Differences of the new out-of-court mechanism compared to the old out-of-court mechanism of Law No. 4469/2017 - Law Firm Psarakis & Kefalas

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Legal insight

May 2021

George Kefalas, LL.M. (mult.), Μ.Sc.

Differences of the new out-of-court mechanism compared to the old out-of-court mechanism of Law No. 4469/2017

Summary: A large number of debtors, who had previously applied for inclusion in the out-of-court mechanism of Law No. 4738/2020, will be subject to the new out-of-court mechanism as of 1 January 2011.A large number of debtors, who had previously applied for inclusion in the procedure of the out-of-court mechanism of Law No. 44696969, will be subject to the new out-of-court mechanism of Law No. 4738/2020. 4469/2017, are asking, on the one hand, about the differences between the new institutional framework and the one of Law No. 4469/2017 and, on the other hand, whether it can apply for inclusion in the new out-of-court mechanism and under what conditions. This article summarizes the main differences of the old out-of-court mechanism of Law 446969, and the main differences between the old out-of-court mechanism and the new one. 4469/2017 compared to the new extrajudicial mechanism of Law no. 4738/2020 and presents the application requirements for debtors who had previously applied to join the new law. 4469/2017.

1. What are the differences between the new institutional framework and the extrajudicial mechanism of Law No. 4469/2017?

The differences between the two institutional frameworks can be summarised as follows:

Not only traders are now subject, but all natural persons, as well as legal entities pursuing an economic purpose.
Only debts owed to credit institutions/credit management companies, the State and Social Security institutions are now regulated, while debts owed to other private creditors (e.g. suppliers) cannot be regulated, as was the case under the previous regime.
The role of coordinator and expert is no longer foreseen. The proposal for debt adjustment is submitted only by the financial institutions, which have discretion as to its presentation and content.
In order to submit the application, the applicant must have debts of at least EUR 10 000 to a financing institution and no more than 90 % of the debts must be concentrated in a single financing institution. Under the previous regime, the applicant had to have debts of at least EUR 20,000 to all creditors and no more than 85% of the debts to a single creditor.
A debtor can now apply even if all his debts are current, if he can prove a deterioration of his financial situation of at least 20%.
The possibility for the debtor, with the agreement of the financial institutions, to have recourse to an intermediary within 10 days of receiving the proposal.
The proposal for debt adjustment is derived automatically on the basis of an algorithm, based on the debtor's financial and asset situation and the claims and securities of creditors, irrespective of the size of the company. Under the previous regime, in the case of small businesses the proposal was submitted by the debtor (and optionally by the expert), whereas for large businesses the proposal was submitted by the expert and there was a possibility for all creditors to submit counter-proposals. The distinction between small and large enterprises is not foreseen in the new institutional framework.
The proposal must be voted on by financial institutions representing 60% of the claims of financial institutions and 40% of the claims of secured financial institutions. For the majority, the claims of all creditors are no longer counted, but only the claims of the financial institutions.
It is now explicitly stipulated that the whole procedure of the out-of-court mechanism must be completed within 2 months (although the possibility of a ministerial decision allowing for an extension of the procedure if requested by the unsuccessful party is foreseen). In the extrajudicial mechanism of Law no. 4469/2017, on the contrary, a series of deadlines and actions are provided for, which may be extended, with the result that there are applications pending for more than three years.
There is no longer a provision for the Court to ratify the agreement, so that it also binds non-participating creditors, as was the case under the old out-of-court mechanism. The agreement now automatically binds all creditors (financial institutions, the State and the Social Security Fund).
Under the new institutional framework, the submission of the application also implies an automatic suspension of the enforcement procedure, but this no longer includes any auction scheduled within three months of the submission of the application or any preparatory auction actions (including seizure) by a creditor with a security interest. At the same time, the suspension under Art. 4738/2020 does not prevent injunctive relief against the debtor. Under the old out-of-court procedure, the suspension instead covered any enforcement proceedings, including the taking of injunctive measures by creditors.
In the new out-of-court system, the repayment of debts to the state and FKA can be agreed upon with up to 240 instalments compared to the 120 instalments provided for in Law 4469/2017.
The new out-of-court system does not allow for the cancellation of basic withholding and imposed taxes owed to the state, a prohibition that was not present in Law no. 4469/2017.
Under the new framework, an instalment subsidy is provided for vulnerable debtors to repay loans secured by a security over their main residence.
Paperwork has been reduced with the successive deadlines provided for under the previous out-of-court system, as well as the volume of required data and documents.

2. Debtors who had applied for inclusion in the out-of-court mechanism of Law no. 4469/2017 can be subject to the new out-of-court mechanism?

Article 7 par. 3 of Law No. 4738/2020 stipulates that the submission of an application for inclusion in the new extrajudicial mechanism is not permitted if the debtor has submitted an application for inclusion in the procedure of Law no. 4469/2017, unless there has been a valid waiver of that procedure until the submission of the application for inclusion in the new out-of-court mechanism. Therefore, debtors who have been included in the old extrajudicial mechanism may apply for inclusion in the new institutional framework, provided that they have previously waived their application for inclusion in the procedure of Law no. 4469/2017.

In the case of a debtor who had applied under the previous out-of-court mechanism and this procedure was completed with the court's ratification of the agreement, this debtor may apply for inclusion in the new out-of-court mechanism if at least 15 months have elapsed since the court's decision.

Finally, if the debtor had applied under Law No. 4469/2017, but the relevant procedure was unsuccessful, he is not prevented from submitting a new application for inclusion in the out-of-court mechanism of the law. 4738/2020.

(For more on the new out-of-court mechanism see here).