Law 4738/2020 provides a coherent framework of tools covering all stages of insolvency, from prevention to resolution. Among its numerous provisions, particular prominence is given to the out-of-court debt settlement mechanism and the business rehabilitation procedure.
The two procedures pursue different objectives. The out-of-court mechanism, which is available to both legal entities and individuals, whether engaged in business activities or not, aims to restructure debts. The debtor receives a repayment plan generated by the statutory calculation tool, based on their repayment capacity as determined by their income and assets. Rehabilitation, by contrast, is available only to individuals or legal entities engaged in business activities and aims to reorganise the business and restore its viability. An agreement with the majority of creditors therefore produces a solution tailored to the circumstances of the particular case.
These differing objectives reveal the principal distinction between the two tools: the considerable flexibility of the rehabilitation procedure, compared with the strict rules governing the calculation tools used under the out-of-court mechanism, depending on whether they take into account only the assets and income of the principal debtor or those of co-debtors as well.
The freedom to determine the terms of a rehabilitation agreement is limited only by the fundamental principles that creditors must be no worse off and must receive equal treatment. This freedom extends, for example, to the extent of debt write-offs, repayment arrangements, the granting of a grace period, and the transfer of the business to a new owner as part of the rehabilitation process. The debtor and creditors therefore have broad scope to structure a genuinely viable agreement.
Under the out-of-court mechanism, by contrast, proposals are generated automatically. The option available to the coordinating creditor to submit an independent proposal under Article 3.4 of Joint Ministerial Decision 77697/2021 does not appear to have been exercised by creditors.
Both procedures depend on the agreement of the majority of creditors, except in certain cases where creditors are required to accept the proposal generated by the calculation tool under the out-of-court mechanism, namely in cases involving vulnerable or eligible debtors, or debt arising from a Swiss franc loan.
The “no creditor worse off” principle is central to both the out-of-court mechanism and rehabilitation. It means that, as a general rule, a creditor must not receive less under the agreement than they would receive through enforcement proceedings or bankruptcy, respectively.
Ultimately, the choice of tool depends on the circumstances of each case and the objectives of both the debtor and the creditors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
