The opportunity for a fresh start without the burdens of the past for debtors who have fallen into financial deadlock, as well as multifaceted support for entrepreneurs who are at risk, so that they can manage difficulties and prevent problems of over-indebtedness at an early stage, are the two new “weapons” offered to households and businesses by the Ministry of National Economy and Finance.

With the provisions incorporated into the bill on Foundations and Dormant Estates (articles 177–179), which was passed by Parliament last week and which, as of Monday—after publication in the Government Gazette—will officially become “law of the State,” those who resort to the solution of bankruptcy are exempted from prosecution, while, in addition, the state will subsidize professionals who are struggling to cope with “vouchers,” in order for them to receive support from specialized professionals who will find the ways and means to help them get back on their feet.

An end to “hostage-taking” by debt

The most important innovation of the law, which will be implemented immediately, concerns the full exemption from criminal prosecution for those who resort 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 debt. 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 again, fully relieved of the “stigma” and the burdens of the past.

Specifically, this “redeeming” provision (article 178 of the new law) provides that, from the moment the court decision declaring bankruptcy is published or the debtor’s name is entered in the Electronic Insolvency Register, any prosecution for debts to the tax authorities and EFKA automatically ceases. The regulation covers both offenses of non-payment of debts to the State and delays in the payment of contributions to Social Security Organizations. Most importantly, if the debtor successfully completes the bankruptcy process and is lawfully discharged from their debts—something that usually occurs after one to three years, depending on the case—then the punishable offense is permanently extinguished. In practice, this means that the offense is erased from the individual’s criminal record.

With this measure, as stated by Minister Kyriakos Pierrakakis during the parliamentary debate and vote on the new law, “the state chooses not to criminalize financial hardship: criminal prosecution for debts to the State and Funds is suspended during bankruptcy and extinguished when the debtor is discharged from their debts, giving them a genuine ‘second chance.’”

Prevention before collapse with a voucher program

The second pillar 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 debt.

Through the Recovery Fund and the Information Society, the state will grant free vouchers to professionals who are threatened by or at risk of insolvency, covering the cost of specialized support and guidance from certified expert advisors.

The operation of the program is based on the “Early Warning Mechanism,” a system that will monitor companies’ financial indicators, identifying early warning signs of risk. When the system “flags red” for a professional, they will be able to submit an application through a special platform of the General Secretariat for the Financial Sector and Private Debt Management, in order to receive the voucher and turn to advisors who will undertake to guide them.

The innovative element of the program is that it does not cover only financial and legal advice for regulating debts. For the first time, the state officially recognizes the psychological burden of over-indebtedness, also covering free services of psychological support, empowerment, and mentoring, so that every entrepreneur who feels they are “drowning” and cannot find an escape route from their problems can chart a new course.

This holistic approach aims to support the debtor not only in drawing up a viable financial rescue and recovery plan for their business, but also in finding the resilience (beyond financial “tools”) to implement it, with the goal of rehabilitating, developing, and evolving the business, without at the same time ceasing to meet obligations and settlement arrangements—something that can mean “sudden death” for any enterprise.

As provided by the new law, a joint ministerial decision to be issued will define the exact conditions, eligibility criteria, and the start date of the program, while the training of specialized early-warning advisors who will staff the system is already underway.

Provisions for vulnerable debtors

The law also includes technical regulations concerning vulnerable debtors who receive state contributions for their housing.

Specifically, article 179 provides that if a vulnerable debtor who is entitled to a benefit decides to enter the Out-of-Court Debt Settlement Mechanism and signs a new agreement saving their home, the previous state contribution is automatically discontinued.

This provision aims to avoid double subsidization of the same debtor from different programs. Since, with the new arrangement, the debtor saves their primary residence and will not hand it over to the Property Agency, there is no longer a reason to receive the temporary subsidy that was intended to allow them to remain in the home until its final transfer to the Agency. The regulation protects the debtor from the possibility of being required in the future to repay subsidies received unduly, since the original purpose for which they were granted has ceased to exist.