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Investment opportunities restructuring Greek businesses

Heim Gedanken Investment opportunities restructuring Greek businesses

Changes in regulation shall help restructuring Greek businesses

Invest­ment oppor­tu­nities are expec­ted along the process.

Febru­ary 2nd 2016, Dr. Dani­el H. Brüllmann

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 reca­pi­ta­li­za­ti­ons 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:

  • 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 reco­gni­zing 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
  • 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 (incl. 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.

(More to fol­low about how we can pre­pa­re to demons­tra­te and assu­re via­bi­li­ty of a business)