Completion of Debt Settlement Process Through the Out-of-Court Mechanism with Debt Write-Offs to EFKA and AADE Amounting to Approximately 4 Million Euros

Key Points:

The case primarily involved a dispute between a company engaged in shipbuilding and a debt management firm, which had even filed a petition for the declaration of bankruptcy of the company before the competent Court of First Instance. Subsequently, however, following the settlement between the debtor company and the management firm, it was necessary to resolve the significant overdue debt that the company owed to the State and to the e-ΕΦΚΑ (Electronic Social Insurance Institute). Moreover, this constituted an obligation of the company, as set forth in the settlement agreement with the servicer.

The proper handling of the case resulted in a favorable restructuring of the company's liabilities towards the State and e-ΕΦΚΑ, while simultaneously ensuring the company's protection throughout the period leading up to the signing of the debt restructuring agreement.

By accurately recording the debtor company’s assets within the framework of the out-of-court mechanism process, a substantial reduction of its liabilities was achieved – both in relation to the State and to e-ΕΦΚΑ – while the remaining balance was restructured over the maximum period permitted by the applicable statutory framework.

Background:

A company active in the field of shipbuilding had accumulated large amounts of debt: firstly, from financing received for the development of its business since 1995, and secondly, towards the State and e-ΕΦΚΑ. The significant escalation of its debts was decisively contributed to by both the economic crisis and, subsequently, the Covid-19 pandemic, as well as by continuous judicial disputes with its principal creditor – a financial institution that even reached the stage of filing a bankruptcy petition against the company.

However, following the achievement of a settlement and the restructuring of its debt with the financial institution, it became imperative to address the company’s liabilities towards the State and e-ΕΦΚΑ, which had grown significantly—a commitment that the company had under the settlement agreement with the servicer.

Among the various available solutions, the out-of-court mechanism was selected—a procedure that could exclude the financial institution (whose claims had already been resolved). At the same time, this is a process aimed exclusively at debt resolution, without a rehabilitation character as in the case of debt rehabilitation proceedings. It constitutes a preliminary stage to rehabilitation, thereby not causing any concern to other creditors of the debtor.

It should be noted that, at the time of filing the petition, the liability towards e-ΕΦΚΑ amounted to €5,056,421.65, and the corresponding liability towards the State amounted to €2,987,477.06.

Strategy:

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

Short-term Operational Continuity: It was necessary to ensure the company’s continued operation in the short term, without the risk of the State and e-ΕΦΚΑ enforcing compulsory collection measures. Thus, by the final submission of the out-of-court mechanism petition, the suspension of enforcement measures under Article 18 of Law 4738/2020 was secured, which remains in force until the conclusion of the out-of-court process.

Accurate “Unique Identification” of Assets: As with every out-of-court mechanism petition, a critical factor was the proper execution of the “unique identification” of the debtor company’s assets. This process, whereby the debtor must assign a unique number to each asset, is essential because the computational tool processes only numerical data and not descriptive elements. Consequently, an incorrect unique identification of assets mathematically leads to an incorrect output from the computational tool and, as a result, to a less favorable arrangement for the debtor.

Proper Handling of the State’s Correction Requests: Specifically, in its effort to maximize the recoverable amount, the State requested the inclusion (and unique identification) of items related to receivables and equipment of the debtor company, as they appeared in its balance sheet and trial balance. However, these were receivables from companies that had either already gone bankrupt or had long ceased operations, without significant assets, as well as outdated and non-operational equipment. To substantiate these points, corresponding appraisal reports were prepared by an auditing firm and a certified appraiser, respectively, confirming the current value of the receivables and equipment.

Outcome:

Thanks to the accurate recording of the company’s assets on the out-of-court mechanism platform, and hence the proper assessment by the computational tool of its repayment capacity, a sustainable solution for restructuring the company’s liabilities was achieved.

Specifically, through the out-of-court mechanism, the liability was restructured as follows: €2,987,477.06 towards the State and €5,056,421.65 towards e-ΕΦΚΑ, amounting to a total liability of €8,043,898.71. As part of the arrangement, a total amount of €3,931,596.81 (corresponding to a 48.88% write-off) was cancelled for both entities, while the remaining debt was restructured over the maximum period provided by law for liabilities towards the State and Social Security Institutions, namely 240 monthly installments (20 years), with a fixed interest rate of 3%.

Additionally, during the period until the computational tool's proposal was finalized, the company was able to continue its operations without interruption, as the public authorities could not initiate compulsory collection measures against their claim due to the self-imposed suspension under Article 18 of Law 4738/2020.

- The benefits for the company can be summarized as follows:

- A significant write-off of 48.88% of its liabilities towards public entities.

- Restructuring of the remaining liability over 20 years, with graduated installments during the first five years.

- A 3% interest rate, considerably lower than the rate applicable under standard restructuring arrangements.

- The potential issuance of tax and social security clearance certificates, provided there are no other overdue liabilities.

The possibility, under the same aforementioned conditions, of neutralizing any future seizures imposed by third parties.

Conclusion:

The accurate recording of the company’s assets on the out-of-court mechanism platform, as well as the proper response to the correction request submitted by the Independent Authority for Public Revenue (AADE), led to a sustainable proposal by the computational tool. For instance, had the receivables or equipment been recorded at the value shown in the balance sheet, the proposal would not have included a write-off, and the duration of the arrangement might have been shorter. The correct execution of the unique identification process and effective collaboration with the relevant experts in asset valuation are crucial for the successful completion of the out-of-court mechanism and the achievement of a sound and sustainable solution for the debtor.