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Investment opportunities restructuring Greek businesses

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Daniel Bruellmann
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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. BrüllmannAmidst 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)