The purpose of this article is to present specific scenarios of business debts to Banks – Funds, State and Insurance funds, as well as indicative solutions for their regulation.
An enterprise whose assets exceed its liabilities and maintains debts to Bank-Fands and to the State – EFKA.
In this case the Extra-Judicial Mechanism should be the first option to be considered.
The main reason is that in most cases, the company cannot service the fixed 24 instalments offered directly by the State or the EFKA, while through the out-of-court mechanism it can reach up to 240 instalments.
Essentially, for the average company with accumulated debts to the State and the EFKA, the regulation through the out-of-court mechanism is a one-way street.
It should be noted that the arrangement of this type of debt is always accepted by creditors.
On the other hand, there are also the debts to the bank – fund, for which the out-of-court settlement is not certain. The main reason is that the bank – fund has the possibility to refuse the arrangement proposed by the law’s calculation tool (when it is not in its interest) by invoking one of the reasons provided by the law.
For example, in the case of a business loan secured by a mortgage on a property of high commercial value, it is in the fund bank’s interest to “auction” this property to collect its money more quickly, instead of waiting up to 35 years (if it accepts the solution of the Extra-Judicial Mechanism).
In this case, the Code of Conduct does not seem to be of much help either, as the Bank – Fund, will think the same way and will prefer a more drastic solution such as an auction, instead of a multi-year arrangement of 35 years.
The bankruptcy solution is also not a good option, as it is equivalent to a “lockout” of the company, which will lead to the cessation of its operations and the liquidation of its assets, i.e. a “catastrophic” development when the company is operating and the amount of liabilities is less than the value of the assets.
The company has debts to the State and banks. The entity lacks personal property. The company’s assets are less than its liabilities.
In this case, the company is “flirting” with both solutions, those of the out-of-court mechanism and bankruptcy.
First of all, it should be clarified whether the company is in a growth phase where it simply has to manage accumulated debt incurred due to covid and accuracy or is in a phase where it is simply covering its costs and will accumulate debt as time goes on.
In the first case, if the difficulty has arisen due to objective circumstances and the future seems optimistic, then it is “worthwhile” for the company to enter into a long-term debt settlement process through the out-of-court mechanism or the code of conduct (when only bank debts are involved).
In the second case, where the company is in a phase of recession and its future looks bleak, it is advisable to consider the option of bankruptcy.
In particular, if the company files for bankruptcy, it will benefit from the discharge of its liabilities (over a period of 1 or 3 years) by liquidating less valuable assets than the amount of its liabilities. In addition, the entity of the company, which is involved by virtue of representation (Article 195 of Law 4738/2020), will also benefit from a discharge of debts for debts to the State and the National Social Security Fund that arose 3 to 5 years before the declaration of bankruptcy. However, even if there are debts to the State & EFKA for more than 5 years (prior to the declaration of bankruptcy) and the entity itself has guaranteed bank loans of the company, it can seek individual bankruptcy for discharge of all its obligations, while having nothing to lose, since it lacks personal property.
Another key advantage for the business owner is that even the day after the declaration of bankruptcy, he can start a new business activity, with the possibility to create new personal property without being bound by the bankruptcy (except for annual income exceeding reasonable expenses for the period of 3 years until the discharge).
A company that maintains debts exclusively to the State and the National Social Security Fund. The value of its assets is zero or less than its debts. Its legal representative has personal property of significant value.
This case is essentially a one-way street for the choice of the Extra-Judicial Mechanism and we explain.
When a company has debts of more than €30,000 to the State and the EFKA, and chooses the fixed arrangement of up to 24 instalments, three possibilities are possible:
Α) The company will try to comply with an arrangement with a “heavy” monthly instalment resulting in a “squeeze” on its liquidity and thus on the working capital available to cover current liabilities.
B) The company will “enter” the fixed arrangement by paying the1st instalment, to avoid the seizures on bank accounts in the short term, but will not comply with it, because it simply cannot!
C) The company will not even enter the process of applying for the scheme because it will not even be able to meet the payment of the 1st instalment.
Alternatively, the Extra-Judicial Mechanism is an option that should be seriously considered, for the following reasons:
- Regulation up to 240 instalments (the fixed regulation offers up to 24 monthly instalments).
- Possibility of write-offs if the amount of debts exceeds the value of the company’s assets.
- Fixed interest rate of 3% throughout the duration of the arrangement and lower than the interest rate of the fixed arrangement.
A natural person holds the status of a representative of a company that has been dissolved several years ago, is in liquidation and has high debts to the State and the National Social Security Fund dating back more than 5 years. He owns real estate of high commercial value.
There are many cases of natural persons who have been owners, managers or board members of a company that is not operating and have inherited the debts of this company to the State and EFKA.
As mentioned in the above case, the alternative offered for the regulation of debts to the State and EFKA is the fixed regulation of up to 24 instalments, which in most cases results in a high monthly instalment, which is impossible to meet.
Moreover, the option of individual bankruptcy does not seem to help the natural person in the case to discharge the debts either, as they were “born” 5 years ago.
Until recently, these debts were not included in the Extra-Judicial Mechanism, but with the new changes in the procedure, these debts can now be included, and the natural person in the scenario can claim the regulation of up to 240 instalments.
In addition, and as the natural person has real estate of significant value, they will not be at risk of seizures or other coercive measures against their property if they enter into an arrangement through the Extra-Judicial Mechanism.
Both the Second Chance Law and the Code of Conduct of Banks earlier on, created some basic tools for the settlement of the debts of companies to banks – funds, the State and the National Social Security Fund that accumulated as a result of the economic crisis, the covid and the accuracy.
However, the choice of the settlement tool that will provide the best possible solution to the company’s debt problem is the task of a qualified advisor with knowledge and experience, as careless handling can make the problem worse.
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