The Government Council for Economic Policy on Wednesday approved draft legislation prepared by the economy ministry that seeks to involve the public sector, social insurance funds and banks in easing the debt burden of viable businesses with excessive debts. The aim of the draft law is to protect jobs, improve the health of the banking system and assist economic recovery.
With government Vice-President Yiannis Dragasakis in the chair, the meeting approved the economy ministry’s proposal for a draft law creating an out-of-court arbitration mechanism to restructure the debts of businesses to both private creditors and state agencies. In addition to its normal members, the council was also attended by Justice Minister Nikos Paraskevopoulos and Labour Minister George Katrougalos.
If the law is adopted, it will be the first time that the public sector, banks and social insurance funds participate equally in debt relief for over-indebted but viable businesses. The government expects the law to be well received by the social partners and to be more functional than its predecessor, which was adopted by the ND-PASOK coalition government two years ago.
The new legislation extends to all types of business and entrepreneurs, including one-person companies and freelance workers, and covers all and any type of debt, such as those to banks, public sector entities, social insurance funds and private creditors. Proposed debt relief measures can include extending repayment periods, debt haircuts and any other means of settling or restructuring debt. It also stipulates that the new out-of-court mechanism will be in force for a specific period of time.
Businesses or entrepreneurs that want to apply for debt settlement can submit an electronic application via the Special Secretariat for Management of Private Debt website, where they will be informed of any supporting documents that need to be supplied electronically.
A coordinator from the justice ministry’s Arbitrators’ Register will then take charge of the application, organising structured negotiations between the business and all its creditors, which will include representatives of the business’s staff and suppliers, where appropriate.
The viability of smaller businesses will be estimated on the basis of an automated analysis system, while that of larger businesses will be assessed by an independent evaluator.
If the process arrives at an agreement with the creditors that corresponds to at least 60 pct of the total debt, the case will be referred to a judge for ratification, with a court decision to force compliance by all parties.
According to the economy ministry, the mechanism will be designed so as to exclude strategic bad debtors and focus on saving businesses that are otherwise viable, using all available information about the owner’s assets.