The Extrajudicial Mechanism can be a “life-saving” alternative for the settlement of debts to the State and insurance funds, as it offers a regulation of up to 240 instalments with the possibility of cancellations, when the direct regulation usually offers 48 instalments.
To this end, this article will attempt to answer the most frequently asked questions regarding the procedure of bilateral contract with the State and the Insurance Funds.
What is a bilateral contract in the Extra-Judicial Mechanism?
The bilateral contract is the restructuring contract that is reached between the debtor and the State and/or the Insurance Funds, without the participation of the Banks – Funds (in this case we have a multilateral contract).
Who are the debtors that can be subject to a bilateral debt restructuring agreement procedure?
These are the debtors who have submitted their application for inclusion in the Out-of-Court Debt Settlement Mechanism (Law 4738/2020 a. 5 et seq.) through the electronic platform and it is established that:
a) they have only debts to the State and/or the Insurance Funds or the financial institutions (banks and/or Funds) have chosen not to submit a proposal to the debtor
and b) the debts to the State, and/or the Insurance Funds, exceed the amount of €10,000 per creditor (article 2 paragraph 1, K.I.A. 66468/4.6.2021).
Which public debts are covered by the bilateral restructuring agreement?
The debts to the State established in accordance with the Code of Fiscal Procedure, the National Customs Code or the Code of Customs and Excise, with the surcharges or interest for late payment, on the date of collection of the data of the application. (Article 2 par. 2 (a) of Decree 66468/4.6.2021)
Which debts of the Social Security institutions are covered by the bilateral restructuring agreement?
The established debts to the Social Security Institutions, including surcharges, fines and interest for late payment, at the date of collection of the data of the application, are subject. (Article 2 par. 2 (b), K.Y.A. 66468/4.6.2021).
Are there any exceptions to the inclusion of debtors in this procedure?
An application may not be submitted when:
- The debtor has filed a petition before a court for the ratification of a reorganisation agreement or for a declaration of bankruptcy or for inclusion in the procedure of Law No. 3588/2007 or Law No. 3869/2010 or Law No. 4469/2017. However, in case the debtor waives these procedures by the date of the final submission of his/her application, he/she may be subject to the Out-of-Court Mechanism procedure.
- For the above procedures, the debtor has been issued a final decision of subordination or the court has discussed his/her application for subordination (and a court decision is pending) or at least 15 months have not elapsed since the decision of subordination or at least 12 months have not elapsed since the completion in any way of the Out-of-Court Debt Settlement Mechanism of Law No. 4738/2020.
- The debtor (where the debtor is a legal person) has been dissolved or wound up. However, the legal person can be ‘revived’ to participate in the out-of-court procedure.
- Any natural person appointed to manage a legal person (e.g. chairman or managing director or manager or partner), has been convicted by final judgment of one of the following offences (relating to the activity of the legal person): tax evasion, money laundering, embezzlement, extortion, forgery, bribery, corruption, bribery, smuggling, creditors’ fraud, bankruptcy, or fraud, to the extent of a felony.
- A debtor whose debts to the State and the Insurance Funds are serviced or up to date and who does not invoke facts that show a deterioration of his/her financial situation of at least twenty percent (20%). The deterioration may be due to either a decrease in its income or an increase in its expenses.
Are the State and/or Social Security institutions obliged to offer the debtor an arrangement?
In practice, we see that the State and the Social Security institutions almost always offer a settlement, however, the law states that they must each separately propose the conclusion of bilateral debt restructuring agreements, provided that the agreement makes the debtor viable or solvent and the recovery of the State or the Social Security institution is at least equal to its estimated recovery in the event of the debtor’s bankruptcy (Art.2 par. 4 OF THE LAW 66468/4.6.2021).
How are the instalments, the final repayment amount, any write-off and the repayment period for the State and the insurance funds calculated?
The arrangement (terms and conditions) is derived from the calculation tool of the Out-of-Court platform.
The calculation tool is an algorithm that determines the terms of the arrangement, such as the instalments, the final repayment amount and the repayment period, taking into account:
- What is the debtor’s ability to repay (in terms of net present value)?
Value – Present Value),
- What is the liquidation value of the debtor’s assets, and
iii. What is the minimum recovery amount per occupied creditor? The amount, i.e. the amount that would be collected by the State or the insurance funds in case of bankruptcy of the debtor and liquidation of his assets in the context of an enforcement procedure (auction).
What about the already settled debts to the State and Social Security institutions?
In case of acceptance of the restructuring agreement by the debtor, then any existing arrangements with the State and social security institutions are automatically replaced. Attention should be paid to cases where the existing arrangements provide for debt cancellation at the end of their term. In this case, the debtor should weigh up what he gains and loses by accepting the new arrangement and terminating the existing arrangement.
Payment of instalments in case of acceptance of the arrangement by the conclusion of a bilateral contract with the State and the insurance institutions.
The first instalment of the restructuring to the State and the Insurance Institutions must be paid within five (5) working days from the day the debtor accepted the restructuring proposal electronically. Subsequent instalments shall be paid by the last working day of each of the following months. (Article 3(6) of Decree 66468/4.6.2021).
However, in this case the reality differs from the law.
In particular, as far as the State is concerned, shortly after the debtor accepts the offer of adjustment, a temporary debt ID is sent to e kinopoiisis and the debtor’s profile on taxisnet for the payment of instalments.
As far as the Insurance institutions are concerned, the update of the identity of the debt by the competent KEAO may take up to a few months, depending on the geographical area and the volume of applications it has to manage. However, the delay does not affect the debtor, as it is entirely due to the creditor.
The regulation of debts to the State and insurance funds through the Extra-Judicial Mechanism can lead to a regulation of up to 240 instalments and debt cancellations instead of the 48 instalments offered when the debtor pays the State and insurance funds directly.
However, it is important for the debtor to refer his case to specialised advisors with experience in the Out-of-Court procedure, which can take months and if unsuccessful, leads to a 12-month exclusion from the procedure.