The procedure of the Extra-Judicial Mechanism, which concerns the settlement of debts to the State, Insurance Funds and Banks – Funds for natural and legal persons, is in force and will be applied from 1/6/2021.
However, in recent times and following recent changes – improvements it seems that debtors are beginning to trust this tool to find a solution to their debts to the State, Insurance Funds and Banks – Funds.
We have written a detailed article on the subject entitled “The New Changes to the Extrajudicial Mechanism of Law 4738/2020”.
However, the purpose of this article is for the reader to get a “taste” of the most important changes – improvements of the Extrajudicial Mechanism (Articles 39 – 45 of Law 5024/2023 – Government Gazette 41/A/24.2.23).
But what are these changes?
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The procedure now includes legal entities that not only pursue an economic purpose but also those that only carry out an economic activity.
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The 90% limitation is abolished, so that debtors with only one debt (over €10,000) can be included.
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The debts for adjustment also include those for the benefit of third parties which are collected by the tax administration (e.g. debts to municipalities which are established and collected through the tax authorities).
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The debtor has the possibility to request to maintain (i.e. to be excluded from the procedure), the up-to-date – regulated debt to the Financial Institutions (Banks, Loan Managers) under certain conditions.
That is, the instalments of all the current or regulated debts should not deviate by more than 15% from the instalment calculated for the same debts by the calculation tool of the law.
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An obligation to justify the non-consensual nature of a proposal for a scheme of arrangement to both the financial institutions and the debtor is introduced.
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Presumed consent of the financing institution to a restructuring agreement is established when the calculation tool of the law calculates a zero recovery amount in the liquidation scenario.
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The procedure of mediation with financial institutions (Banks & Loan Managers) is changed, so that at the end of the out-of-court procedure and after the debtor has bilaterally settled his debts with the state and the social security funds, the time frame for reaching an agreement between the two parties is extended.
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The reasoned opinion of the insolvency administrator on the participation of the State, which was necessary in the case of smaller debts to the financial institutions, is abolished.
The reasoned opinion of the insolvency administrator is not considered necessary as the elements of the arrangement proposal are automatically and objectively derived from the calculation tool.
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The submission of the documentary evidence of the Analytical Periodic Declaration (A.P.D.), which until recently had to be submitted to the Tax Administration in order to limit the imposed seizures, is abolished.
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The possibility is introduced to deduct the total amount of unpaid interest calculated, following the full discounting of the arrangement with the State or the Social Security institutions.
The discount may be made by payment by the debtor or by offsetting or by reimbursement of seizures or by withholding an amount.
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The possibility of using the electronic platform of the out-of-court mechanism only for obtaining confirmation of debts to financial institutions and the public sector for any legitimate use is introduced.
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An important change concerns the modification of the interest rate on the restructuring contracts of the State and the Insurance Funds, from Euribor3m + 5% which is currently (close to 9%), to 3% fixed.
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The discounting penalty is abolished as regards public debts in the extrajudicial mechanism.
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Applications that have been “opened” within 90 days and have not been finalised and/or do not have a pending request for correction will be deleted.
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The threshold for the value of movable assets for which a sworn declaration of value is sufficient is increased from EUR 10,000 to EUR 50,000.
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The possibility of adjusting debts from inheritance is introduced.
Previously, the Extra-Judicial Mechanism procedure excluded the settlement of debts to the State and Social Security Institutions arising from inheritance. In other words, the heir could not settle debts that he had inherited (not his own) through the Extrajudicial Mechanism.
These debts are now included in the regularisation procedure.
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The possibility of adjusting established debts to the State of a legal person that has been dissolved or liquidated is introduced.
Until recently, the possibility to settle the debts of companies in liquidation or dissolution through the Extrajudicial System (with all that this implies in terms of the duration of the settlement) was not possible. The only alternative available was to reinstate the legal entity so that the company could then apply as an active company.
In addition, the application may be submitted by a third person who is jointly and severally liable for the debts of the person being wound up, such as the general partner of a limited liability company or a limited liability company or a member of the Board of Directors, etc.
Foreword
The procedure of the Extra-Judicial Mechanism of Law 4738/2020 has come a long way since1 June 2021, when it was first put into operation.
Since its inception, there have been technical and legislative improvements to significantly improve its operation.
The statistics of the last few months regarding the results of the settlements resulting from the use of the platform are encouraging, as the official data of the Special Secretariat for Private Debt Management for the month of July show 931 new successful settlements, corresponding to €0.3 billion, while the total number of successful settlements reaches 7,257, corresponding to settlements of €2.65 billion of debts.
See also.