, servicers, etc.) are not obliged, like the State and the Social Security Funds, to accept the proposal extracted by the calculation tool of the Special Secretariat for Private Debt Management (EGDIX).

What is curious, however, is that only the creditors are aware of this proposal, and if they do not ultimately agree to it, the debtor only sees on his screen the 10-15 words of the reason for rejection and not the proposal for an appropriate arrangement generated by the calculation tool.

In particular:

1. As stated by the EGDIX itself, "In this context, the proposal for an appropriate debt adjustment is generated in an automated manner by the calculation tool of Article 71 of Law 4738/2020, based on the repayment capacity of the respective applicant-debtor, after taking into account his/her income and property situation...".

In practice, this means that the calculation tool takes into account the highest of the following three values: a) the debtor's assets, b) his income situation and c) the debtor's financial capacity, as declared by the debtor in the platform (which may differ from his income situation, e.g. due to support from relatives, etc.).

Therefore, even if a debtor has a low annual income, if he has high-value assets, the instalments extracted by the calculation tool will be relatively high (given the high interest rate for regulation today, around 7%) and will not ultimately correspond to his financial possibilities. This means that in order to comply with the arrangement he will probably have to liquidate his assets.

2. A key principle of the calculation tool is that creditors cannot be worse off than they would be if the debtor's assets were forcibly liquidated (through auctions, etc.). As stated in the relevant ministerial decision (YA 67360 EX): 'The "principle of non-aggression" means the prohibition that any occupied creditor may find himself in a worse financial position than he would have been in if the debtor's assets had been liquidated in the context of an enforcement procedure...'.

3. When all the data are entered/pulled into the platform, the computer tool produces two results. The result of Algorithm A and the result of Algorithm B ("counter-proposal of participating creditors"). Their only difference is that algorithm A does not take into account the guarantor's assets, while B does (77697 EX 29-06-2021, no. 6(5): 'In the context of the counterproposal generated under the previous paragraph, the participating creditors may co-assess the ability to contribute to the repayment of any co-debtors of the debtor to the financial institutions, as well as the liquidation value of such assets').

Therefore, if the financial institutions are to vote in favour, they will usually vote in favour of Algorithm B, because it results in higher, more often than not, instalments, as it also takes into account the guarantor's assets.

4. If the proposal generated by the calculation tool is accepted by the creditors (60% of the total claims of the financial institutions and 40% of the total claims of the financial institutions secured by mortgage, pledge, etc.), it will be displayed on the debtor's screen, who will have the option of accepting it or not. However, if it is not accepted by the creditors, the debtor cannot take note of it, as it is classified as 'confidential' (!).

As the EGDIX itself replies to requests in this regard: "... on the basis of an express provision of Article 6.7 of the CRA 77697 (Government Gazette 2896 B/5-7-2021) "...", the adjustment solutions resulting from Articles 5 and 6 of this Agreement, and in particular the adjustment solution that may result from the, according to Art. 2 of the Administrative Circular, the calculation tool and the Automated Creditor Participants' Counterproposal referred to in Article 6 of the Administrative Circular, as well as any independent settlement proposal submitted by the creditor coordinator in accordance with Article 3. 4 of the same ERO will be communicated exclusively to the participating creditors invited to assess the debtor's application as well as to the State and the Social Security Institutions if they participate and to the Special Secretariat for Private Debt Management, excluding any communication or disclosure by the above to any third party, including the financial institutions not participating in the case, the debtor, his/her spouse and family members (par. f, h and i of Article 1), and any person associated with him/her, whether or not he/she has applied for the adjustment of his/her obligations'.

5. However, when the debtor is not aware of the proposal that the calculation tool outputs, he cannot have a basis for negotiation with his creditors outside the settlement mechanism platform. Whereas, if both parties had an objectively defined figure as a benchmark, then they could negotiate on that, even if within the platform the relevant arrangement was not achieved.

6. Moreover, since the way of calculating the proposals is precisely described in the respective ministerial decisions (mainly in 67360 EX 2021), why is the proposal extracted by the calculation tool not accessible? So that, among other things, inexpensively debtors can have the result of the algorithm without having to hire consultants to proceed with the relevant calculations.

7. Moreover, if the creditors (financial institutions) had known that the debtor would have the proposal in his hands even in the absence of an agreement, they would have been more likely to agree to it, since otherwise the debtor would have had to present to a future court a proposal that was substantiated on the basis of his financial data and which, in the end, was not accepted by the creditors. Therefore, the burden would fall on the creditors to substantiate why the proposal was not accepted.

8. If, therefore, EGDIX wishes to increase the success rate of settlements with financial institutions, it should simply give debtors free and unconditional access to the proposal of its calculation tool.