The amendment of the Ministry of Finance on the extrajudicial mechanism was submitted to the Parliament on Wednesday. Among other things, the number of beneficiaries of the mechanism is expanded (Article 7).

It is noted that henceforth the rejections, on the part of the banks and services of the loan arrangements automatically generated by the out-of-court settlement platform, they should be justified as provided inter alia in the amendment.

The main aim, as the Minister of Finance Christos Staikouras has emphasized, is henceforth “to consciously manage the applications, while any refusal by the financial institutions to a regulation proposal will be documented by fully justified circumstances concerning the respective debtor”.

Based on what is provided in the amendment, general rejection rules are essentially set, which will be known to all in advance, while in the case of rejection, the body (banks or management company) should justify the reasons for this and upload the relevant document to the platform.

The amendment also provides, among other things, that if the borrower has or acquires the financial capacity and wants to, he will be able to repay the balance of the arrangement without being obliged to pay the outstanding interest.

At the same time and based on the amendment, the number of those who will potentially have the possibility of being included in the out-of-court settlement increases, as the provision ceases to exist, according to which in order to be included in it, someone must have at least 90% of the total debt to a body and these exceed 10,000 euros.

From now on, the debts can be subject to the Extrajudicial if the amount exceeds 10,000 euros, even if they are only to one body. These debts will now also include those in favor of third parties, such as, for example, debts to Municipalities.

The interest rate is also significantly reduced and will henceforth be fixed at 3%, while today it was close to 7.6% (Euribor plus 5 points).

The main provisions included in the amendment are:

* After the final submission of the application, the participating creditors, who are financial institutions, may submit a settlement proposal to the debtor. If a proposal secures the consent of the debtor, the majority (in terms of the value of the relevant claims) of the participating creditors who are financial institutions and at least the percentage of participating creditors with a special privilege, the restructuring agreement is signed between the consenting creditors and the debtor (which may to be concluded as multiple bilateral agreements with identical content).

* Participating creditors, who are financial institutions, as well as the debtor, justify in any way their non-consent to a settlement proposal resulting from the Platform’s calculation tool.

* Now, however, the debtor also chooses the reason for not consenting to a settlement proposal from those posted on the online platform, or fills in the justification, in order to reject the settlement proposal.

* Any creditor who is a financial institution (bank, loan manager or fund, etc.) for which a zero amount of recovery results, according to the principle of non-deterioration, from the calculation tool of the Extrajudicial Court, is presumed to consent to the proposed arrangement. However, it is set as a condition that “payment of an amount that does not fall short of the minimum debt recovery amount is ensured for the creditor”. In this case, however, where the Creditor’s consent is presumed, he does not sign the restructuring agreement, but is considered a “creditor in possession” and the forced collection measures against the debtor cease.

* The possibility of submitting an application is also provided to legal entities under private law that do not pursue a financial goal but carry out an economic activity.

* The Hellenic Banks Association and the Association of Loan and Credit Claims Management Companies, within fifteen (15) days from the entry into force of this provision, are required to send a letter to the Special Secretariat for Private Debt Management (EGDIX) specifying the reasons of non-consent to a regulation proposal, which are posted on the electronic platform by EGDICH. Funding bodies may change the reasons for non-consent whenever necessary. Any new reasons for non-consent are notified to EGDIX by letter from the above, are posted by it on the electronic platform and are valid after the lapse of five (5) days from the above notification.

* Debts in favor of third parties, which have been certified to the AADE, are also included. It is possible to include debts arising from business loans and loans of natural persons that have been registered in the books of receivables of the Tax Administration before February 1, 2023. There is a deadline of two (2) months from the entry into force of the provisions under vote, for the possibility of submitting of a new application for inclusion in the out-of-court settlement of debts in favor of third parties for the defined categories of debtors.

* It is foreseen, in case of full prepayment of the settlement of the restructuring contract, the granting of a discount on the total interest payment that has been calculated and corresponds to the remaining number of installments of the settlement.

* The interest rate for out-of-court settlement of debts to the tax authorities and insurance funds will now have a fixed interest rate of 3%, instead of the floating rate that is currently Euribor plus 5 percentage points, which is currently around 7.6%.

* It is permitted, under conditions, to exclude a known or already settled and known debt when a debtor submits an application for out-of-court settlement of his debts. It must not be 15% more than the dose proposed by the extrajudicial platform.

* The possibility of inclusion in the favorable out-of-court arrangements is provided for all those who have total debts of more than 10,000 euros, even if this is to a single entity (e.g. a bank or the public).

In relation to his course extrajudicial mechanism, the figures transmitted yesterday Tuesday by the finance minister show an increased interest from citizens to settle their debts through the mechanism, compared to all previous government debt settlement tools. As it specifically mentions, “so far (January 2023 data), over 67,000 debtors have entered the platform and of these, 47,500 debtors, i.e. almost 71% who have entered the platform, have provided their financial information, of which resulting in total debts of 26.6 billion euros. Already, 12,900 debtors with total debts of 6.2 billion euros have definitively submitted their application for debt settlement, that is, this amount has increased by 1.3 billion euros, in the last 3 months.

During the last quarter, the amount of successful settings almost more than doubled. With data from October 2022, the arrangements amounted to 308 million Euros, with a corresponding total of initial debts of 513 million Euros. It therefore proves that efforts have been intensified in the last period, by all the bodies involved, as:

  • 1525 arrangements, totaling 420 million euros, have been carried out by banks and management companies.
  • 1798 arrangements, totaling 257 million euros, have been carried out by the State. In the above arrangements, a debt write-off of up to 50% has been carried out in some cases, while their duration is up to 35 years.

It is also expected, from the financial institutions, to immediately complete 750 debt settlement applications, for a total amount of 653 million euros”.

Mr. Staikouras underlined yesterday that following the coordinated efforts of the Ministry of Finance, there is a significant increase in the approval rates of the proposed debt arrangements on the part of financial institutions. Indicatively, it is reported that the average approval for the month of July 2022 fluctuated below 24%, while the 4th quarter of 2022 closed with an average of 63% and January 2023 with 70%. With these data, Christos Staikouras notes that “the out-of-court mechanism has the potential to develop into a tool, able to contribute significantly to dealing with private debt”.