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Liquidation Code sounds good only on paper, says the business

16 April 2011 / 20:04:17  GRReporter
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In times of crisis the Liquidation Code turns to be a double-edged sword, estimated the Greek lawyers. Principally, it promises a rehabilitation process, but in practice it was never effectively implemented. The process of liquidation of a company according to Article 99 of the Code begins with filing an application by the struggling businessman in the respective district court. He must pay a fee of five thousand euros, and in order to be entitled to be included in the procedure he must be late with the payments of at least 500,000 euro to individuals and legal entities and his company must have a minimum of 20 employees. The entrepreneur in trouble must provide evidence that liquidation is inevitable, but should not have stopped payments to his creditors. Some of these evidences include that the outcome in the balance books is negative, capital flows in bank accounts is stopped, check books of the company are suspended, there are no free properties without a mortgage and there are delayed payments, but not termination.

Once all data are submitted, the court decides whether the request of the management has some real basis or not. If everything meets the requirements, the process of liquidation starts and a mediator is appointed for the company. He first must reach an agreement with at least 51% of the company's creditors to reschedule or trim the debts of the company in liquidation, but also to create a recovery plan through which to try to restore the company to life. The mediator in a microeconomic plan can be compared with the role of the troika in a macroeconomic with the difference that he does not allocate funds to rescue the company, unlike the case of the unfavorable situation in Greece.

For the recovery program of the company various solutions may be offered. The mediator may require reducing the requirements of lenders, lower interest rates, deferment of late payments or their remission. Once the specialist gathers all the data and wishes of creditors, he prepares a plan for the company's revenue in 48 installments. The plan for repayment of debts is consistent with the possibilities of the company and includes a reduced contributions accordint to the anticipated revenue for the next two years. This process takes about four months in which the creditors and the debtor must agree on the reduction of the installments for the debt repayment. The agreement reached with the consent of a majority of creditors has to be signed within ten days after its approval by the court. From that moment on, the management of the troubled company commits to pay regularly the agreed amount each month, without being entitled to the lump sum payment of the obligations, even if it finds the necessary funds.

This all sounds good on paper, but lawyers in the field commented that in practice in Greece, there is no company that has entered under Article 99 of the Code of liquidation and has survived. Rehabilitation process included in it is fictitious, say lawyers and the enacting of the procedure is now something like a death notification for the company. Many of the creditors hinder the dynamics of the process or impede the reaching to an agreement, by sabotaging the possibility of renegotiating the terms of repayment of loans.

In the analysis of the problems of the Liquidation Code of CEO Agenda, experts note that the well known delays in the Greek courts may have a negative impact for the businessmen in need. While running the procedures for adoption of the process, businesses may become insolvent and thus a basic rule for Article 99 will be breached. Doubtful appears to be also the role of the intermediary. Very often, until the appointment of the specific officer, the company may have already fallen into bankruptcy, and the arrangements between the payers and the creditors in most cases are made in person and there is no room for a third party. His presence in the procedures slows down and complicates the process further, rather than facilitating it. Ultimately, experience shows that in reality the new code is not very efficient not for the enterprises in difficulty, nor for the creditors. The first never manage to bring their company back up, leading to the consequence that the latter never get their money regardless of the arrangements for discounts and rescheduling.

Tags: EconomyMarketsCompanies liquidation code
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