Published on 04/02/2016 in Restructuring and Investments

Changes in regulation shall help restructuring Greek businesses: Investment opportunities are expected along the process.


Daniel H. Brüllmann
2 February 2016

 

Amidst many evident problems in Greece there are also positive developments, which should not be overlooked. Gradual changes to the legal framework for insolvencies and recapitalisations of banks open opportunities for companies to restructure their business and for creditors to improve their low expected recovery rate.

Complex and long procedures have been simplified. Banks until now reticent have to take action. First large and comprehensive restructurings have recently emerged. Also medium sized companies might be well advised to shrug off hesitations and follow such examples.

Let’s see the main changes that we notice:

  • The Bank of Greece has shown efforts for a better coordination of out-of-court restructuring and write-offs. Banks must define arrears resolution strategies in their loan portfolio. Survival of viable business is a requisite to improve or at least maintain repayment chances of sustainable debt.

  • Banks are recognising challenges and opportunities. Recapitalizations should have ended the deadlock on restructurings and entail active management of the stressed loan portfolio. Changes to the institutional framework of pre-bankruptcy law, the Civil Procedure Code and out-of-court settlement arrangements shall assist banks in their effort to manage non-performing loans.  Arrears resolution procedures according to the Code of Conduct for non-performing loans to mainly small debtors look very reasonable, even if doubts remain about the deadline of March 31st 2016.

  • Also the government is gradually allowing for improvements of the legal and judicial framework for insolvencies agreed in the bail-out MOU to be implemented in spite of resistance and delay. This shall save viable businesses, enable banks to manage their assets incl. selling non-performing loans, allow for best possible satisfaction of claims compared to winding-up the companies, and not least, save jobs.

Thus:

  • Amendments to the Civil Procedure Code include changes on ranking of public creditors which have until now held back financial restructuring, while creditors secured by assets shall receive 65% of their proceeds while general privilege creditors share is reduced to 25% and creditors without privileges now get 10%. Officers and directors liabilities and the protection of employees’ claims are still to be addressed.

  • Amendments to the Bankruptcy Code abridge procedural deadlines, shorten terms for discharge of honest entrepreneurs to 3 years and limit automatic termination clauses to help businesses continuing their operation; easier rehabilitation and special liquidation proceedings improve entrepreneurs’ position towards creditors. Practice will show.

  • An expanded scope of the Rehabilitation procedure now allows it at an early stage on likelihood of insolvency that can be remedied through it and provides for an automatic stay of enforcement, if just 30% of claims (including 20% of secured) participate in negotiations or with pre-packaged agreement with majority and also simplifies approval as court hasn’t to judge viability anymore but only if consent is reached; and if needed, allows rehabilitation anew after three years from approval.

  • A simplified Special Liquidation procedure shall reduce need for bargaining with stakeholders, protect going concern through first ranking of operative expenses of the business during proceeding; it shall speed up court hearing to within twenty days from the filing of the application and court decision to within one month; it also limits obstruction requiring 60% of claims (incl. 40% of secured) to block process, and abolishes the need to present a solvent investor to buy business on a going concern basis at auction.

These are all improvements, which, if adequately applied by expedite specialized courts and knowledgeable insolvency administrators shall finally alleviate the up to now manifest procedural difficulties. However, some provisions such as those about insolvency administrators and excusable debtor discharge still have been postponed to April 1st 2016. Not all procedural complexities and factual deficiencies have been addressed. More caveats will emerge. But most apply also or especially to the bankruptcy liquidation alternative.

What next?

The changes requested by the European Commission / European Stability Mechanism last year improved the conditions to save viable businesses and keep productive assets in efficient employment. A mix of out-of-court and simplified in-court solutions, such as the ratification process for restructuring agreements approved with the majority of creditors now brings solutions within better reach. However, implementation and possibly still lack of confidence, trust or even resources seem to be limiting their practical effect for the majority of businesses. But taking into account that provisions of lenders still seem to be quite limited, it might be a good decision of viable businesses to proceed proactively now, defying some uncertainties, to avoid a continuing death of economic activity and risk of loan portfolio sales, which are now formally becoming possible too.

We also see chances for investors to acquire unencumbered businesses and assets at special liquidation auctions. It might be thus a good time to start preparing for opportunities.

Companies profitable and growing in the past might not be able to profit from any improvement of market conditions as long as their access to funds is not re-established. A sustainable debt level is a pre-condition of recovery. However, viable turnaround concepts are only viable with a coherent strategy and adequate measures addressing crisis situations and convincing creditors that it can be implemented successfully.

 

© Daniel H. Brüllmann

 

Dr. Daniel Brüllmann is a founder of Arranger and manages the independent advisory firm since 2005. Arranger supports entrepreneurs to optimise their business and private assets and liabilities through quick and efficient complementary resources.