Out-of-court mechanism fails to meet expectations

The out-of-court workout mechanism for the settlement of overindebted corporations’ arrears is proceeding very slowly, as six months after the process was activated, just 520 applications have been submitted to date on the Special Secretariat for Private Debt’s online platform.

This low figure is attributed to the particularly strict criteria that the law dictates for overindebted companies to be allowed to participate in the workouts, as well as the borrowers’ obligation to declare their entire set of incomes and assets. The debtors’ obligation to submit integrated business plans means the process is even more difficult and demanding, running counter to the goal of attracting a satisfactory number of enterprises.

The secretariat’s data show that the number of firms that have scanned the option of participating in the workouts by entering and exiting the online platform comes to 110,000. However, those that are really seeking to enter the mechanism and are actively compiling information via the platform number just 15,500. Just 2,700 of those have entered the final stage of completing the application, which has only been submitted by 520 firms. As for the number of applications that have led to an agreement, they number only 20.

The low rate of application submission goes against the Economy Ministry’s expectation that the mechanism would lead to extensive arrangements of debts. A provisional review of the instrument’s performance will take place when the representatives of the country’s creditors return to Greece the week after next.

In that context, there are proposals to relax the criteria for inclusion in the process, and sources say among the changes to be introduced is the reduction of the documents required and the option of allowing companies to submit some of the necessary documents during the process and not in advance.

The credit sector appears concerned over whether the mechanism could evolve into a means for strategic defaulters to delay any forced measures, given also the flexibility borrowers are granted to withdraw their application.

The mechanism has also failed in its objective of settling debts to multiple banks, as of the 520 applications submitted to date, only 35 (or 6.7 percent) concern more than one bank.