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Investment opportunities restructuring Greek businesses

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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.
  • 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)