Insolvency is a situation in which a person's liabilities exceed his assets and he is unable to satisfy his creditors. Pre-insolvency (preventive) proceedings are proceedings to obtain an injunction or a bankruptcy notice. The formal procedures are bankruptcy, special liquidation, temporary administration, management and administration by the creditors and placing the company into receivership so that a compromise can be reached with its creditors.
Both individuals and companies can be declared bankrupt, but only companies can placed in special liquidation, temporary administration by the creditors or receivership. In order to be declared bankrupt, a businessman must have ceased payment of business debts or declared that payments are suspended and a court decision must be issued. An application may be filed by any creditor who submits proof of his claim in writing. A company may only be placed in special liquidation at the application of 51% of its creditors whose claims are reported in its books. In order for special liquidation proceedings to be opened, the company must have suspended or ceased trading, have ceased payments, be bankrupt or under the management and administration of its creditors or must be in temporary administration or liquidation, unless its basic and productive assets have been auctioned and it is manifestly unable to pay overdue debts. A company may be placed in special liquidation under the same conditions at the application of 20% of the creditors, in which case a special administrator is appointed. Under the same conditions, creditors whose claims are reported in the company books and in the annual accounts for the last financial year or the company itself may also apply for a receiver to be appointed in order to broker an agreement between the creditors and the company regulating or limiting its debts. A decision may be passed placing a company under the management and administration of its creditors where it is established that payments have ceased, an application is filed by 55% of the creditors reported in the books and a special committee of the Bank of Greece is set up. The temporary administrator takes the action needed to maintain the business and invites the shareholders to a meeting for the purpose of passing a resolution to place the company under the management and administration of its creditors.
Once the bankruptcy decision has been published, a referee is appointed to oversee the work and a lawyer is appointed as temporary trustee; this appointment is finalised with the approval of the creditors' meeting and he then represents the bankrupt and this group. The trustee establishes the bankrupt's assets and liabilities and represents him in hearings relating to the bankruptcy estate. Once bankruptcy proceedings have been completed, he sells off and distributes the bankruptcy estate to the creditors who attend the general meeting and state their claims, which are entered on a list. If, according to the referee's report, there are no assets, the court declares the case closed. During bankruptcy proceedings, the bankrupt is deprived of the right to administer the bankruptcy estate, but may take emergency measures if the trustee fails to act. Companies are placed in special liquidation and liquidators are appointed by the Court of Appeal, which also appoints a receiver and ratifies the agreement, at the request of the creditors. Once the decisions have been published, administration of the company by the bodies governed by its memorandum and articles of association ceases. If Article 46 applies, the liquidator sells off the assets individually or as a lot in a compulsory auction in order to satisfy registered creditors. If Article 46a applies, the company is sold off as a lot at public auction and the liquidator drafts the contract of sale and collects the proceeds and distributes them in accordance with the list. Where a company is placed in temporary administration, the administrator takes action to safeguard its assets by acting on its behalf before the courts and the authorities and preparing an inventory and balance sheet, invites the creditors to file their claims and prepares a list and asks the shareholders to allow the company to continue trading under the management and administration of the creditors. The creditors then appoint a managing committee which increases the share capital by issuing shares which are allotted to them in proportion to their claims. Three years later, the creditors may authorize the managing committee to dissolve the company or place it in special liquidation.
Once the decision has been published, the bankrupt loses the power to dispose of his assets; this does not apply to claims not subject to distraint, non-transferable rights or assets which postdate the bankruptcy. Bankruptcy creditors are divided into unsecured, secured and general preferred creditors. Personal suits by unsecured and general preferred creditors are suspended, while those by collective, post-bankruptcy and secured or special preferred creditors are maintained. The Justice of the Peace seals and takes an inventory of the bankruptcy estate within 24 hours of the declaration of bankruptcy. Items are handed over to the trustee and monies to the government treasury. Once a company receiver has been appointed and the decision published, individual enforcement measures are suspended. This does not apply to legal action or remedies. Assets are distributed and the memorandum and articles of association amended with the receiver's consent. The agreement ratified by the court is binding on creditors not party to it. If the company is placed in special liquidation, enforcement, injunctions and declarations of bankruptcy are prohibited the day after the application is filed. Once the decision about the management and administration of the estate has been published, it passes into the hands of the special liquidator. Where a company is placed in temporary administration or under the management and administration of the creditors, once an application has been filed, enforcement, injunctions and bankruptcy declarations are prohibited for debts which accrued prior to the application. Administration of the company is initially vested in the administrator and then passes to the creditors' management committee.
Bankruptcy proceedings only extend to the bankrupt's estate when bankruptcy is declared. Any items held by him or in his possession may be claimed by the owner. Parties to contracts with him are not obliged to perform outstanding bilateral contracts first. Contracts of employment are not cancelled nor are bankrupt employers in arrears released from accepting services rendered or payment of wages. The bankruptcy of tenants or landlords does not cancel tenancy agreements. Bankruptcy of a partner results in the dissolution of a civil society or partnership, unless it was agreed to maintain it among the remaining partners. Companies limited by shares are dissolved on bankruptcy but maintain their commercial status and legal personality during liquidation, but the bankruptcy of a partner does not cause them to be dissolved. Instructions are cancelled and current accounts are closed and loan agreements cancelled automatically. Unilateral offsetting under the terms of a contract is null and void. Placing a company in special liquidation does not cause it to be dissolved or affect outstanding contracts, unless the parties were aiming for mutual trust or the personal standing of one of the parties. Special liquidation causes existing contracts of employment to be cancelled, although the court may order some of the employees to be kept on temporarily at the creditors' request if this is in the company's interest. Leasing agreements for vehicles, machinery and other plant are cancelled, together with all arrangements under which a third party holds, possesses or uses them. Third party guarantees or security are not affected. The liquidator may pay overdue debts and may offset the company's claims against third party claims or sell them. If the company is placed in receivership, guarantees, mortgages, pledges or other incidental rights in rem or which do not secure the claim and privileges attaching to it are maintained. If the company is placed in temporary administration or under the management and administration of the creditors, it continues to trade normally, but assets cannot be sold or property encumbered and legal transactions lasting more than one year cannot be entered into without leave of the court. Mortgages, pledges or privileges remain until such time as pledgees, mortgagees or preferred creditors have been satisfied and guarantees are not affected.
Acts by the bankrupt in the suspect period which reduce the bankruptcy estate are revoked. Any unilateral act which reduces the bankruptcy estate, any payment in cash, any payment effected by concession, sale, offset or otherwise rather than in cash or a commercial bill for payments not yet due or overdue and any act to establish security for prior debts are null and void vis-à-vis the creditor if effected by the debtor during the period in which payments were ceased or 10 days before it.
Creditors are advised of bankruptcy through publication of the decision appointing the referee and trustee and setting the time and venue of the general meeting of shareholders. Creditors declare themselves by lodging share certificates and memoranda initially with the referee or, where a trustee is appointed definitively, with him or with the referee. Creditors who do not come forward are invited to do so individually and by publishing a notice in the Lawyers' Pension Fund bulletin. Claims are inspected and the referee drafts a report. If the claim is accepted, the creditor swears before him that it is true and honest. Creditors who fail to state their claim may file an application to set aside judgment by default up to final distribution of the proceeds of liquidation and, if it is accepted, they are included in the distribution. Claims by collective creditors are satisfied before bankruptcy creditors and any distribution of the assets, after general preferred creditors, special preferred creditors, mortgagees and pledgees. If the company is placed in special liquidation, creditors report to the liquidator, who prepares a list. This procedure includes claims which accrued before the company was placed into reorganisation by the Company Reorganisation Agency, the application for the company to be placed in special liquidation was filed and the company was placed in receivership. Special liquidation and continuing trading costs, pre-bankruptcy administration costs and execution costs are not included and are not reported. A classification table is then prepared. Doubtful claims or claims classified erroneously are classified randomly or conditionally. If the company is liquidated in accordance with Article 46a, the liquidator publishes an invitation for creditors to come forward and the classification rules of Article 46 apply. If the company is placed in special liquidation under the management and administration of the creditors, claims are classified in accordance with Articles 975 et seq. of the Code of Civil Procedure and Article 61 of the Public Revenue Collection Code.
Reorganisation proceedings refer to the management and administration of a company by its creditors, the reorganisation of the business and procedures under Articles 44 and 45. Where the company has been placed under management and administration, enforcement, injunctions and declarations of bankruptcy are prohibited once the application has been filed. The management committee administers the company, controls credits, increases the share capital and distributes the share certificates. Three years after the application, 3/5 of the creditors may request that the company be dissolved or placed in special liquidation. The company or the creditors may apply for the company to enter the reorganisation procedure by decision of the Minister, in which the Company Reorganisation Agency is appointed as the provisional administrator and an agreement is drafted with the creditors. Payment of overdue debts, enforcement measures, interest and limitation of claims are suspended. The agreement between shareholders, creditors and the Company Reorganisation Agency does not affect guarantees, mortgages, pledges or other special privileges which reduce claims or grant settlement deadlines. Provisional administration ceases and the suspension of individual claims and other measures is lifted with the approval of the Minister, which is published in the Government Gazette. The agreement between creditors and the company is binding on creditors not party to it and grants a deadline for settlement of claims, reduces the amount of the claim (with loss of the remainder), restricts security and guarantees on the amount agreed for payment and revokes the bankruptcy. When the decision to place the company in receivership is published, enforcement measures, the right to obtain an injunction and interest are suspended. The receiver's job is to broker an agreement between the creditors and the company which is binding on creditors not party to it and restricts security and guarantees on the amount agreed for payment.
When a compromise is reached, the creditors are in a state of union; the aim of the work carried out is to wind up the assets and distribute the proceeds and the trustee sells off the movable and immovable assets. If winding-up is impossible or uneconomic, the court will decide at the referee's request to cease work and, if there are sufficient assets, movables are sold off at public auction or by agreement and immovables are sold off with the referee's permission. The money is deposited in the Consignments and Loans Fund and, before it is distributed between unsecured creditors, court and bankruptcy administration costs, financial assistance for the bankrupt and his family, claims by general preferred creditors, collective claims and secured debts are deducted and a portion is retained for creditors whose claims have been provisionally accepted, who failed to report their credits on time and filed an application for judgment by default to be set aside and for their claims to be verified, who live outside the country (if their claims are reported on the balance sheet) and who have conditional claims at the time of distribution. The referee calls a meeting of creditors at which the trustee renders account to the bankrupt as to whether the bankrupt's creditors were satisfied in full from the proceeds. A company under the management and administration of the creditors is placed in liquidation by decision of the court and a date for cessation of payments is set. The administrator sells all the movables and immovables at auction. If there is no winning bidder, the auction is postponed and the procedure repeated until there is. Preference is given during the distribution to mortgagees, secured or preferred creditors, adhering to the order of each mortgage, pledge or privilege. If the agreements referred to in Articles 44 and 45 are not honoured, winding up is ordered by decision of the Court of Appeal in accordance with Article 46. The liquidator sells off the assets individually or as a lot at a compulsory auction. In the event of special winding-up under Article 46a, the liquidator publishes an invitation for written expressions of interest in purchasing the company, drafts a memorandum of offer, gives each person a copy and publishes an announcement of a public auction with at least 35 days' and no more than 60 days' notice. The bids filed are unsealed and the liquidator drafts an evaluation report proposing knockdown to the highest bidder, which is submitted to the creditors for approval. Failure on their part to file their written decision within one month is construed as acceptance of the proposal and the asset transfer contract with the winner is signed and the winner pays the price, which is deposited in an account at a bank legally trading in Greece. Encumbrances are then deleted. If no legal bid is submitted or if the creditors consider the bids submitted to be inadequate or uneconomic, the liquidator repeats the auction with the same formalities at their request. If the second auction does not bring about results, the Court of Appeal orders the piecemeal sale of assets at auction or a third auction is held or an application is made to the Court of Appeal to have the decision placing the company in special liquidation revoked. Once the assets have been transferred, the liquidator has 15 days in which to publish an invitation to report claims, which are entered on the list and the proceeds are distributed.
Bankruptcy proceedings are closed a) when a compromise, the necessary compromise proposals by the bankrupt and a resolution of acceptance by the general meeting of creditors are drafted, if the bankrupt is not charged with fraudulent insolvency, and they are ratified by the court, b) when the union of creditors is completed, in which case once the assets and liabilities have been liquidated, the referee calls a meeting of creditors, at which the trustee renders account and which decides whether or not the bankrupt may be excused, although the final decision is taken by the court. In the event of liquidation, the proceedings close a) when all the new share certificates have been subscribed to, b) when a compromise is reached between the company and the creditors and c) when the proceeds are distributed. Proceedings under law 1386/83 close a) on approval of the company viability agreement by the Minister and publication in the Government Gazette, b) with winding up and distribution of the proceeds. Proceedings under Articles 44 and 45 close with a decision by the Court of Appeal ratifying the agreement between the creditors and the company. Special liquidation closes on distribution of the proceeds.Top
Last update: 08-06-2007