The briefing provides an overview of the reorganisation plan introduced by the new Greek Bankruptcy Code. Its purpose is to set out the more important mechanics of the reorganisation plan and examine its more important ramifications within the bankruptcy process.
The new Greek Bankruptcy Code
It was with great anticipation that the Greek legal community welcomed the new Bankruptcy Code, introduced in 2007 as Law 3588/2007. The new Code has brought together a highly fragmented regime of bankruptcy related laws and statutes which had been rendered obsolete, hard to use and largely short-termist in their approach. The Code’s principal point is the satisfaction of creditors’ claims either through the liquidation of the debtor’s assets or by means of a reorganisation plan approved by a majority of creditors. The reorganisation plan is among the innovations of the new Code, given that most bankruptcies up to that point followed the standard route of liquidation.
The reorganisation plan in general
The Bankruptcy Code deals with the reorganisation plan in Chapter 7 and in articles 107 to 131 in particular. The reorganisation process is divided into four different and distinct phases, namely (a) submission of the plan to the competent court, (b) judicial review, (c) discussion and voting by the assembly of creditors and (d) judicial ratification. Whilst the reorganisation would typically provide greater scope for the continuation of the debtor’s activities, it could equally provide for the liquidation of the debtor’s assets, the sale of the debtor company in whole or in part, or any other measure agreed between creditors. What differentiates the reorganisation plan from the remaining provisions of the Bankruptcy Code is that it constitutes an agreement between the debtor and its creditors, aimed at producing a potentially better result than that which would be achieved by the conventional bankruptcy process. The underlying rationale of the reorganisation process- especially in instances of continuation of the bankrupt business- is the maximisation of the end value distributed to creditors coupled with the rescue of struggling businesses, with all the resulting benefits for the debtors and the economy as a whole.
Submission of a reorganisation plan
The right to submit a reorganisation plan exclusively lies with the debtor or the bankruptcy trustee. The bankruptcy trustee can only submit a reorganisation plan if (a) the debtor fails to do so and (b) the bankruptcy trustee has previously presented a report to the creditors’ assembly (which must convene within four months from the declaration of bankruptcy), laying out the causes of bankruptcy, the financial prospects of the bankrupt business, the potential for a reorganization plan, etc. The debtor can submit the plan either upon its filing for bankruptcy or within four months from the declaration of bankruptcy. The respective deadline applicable to the bankruptcy trustee is seven months from the declaration of bankruptcy.
The Bankruptcy Code stipulates that in the event that the plan is submitted by the bankruptcy trustee, the prior consent of the debtor is required for the creditors’ assembly to vote on the plan. The debtor will be deemed to have provided its approval where the debtor has not raised any objections before the commencement of the voting process by the creditors’ assembly. However, in order to safeguard creditors’ interests against rogue debtor behaviour, the Code provides that in case the debtor fails to approve the plan, the voting process can still go forward if (a) as a result of the plan the debtor is not worse off and (b) no creditor will receive an amount in excess of the original value of its claim.
The plan can be amended -albeit not materially- by the party which has submitted the plan, either before or after the discussion by the creditors’ assembly. Should the discussion give rise to any issues that call for an amendment of the reorganisation plan, the plan must be amended before the voting process. Any modification must not however affect the plan’s core provisions, nor must it affect any claims left unaffected by the original plan. No modifications can take place following judicial ratification.
The reorganisation plan must (a) draw an accurate picture of the debtor’s financial condition, (b) compare its outcome with that of the standard liquidation procedure, (c) clearly describe how the claims of creditors are modified and (d) set out precise measures for the satisfaction of such claims. The claims of creditors cannot be limited to less than 20 per cent of their value, whilst this 20 per cent amount must be payable within a year of the plan’s ratification. Creditors are classified into five distinct groups, namely (a) secured creditors, (b) creditors holding a general privilege1, (c) unsecured creditors, (d) subordinated creditors2 and (e) employees of the insolvent party. Creditors in each group must be treated equally. Failure to abide by the principle of equal treatment can result in the plan failing to gain judicial approval or ratification, but it cannot result in the relevant provisions being declared void.
The bankruptcy court must review the reorganisation plan within twenty days of submission. The court has no authority to opine on the commercial merits of the plan or suggest amendments. It can reject the plan only on the basis of any of the following grounds: (a) the plan fails to satisfy the minimum requirements with respect to content, or is in breach of the principle of equal treatment among creditors, (b) the court has reasonable grounds to believe that the plan will be rejected by creditors or (c) it is obvious that creditors’ claims - as limited by the plan- cannot be satisfied on the basis of the plan. Should the plan be approved, the creditors’ assembly is called to discuss and vote within three months of approval.
Discussion and voting by the assembly of creditors
In order for the reorganisation plan to be implemented it has to be voted by (a) creditors representing 60 per cent of all claims, (b) 40 per cent of any creditors with secured claims and (c) 51 per cent of the creditors present at the vote. To ensure the plan’s viability while at the same time catering to creditor interests, the Code envisages that abstaining creditors are presumed to have voted in favour of the plan, while abstaining creditors whose claims are extinguished by the plan are presumed to have voted against the plan. Extinguished claims are all claims that are subject to a counterclaim by the debtor, such as set-off, voidness and full payment. Finally, the Code provides that all creditors whose claims are left unaffected by the plan, do not have a voting right.
For the reorganisation plan to be implemented, it must be ratified by the bankruptcy court. The court must convene no later than twenty days from the date of the plan’s approval by the creditors. A plan can also be conditionally ratified by the court, meaning that a certain condition will need to be satisfied within a reasonable amount of time for ratification to become effective. The court can refuse to ratify a plan in the following cases: (a) the provisions of the law are not complied with (eg, with respect to the plan’s content, the required majorities of creditors, etc), (b) the plan’s approval is the result of fraud or any other wrongful act or is the result of either the debtor, the creditors, the trustee or any other third party acting in bad faith, (c) there are reasons of public interest and (d) the plan does not sufficiently protect any dissenting creditors, meaning that such creditors will not necessarily be better off under the plan than they would have been under the standard liquidation procedure.
Following ratification, the plan becomes binding for all creditors, the bankruptcy proceedings come to an end, and the debtor resumes administration of its business with a view to fulfilling the plan’s targets, if provided so by the plan. The moratorium on creditor enforcement is lifted, with creditors being able to enforce their claims as these have been shaped by the plan.
Post ratification, the plan can be annulled in any of the following cases: (a) the debtor is subsequently convicted for fraudulent bankruptcy, (b) it is proved that the plan was the outcome of fraud or collusion between the debtor and a creditor or a third party, (c) the debtor substantially fails to abide by the plan’s provisions; where the debtor defaults on its obligations vis-à-vis a certain creditor, the plan can be annulled only in respect of such creditor.
The way forward
The reorganisation plan is undoubtedly a big step forward for Greek bankruptcy proceedings. Although largely untested, it has the potential to provide a potentially promising second chance for a bankrupt debtor, thereby avoiding liquidation and the closure of some potentially viable enterprises. The legislator has strived to trigger creditor engagement, by providing that any priority financing provided to the debtor within a reorganisation plan will be granted a general privilege should the debtor be declared bankrupt anew.