Most of the “red loan” debtors negotiate with the Loan Manager and the Fund instead of the Bank.
For this purpose, we considered it important and useful to write an article about the aims of the Funds in negotiation and the main points that differ from the banks, so that the debtor is better prepared and suspicious when negotiating with them.
Loan and Fund Managers
Two concepts that are completely different but often in the minds of many people are the same are the concepts of “Loan Manager” and “Fund”.
The legislation on loans sold by banks to funds provides that the owner of a loan (the Fund) cannot be identified with the loan manager (e.g. Dovalue, Intrum, Cepal, etc.).
Therefore, the owner of the loan that has been sold is the Fund and the Loan Manager is the 22 companies licensed by the Bank of Greece, which undertake the negotiation with the debtor, the execution and monitoring of legal actions (e.g. termination of contracts, issuance of payment orders, seizure of bank accounts, auction of movable & immovable property, etc.).
Indicative names for Funds that debtors may encounter are FRONTIER ISSUER DESIGNATED ACTIVITY COMPANY, SUNRISE I NPL FINANCE DAC, GALAXY II FUNDING DAC, GEMINI CORE SECURITISATION DAC, etc.
Immediate Recovery – No Long Term Arrangements
Funds that determine the collection policy of the Loan Manager to whom they have entrusted the management of the loan portfolio they have purchased, wish to liquidate their collateral (pledges, mortgages, etc.) as soon as possible in order to reduce the disinvestment time (i.e. the time the Fund will receive back its investment).
This is precisely one of the main differences between the Bank and the Fund, which make the latter more aggressive in terms of collecting the loans through legal actions but also more intransigent to accept long settlement periods.
So for example, when the Bank offered a 20-year arrangement for a business loan secured by real estate, the Fund in a similar case will not offer an arrangement of more than 10 years.
On the other hand, however, the Fund may discuss a large “haircut” on the debt, when the debtor is able to make a large down payment and pay off the balance in a short period of time.
Selling a Loan to a Fund is a “bad” development
This view has been prevalent among the general public since the phenomenon of banks selling loans to funds first appeared.
However, as mentioned above, the sale of a loan to a Fund may mean more aggressive legal actions and opportunities regarding the possibility of a “haircut” of the loan.
Another important point to note, however, is that the Fund can take exactly the same “coercive measures” (e.g. payment order, seizure, etc.) as the Bank against the debtor, while the debtor has exactly the same “legal defences” as he had against the Bank (e.g. injunction, appeal, etc.).
The Fund offers more flexible solutions than the Bank
The Fund can offer more flexible solutions than the Bank for various reasons. One reason is that the Fund is not bound by the strict framework to which a Bank is bound, which is required to manage depositors’ money it has lent, as it is accountable only to its shareholders. However, of course, debtors should bear in mind that the Fund’s shareholders have no intention of ‘giving away money’ but will instead seek to maximise the recovery from the loans they have purchased.
Moreover, one should not forget that the management companies that represent the Funds and undertake the negotiation of loans with the debtors, are mainly staffed by bank executives who have left the banks with the voluntary exits of the last few years and carry (willingly or not), the conservatism of the bank and a “hostile” approach to the “insolvent” and “bad faith” debtor, who did not respect the repayment of the loan. As a result of this factor, it is often the case that debtors try to ‘persuade’ the executives of the management companies to reach a ‘viable’ arrangement for their debts.
Another interesting element is that although the Code of Conduct of Banks, which was established by the Bank of Greece, provides for a range of proposed solutions-arrangements that the Bank and the Loan Manager – Fund can propose to the debtor, however, many times they are not followed. There is of course a reason for this, as banks and especially loan managers prefer the ‘ultimatum’ solution of the final settlement solution they propose, rather than the procedure of the Code of Conduct, which provides for a specific procedure of equal negotiation and finding the most appropriate solution.
The management company – Fund is obliged to comply with the Code of Conduct for Banks at the request of the debtor, even if the loan agreements are terminated (after 2015).
The timely reaction of the debtor
The debtor’s timely response to aggressive actions by the Fund is important and often determines the successful outcome of the debtor’s case.
A classic case of aggressive action by the Fund against the debtor is the termination of the loan agreement and the subsequent issuance of a Payment Order. In the termination of the loan agreement without complying with the code of conduct, the debtor can request the cancellation of the termination until the code procedure is followed. In the issuance of the payment order, the debtor should make a timely appeal against the payment order, requesting its annulment as well as the suspension, avoiding immediate enforcement measures (seizure of bank accounts, auction of movable and immovable property).
Similar to the cases mentioned above, the debtor can also react to other aggressive legal actions by putting a brake on the Fund ‘s aggression and making it more accommodating in finding a mutually acceptable solution.
Light at the end of the tunnel
The process of viable debt restructuring, especially for cases where legal actions are ongoing, can be demanding both in terms of handling and time. However, the right approach to the case with knowledge and experience of the subject matter can lead to achieving a viable and favourable arrangement for the debtor while avoiding the pitfalls of Fund aggression.