Forced collection of a commercial debt after repeated attempts to conceal income

Critical points:

- The case concerned a dispute between a cosmetics supplier and a sole proprietor who owned department stores in Greece and sold clothing, footwear, toiletries, etc. The supplier company had a claim totalling approximately EUR 200,000 from sales of goods that had taken place in the years 2010-2012, as well as a small claim for non-recovery of commission on profits under a subsequent agreement between the parties.

- The proper support of the case resulted firstly in the issuance of an enforcement order for the large claim of the supplier company and then in the freezing of the accounts of a company through which the debtor was secretly operating due to the imposition of numerous seizures against his sole proprietorship.  

- The freezing of the accounts of two companies through which the debtor was operating resulted in the latter signing a private settlement agreement, under which he undertook to repay the amount owed in monthly installments, while the agreement was signed as guarantors, with the debtor's children being liable for their personal assets.

Background

A company operating in the field of importing cosmetics had a commercial partnership with an individual - a sole proprietor who owned a chain of department stores. The partnership had resulted in a debt of approximately EUR 200 000 owed by the sole proprietorship in respect of the price of the products which the company resold in its stores. In 2013, the sole trader proposed an alternative way of commercial cooperation, namely, instead of buying the goods of the supplier and reselling them in its stores, it would sell them under the deposit system, i.e. the goods would remain the property of the supplier and would be sold on its behalf in the debtor's stores, so that a percentage of the price received by the department store would constitute the supplier's commission. However, even under this new form of cooperation, the debtor company incurred an additional debt of approximately EUR 10 000. 

For the amount of EUR 10 000, the supplier brought an action before the competent Magistrates' Court and a court decision was issued which actually obliged the debtor to pay the above amount. The debtor did not appeal against that judgment, which became final. Pursuant to that judgment, the supplier imposed a levy on the debtor's bank accounts. However, the debtor's deposits had a zero balance and other attachments had already been previously imposed by the debtor's creditors for very large amounts. Similarly, his real estate was mortgaged by the banks and many of the properties he owned had already been seized and were pending auction. The procurer, on the basis of the executory title, made an attempt to seize the cash box of one of the central department stores, but managed to collect a very small amount, which was not even sufficient for the costs of execution. 

Following the issuance of a payment order for the large sum (of 200,000 euros), the investigation focused on how the debtor's business, despite the fact that all its accounts were seized, managed to operate in the retail sector, an area where consumers predominantly make purchases through the credit system using debit or credit cards. The investigation revealed the following: The debtor was not using a POS of a credit institution to accept card payments, but a POS of an electronic money institution. After it was established that the debtor was using a POS terminal of an electronic money institution, a seizure was imposed in the hands of that institution and an amount was indeed frozen on the account concerned, which, it should be noted, had not been subject to previous seizures. However, a few days after the seizure, the balance of the account in question remained stable, while the debtor continued to operate normally, even accepting purchases by card. A check revealed that the debtor was using the following method: When the customer wanted to pay in cash, a voucher from the sole proprietorship was issued. On the other hand, when the consumer wished to pay by card, a voucher was issued by another company, in which the debtor's children participated. Consequently, the fee was paid into an account held by that company in an electronic money institution, which was of course not subject to seizure. 

An application for interim measures was immediately brought before the competent Court of First Instance, seeking the conservative seizure of the accounts held by the debtor's children's company, in accordance with the rules on the inverse of legal personality and fraudulent immorality, since the debtor was in fact transferring those sums of money to his children's company in order to avoid payments to his creditors. Indeed, an interim order was issued prohibiting the legal and factual change of the account maintained by the aforementioned company with the electronic money institution, pending the hearing of the application for interim relief. However, after the said freeze, the debtor stopped using the aforementioned (now frozen) account of his children's company at the e-money institution, but rather an account of that company at another financial institution. 

At the same time, an application was brought before the competent Court of First Instance for the debtor's business to be placed in receivership, i.e. for a third party to take over the operation of his business until payment of his obligations. 

A few months later, the decision was delivered, rejecting the application for interim measures. The court held that these facts did not provide the legal basis for the injunction. The decision on the application for compulsory administration was also issued, rejecting the application because it was presumed that the operation of the business required the personal skills of the debtor, who had already made arrangements with several of his creditors, as well as with the State. 

A few days after the publication of that decision, an investigation revealed that the debtor had gone on to set up another company, in the form of a limited liability company with his children as shareholders, in which purchases made by credit or debit card were invoiced. After the relevant cross-checking of the data in the General Commercial Registry, a new application for interim measures was filed, requesting the conservative seizure of all the accounts held by the companies through which the debtor was operating. The request for an interim injunction was denied and a hearing date was set for the hearing of the injunction application in August 2018. In its decision, the court held that the two other companies with his children as shareholders were also liable for the debtor's debt and ordered the conservatory attachment of the accounts of these companies.

Strategy

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

- In the first phase, a title was issued for the large claim, i.e. the claim of EUR 200,000, from the sales price that had taken place in the years 2010-2012. As the invoices were not signed, while at the same time some of the claims appeared at first sight to be overwritten, the payment order was issued on the basis of the supplier's trading books in conjunction with the 2013 agreement in which the debtor explicitly acknowledged its debt to the supplier.  

- When it became apparent that the debtor was receiving money from credit or debit cards through an account held by a general partnership of his children, an application for an injunction was filed with a request for a temporary restraining order and that account was frozen. 

- Each time an account was frozen, the debtor immediately proceeded to change the account to which he linked his business's POS terminals. From his own account at an e-money institution, to his children's company's account at an e-money institution, to his children's company's account at a lesser known credit institution, and finally to the newly formed limited liability company's account at a bank; all of these changes provided ample evidence of the debtor's manipulation to avoid his payments. 

- A total of five court actions were granted, two at the interim injunction level and three at the injunction level. Of these five, the supplier company won only two, but the last and most decisive was the last of these, since the Court ordered the conservative seizure of all the accounts of all the companies, including the debtor's children - the general partners of one of the companies. 

Result

After much litigation, a judgment was handed down in October 2018 on the application for conservative attachment brought by the supplier against the debtor, the companies through which it was now operating, and its children who were general partners of one of them. The judgment held, inter alia, as follows: "...it was presumed that the aforesaid debt, in respect of which the aforesaid Order for Payment was issued, is borne, in addition to the fifth respondent, by the other respondents, who are actively involved in the operation and management of the sole proprietorship of the fifth respondent. After all, that business is the 'family business' of the defendants. Any claims to the contrary made by the defendants in their note must be rejected as being essentially unfounded. [...] In the light of the foregoing considerations, this Court finds that the applicant is in accordance with the law and that it is admissible to apply for a conservatory attachment against the defendants in the form of a third-party attachment in favour of the aforementioned credit institutions'. Subsequently, on the basis of the judgment, conservative attachments were imposed on the two companies through which the sole proprietorship was now operating, as well as on the debtor's children, in favour of the credit institutions and the electronic money institution. Since the debtor could no longer accept payments by card, since any amount paid in that way was frozen, he decided to accept the terms of the supplier. The settlement agreement was also signed by the debtor's children and shareholders of the company, guaranteeing the repayment of half of the debt. 

Conclusion

The meticulous investigation of the debtor's business and perseverance of the supplier company, which was subjected to five court battles, was ultimately the key to the successful outcome of the case. Sometimes a significant victory can come after many defeats. The supplier managed through continued aggressive actions in which it took to satisfy in 2018 its claims dating back to 2010-2012.