legal insight
January 2024
George Kefalas, M.Sc.
George Psarakis, M.Sc., LL.M., PgCert
(republished from LAWYER)
Abstract: In this note we focus on the advantages of the out-of-court workout mechanism (as in force after the recent amendments of Law 5072/2023), especially with regard to the settlement of debts owed to public entities, and the benefits that businesses can derive through such a long-term settlement.
The out-of-court workout mechanism of Law No. 4738/2020 has become the most important tool for the regulation of private debt, not only vis-à-vis financial institutions (banks, servicers, etc.), but especially vis-à-vis public institutions, i.e. the State and social security institutions.
The advantages of this arrangement vis-à-vis public bodies can be summarised as follows:
- The proposed arrangement is derived from a calculation tool (algorithm) that takes into account the debtor's income and assets (the real estate in ENFIA values), as well as his expenses and the working capital needs of the business.
- Monthly repayment instalments can reach 240 (20 years), a duration much longer than any other settlement in the past, but especially than the standard arrangements of 12 and 24 instalments.
- The interest rate of the arrangement is a fixed 3% throughout its duration.
- Depending on the repayment capacity of each debtor, the arrangement may include the write-off of surcharges, interest, fines and even basic debt (but not basic debt from withheld and imposed taxes or insurance contributions).
- In contrast to what is the case for the settlement of debts to financial institutions, in the case of the settlement of debts to the State and the Social Security Institutions, the settlement proposal derived by the algorithm is always accepted by the latter, without any check on the debtor's viability.
- Once the debt has been settled, the company receives a tax and insurance clearance, each of which is valid for a limited period of time.
- Enforcement measures against the debtor are suspended and, at the debtor's request, any seized accounts can be released immediately for the future.
- For debts that have been settled, as well as those arising after the final submission of the application and before the signing of the settlement, no new application may be submitted, even after one year has elapsed. New law (article 67) provides that before the proposal is granted, the debts are updated so that all debts existing at the time of the re-pumping are included in the arrangement.
- After the out-of-court workout of the debt owed to the State, any new debts that arise should a) either be settled with the standard settlement of 2 to 24 instalments (Law 4152/2013), b) or they should be included in the out-of-court workout by using the recent provision (Art. 5072/2023) which gives the possibility of submitting a new application until 04/02/2024 for the settlement of debts established after the date of final submission of the last application for inclusion, c) or to be regulated under the OCW system but after the expiry of 12 months from any previous regulation of old debts (Article 7(3d) of Law 4738/2020).
- The criminal prosecution for the offences of non-payment of debts and non-payment of insurance contributions is suspended, while the criminality of the acts is eliminated upon completion of the settlement.
- Under Law no. 5072/2023 (Article 64), the application may also be submitted by a jointly and severally liable person, when the legal person has been dissolved or has ceased to exist.
From the final submission of the application, a net of protection for the company is extended, since, according to Article 18 of the law, from this point onwards, enforcement against the debtor is suspended, as well as his prosecution for the above offences.
From the entry into force of the law in 2021, we use this tool, settling business debts with significant benefits for their viability, as the necessary liquidity is recovered for use in productive purposes or to service other debts. Already today, many of our client companies have joined the out-of-court workout mechanism, securing long-term arrangements.
The out-of-court mechanism is therefore here to become a permanent and important tool for dealing with private debt.
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