Bank of Greece workshop “Out-of-court workout for Corporates and SMEs” (11.7.2014)
18/07/2014 - Press Releases
On 11 July 2014, the Bank of Greece hosted a workshop to discuss the issue of distressed corporate loans. The discussion focused on exploring out-of-court debt resolution options that would deliver fast results, with positive effects on the economy and the least possible administrative burden. The workshop brought together Greek public administration officials, various stakeholders, including banks and businesses, as well as international debt resolution experts and consulting firms.
The issue was approached from three different perspectives:
• the economic realities of enterprises;
• legal problems and obstacles; and
• international experience.
With regard to the economic environment and the situation of enterprises, the presentations categorised enterprises and sectors according to their different survival and growth prospects. In this context, at least one third of businesses were identified as perfectly healthy with favourable prospects. In addition, a large number of enterprises could significantly improve their prospects with appropriate restructuring of their debts.
On the other hand, there is a number of enterprises, accounting for about 20% of total outstanding loans, which are characterised as ailing.
At the sectoral level, the studies indicated a brighter outlook for firms that are active in sectors with comparative advantages for Greece, while pointing out a generalised pull-back from investment activity.
What emerged from the discussion was that effective debt resolution would contribute to rehabilitating the corporate sector as a whole, thereby enabling the enterprises that survived the crisis to grow further. Unlocking funds that are currently tied up in non-performing loans and removing uncertainty were highlighted as key to economic growth, thus advocating the need to come up with a solution as soon as possible.
Discussion on legal problems mainly focused on the Bankruptcy Code. The existing bankruptcy code is a modern and democratic piece of legislation; nevertheless, it was stressed that several of its provisions either protract the judicial resolution of cases or by themselves pose impediments to a potential out-of-court debt settlement. It was also noted that the provisions of the Code, coupled with a number of other market characteristics, prevent coordination between creditors and cooperation of shareholders at an appropriately early stage. On a more general note, it was argued that the overall institutional framework at all levels, despite its soundness, is not workable in an environment of systemic crisis. The priority ranking of the government and social security organisations over all other creditors was also highlighted as a crucial issue that has implications both for the creditors’ ability to coordinate their action and the motivation of the parties concerned to seek an out-of-court solution.
Important interventions in the discussion were made by the Greek Ministry of Finance, regarding its initiative to establish a mechanism for the out-of-court settlement of tax disputes; by legal experts who presented a number of proposed amendments to bankruptcy law in general; and by Tiresias S.A. focusing on the existing loan databases. With particular regard to the latter, evidence was presented indicating that the availability of debt restructuring options has greatly contributed to a rise in re-performing loans.
The expert from the European Commission outlined the main points of the recent Commission Recommendation, aimed at setting up a uniform framework that will enable debtors to enter a process for restructuring their business without the need to formally open court proceedings.
The session discussing international experience showed that extraordinary situations have been addressed with ad hoc emergency action rather than with the existing conventional tools. Examples were provided on the extraordinary measures implemented during the Asian financial crisis, in Argentina and in several European countries. Despite the different responses, the common denominator in all these cases was the concerted management of the problem through standardised procedures, in view of the need for a systemic solution rather than micro-economic intervention. According to the experts, what is needed in such cases is the establishment of highly effective emergency mechanisms to be used for a limited period of time.