Business Rescue Made Easier—Recent Amendment of “Article 99” Procedure

For many decades, only the “classic” insolvency procedure was provided for by Greek law.

It was not until 1990 that a pre-insolvency proceeding was introduced in Greek law that assisted restructuring efforts and was known as Art. 44 proceeding. The difference between an insolvency and a restructuring proceeding is that the former leads to the liquidation of the company, while the latter, under certain circumstances, may lead to the company’s rescue and rebound to its previous form.

The Art. 44 proceeding was the only such proceeding provided for by Greek legislation for almost 17 years; nevertheless, it never became as popular as the conciliation process introduced in Greek bankruptcy law in 2007. The latter is widely known as “the article 99 proceeding” and it involves the appointment of a mediator by the court, with the purpose of negotiating an agreement with the majority of creditors (at least 50%).

The Art. 99 proceeding has become quite popular, especially among big enterprises, as it provides the possibility of protection against enforcement measures by creditors.

Almost four years after they first came into effect, the provisions on the Art. 99 proceeding were recently amended, in an effort to limit certain abusive uses of this proceeding, and to render the proceeding more effective. We can outline the following basic amendments introduced by law No. 4013/2011, in force since 15.09.2011.

First, a restructuring agreement between the majority creditors and the debtor can be imposed on the minority creditors. This “cram-down” effect does not extend though to creditors whose claims came into existence after the opening of the Art. 99 proceeding.

Second, the new Art. 99 provides that this proceeding is applicable also for debtors who have ceased their payments in general, i.e. for debtors fulfilling the requirements for a bankruptcy procedure. The basic idea behind this is the fact that a restructuring process may lead to better and fairer results for both the debtor and the creditors, even if the debtor is just a step away from bankruptcy.

Third, it is no longer necessary for the court to appoint a mediator in an Art. 99 proceeding. The basic idea of the “new” Art. 99 is to provide flexibility to the parties in order to reach an agreement without an “official” stage of negotiations with the involvement of a mediator. The reasoning behind this is that in many cases the debtor and the majority of the creditors may be able to reach an agreement by performing confidential negotiations, thus not obliging the debtor to divulge all of his financial difficulties in full detail. This possibility can be quite important, as in many cases the majority creditors are a couple of banks that financed the debtor, and reaching an agreement with one or two creditors is much easier. Despite this fact, the court retains a significant role in the process, that extends from the opening of the procedure to the ratification of the agreement between the parties.

Fourth, the opening of the Art. 99 proceeding is no longer necessarily accompanied by a suspension of individual enforcement measures; the court is free to order the suspension or not.

While the new amendment has introduced changes that can be positive for enterprises in the current state of the economy, the fundamental problem with rescue in Greece remains the slow-moving judicial system, since the courts are packed with cases and their hearing is set for rather distant dates. Only time will tell whether the “new” Art. 99 will surpass these practical obstacles and enable efficient rescues, along with avoiding abusive uses noted in the past.

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