A path to a fresh financial start opens for debtors who found themselves at a dead end, freed from the burdens of the past, while simultaneously establishing a comprehensive support framework for entrepreneurs at risk. The goal of these new interventions by the Ministry of National Economy and Finance is both to restart households and to address difficulties early, preventing over-indebtedness in businesses from the outset.
Through provisions incorporated into the bill on Foundations and Vacant Inheritances (articles 177-179) that was voted in Parliament last week and from Monday – after publication in the Government Gazette – will officially become “state law,” those who resort to bankruptcy are exempted from prosecution while, additionally, the state will subsidize professionals who struggle to cope with “vouchers” to receive support from specialized professionals who will find ways and means for them to get back on their feet.
End to “hostage” situation from debts
The most significant innovation of the law to be implemented immediately concerns complete exemption from criminal prosecution for those resorting to bankruptcy. With the new provision added as article 198A to law 4738/2020, the landscape changes radically for entrepreneurs and citizens who buckled under the weight of debts. This provision constitutes a “second chance” for professionals who closed their business due to adverse conditions, freeing them from criminal convictions and allowing them to start from scratch, completely freed from the “stigma” and burdens of the past.
Specifically, this “redemptive” provision (article 178 of the new law) stipulates that from the moment the judicial bankruptcy decision is published or the debtor’s name is registered in the Electronic Solvency Registry, all prosecution for debts to tax authorities and EFKA automatically ceases. The regulation covers both crimes of non-payment of debts to the State and delayed payment of contributions to Social Security Organizations. Most importantly, if the debtor successfully completes the bankruptcy procedure and is legally freed from debts – which usually happens after one to three years depending on the case – then the criminal offense is permanently eliminated. In practice, this means the crime is deleted from their criminal record.
With this measure, as Minister Kyriakos Pierrakakis stated during the discussion and voting process in Parliament for the new law, “the state chooses not to criminalize financial difficulty: criminal prosecution for debts to the State and Funds is suspended during bankruptcy and eliminated when the debtor is freed from debts, giving them a real ‘second chance.'”
Prevention before collapse with voucher program
The second component of the measures (article 177) introduces for the first time in business practice systems for preventing financial collapse, before reaching the point of “no return” due to debts.
Through the Recovery Fund and the Information Society, the state will provide free vouchers to professionals threatened or at risk of insolvency, covering the cost of specialized support and guidance from certified expert consultants.
The program’s operation is based on the “Early Warning Mechanism,” a system that will monitor companies’ financial indicators, detecting early warning signs of risk. When the system “rings alarm bells” for a professional, they can submit an application through a special platform of the General Secretariat of Financial Sector and Private Debt Management program to receive the voucher and consult with advisors who will guide them.
The program’s innovative element is that it doesn’t only cover financial and legal advice for debt restructuring. For the first time, the state officially recognizes the psychological burden of over-indebtedness, providing free psychological support, empowerment and mentoring services so every entrepreneur feeling “overwhelmed” and unable to find an escape route can chart a new course.
This holistic approach aims to support the debtor not only in creating a viable financial rescue and recovery plan for their business, but also in finding the strength (beyond financial “tools”) to implement it, with the goal of rehabilitating, developing and evolving it, while continuing to meet obligations and arrangements – something that could mean “sudden death” for any business.
As the new law provides, a joint ministerial decision will determine the exact prerequisites, eligibility criteria and program start time, while training of specialized early warning consultants to staff the system is already underway.
Provisions for vulnerable debtors
The law also includes technical regulations concerning vulnerable debtors receiving state contribution for their housing. Specifically, article 179 provides that if a vulnerable debtor entitled to benefits decides to enter the Extrajudicial Debt Settlement Mechanism and signs a new contract preserving their home, the previous state contribution is automatically discontinued.
This provision aims to avoid double subsidization of the same debtor from different programs. Since the new arrangement saves their primary residence and they will not surrender it to the Real Estate Agency, there is no longer reason to receive the temporary subsidy intended to keep them in their home until final transfer to the Agency. The regulation protects the debtor from potentially being called to return benefits received unduly, since the original purpose for granting them has lapsed.
