18 April, 2007
The inner cabinet chaired by Prime Minister Costas Karamanlis on Tuesday appro-ved a new bankruptcy code drafted by the justice ministry and presented by Justice Minister Anastasios Papaligouras.
After the meeting, Papaligouras said that the new laws represented a fundamental change to a system that went back in its present form to 1835, with a few minor modifications in 1937. He stressed that the new code was designed along radically different lines, with the focus less on organising the break-up or death of a business and more on keeping businesses alive and giving a second chance to those who go bankrupt in good faith.
Though satisfying the demands of creditors remains the top priority, the justice ministry stressed that the new bill sought to avoid the "cannibalisation" of bankrupt businesses that occurred under the old system, where all their assets were sold in short order to satisfy creditors - including their productive units, so that they were effectively unable to continue operating.
Under the new code, priority will be given to saving those businesses that can be saved through their reconstruction so that they remain economically active and are able to pay their creditors by generating income, as well as by liquidating their assets.
The bankruptcy process - which could previously drag on for up to 30 years - is also greatly speeded up under the new code, while it ensures greater transparency in a bid to protect debtors from illegal exploitation by middle-men who took advantage of their plight, the minister said.
Papaligouras noted that the new bankruptcy code would boost enterprise, protect jobs and organise the reconstruction of businesses.
Specifically, it provides for the "collective satisfaction of a debtor's creditors through the liquidation of assets or through other means provided by a reconstruction plan, especially by preserving the debtor's business," according to a justice ministry announcement.
According to this, the goal of the new bill is "to preserve the life of the productive unit, for the benefit of the economy of the country and to protect employment".
Businesses that declare bankruptcy will be encouraged to adopt a "Reconstruction Plan" designed to save and utilise their business, which is to be submitted to the courts by the debtor or the receiver within a short deadline. This will be evaluated by the court and will be either accepted or rejected by a meeting of a company's creditors, who will be free to reach a settlement and limit their demands.
In addition, the new law allows those who go bankrupt "in good faith" to start a new business or enter into economic activity without the current unfavourable repercussions of declaring bankruptcy. The “good faith” debtor also enjoys more lenient treatment under the law, with bankruptcy no longer treated as a criminal offence under the law, so that those who unintentionally end up in debt can no longer be jailed or deprived of their political rights.
The bad faith creditor, by contrast, is subject to more severe treatment.
Finally, if the effort to keep the business afloat is unsuccessful, a much faster bankruptcy process is initiated, with ongoing inspection mechanisms that ensure the immediate liquidation of the bankrupt company’s assets and their distribution first to the company's most vulnerable creditors - its employees - whose rights are fully protected.
The process is speeded up chiefly by immediately starting liquidation proceedings as soon as debts are ascertained and by processing bankruptcy cases much faster through the courts, while the entire bankruptcy process ends automatically after 15 years.
Courts are also enlisted to supervise and provide guidance in negotiations between a company and its debtors for out-of-court settlements that will avert bankruptcies.
Companies will be auctioned off as a whole by court order through tenders with sealed offers, and piecemeal assets will be sold in open auction to parties that declare that they represent themselves or a specific other, while they will also be required to provide a deposit equal to one third of the initial offer. By this means, the ministry hopes to cut out the middlemen that previously exploited bankruptcy proceedings.
The entire bankruptcy process will also be supervised by a new "creditors committee" made up of three members that represent a company's three different classes of creditors and assist the receiver.
Finally, a simplified and much faster bankruptcy procedure is introduced for small-scale bankruptcies not exceeding 100,000 euros in value - which represent the majority.
Papaligouras said the draft bill would once again be discussed with the various bodies involved and would then be tabled in Parliament and voted on using the procedure applicable for codes.
According to Development Minister Dimitris Sioufas, meanwhile, the revised bankruptcy code met pressing needs of the time and would help the economy of the market, the national economy, enterprise and the job market.
He said that it was modelled along the lines of the more successful bankruptcy codes in other EU member-states and representing a major step toward modernisation that would help make Greek businesses more competitive.
Source: Athens News Agency