According to a report prepared for the European Commission in 2003, as of 2002, in Greece 10 of the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank had been fully adopted, 12 had been almost fully adopted, 18 had been partially adopted, and only 1 had not been adopted. In a supplementary country report prepared by Philippe & Partners and Deloitte & Touche in 2002, the authors concluded that overall the existing bankruptcy regime was ill-suited for the needs of modern business environment. Although the authorities, according to the report, had made several attempts to improve the insolvency framework by introducing amendments to the existing requirements, the legal framework was found to be “complex and rigid.” The authors therefore called for reforming the system with a view of giving companies in financial distress more chance for survival and reorganization. In this context, the World Bank Doing Business 2009 report notes that in Greece a new bankruptcy law has been adopted aimed at providing solutions for the insolvent companies for the survival and restructuring. However, there is insufficient information publicly available as to the compliance of the new law with the World Bank Principles.

General Overview

Christodoulou indicates in his 2001 paper that the bankruptcy proceedings in Greece are regulated by the Bankruptcy Act of December 12, 1878 (amended in 1910 and by Law No. 635 in 1937). Business reorganization in Greece is governed by Law No. 1386 of 1983 as amended and supplemented by Law No. 1892 of 1990 and No. 2302 of 1995. According to a 2005 guide by PricewaterhouseCoopers, the main corporate insolvency regimes in Greece, bankruptcy and reorganization, have one common objective, but serve different purposes. Under both regimes the main goal is to distribute the debtor's assets to its creditors in order of priority. However, while bankruptcy leads to the dissolution of the debtor, reorganization aims to rescue the company, either through an agreement with the creditors or by selling the company or parts of its assets. In Greece, bankruptcy is more favorable to debtors than to creditors.

In 2002, a group of experts was requested by the European Commission to conduct a study on the legal and social consequences of business failure in the European Union and the USA and their effects on entrepreneurship. According to the final report of the expert group released in 2003, as of 2002, in Greece 10 of the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank had been fully adopted, 12 had been almost fully adopted, 18 had been partially adopted, and 1 had not been adopted. In a supplementary country report prepared in 2002 for the above-mentioned study, the authors concluded that overall the bankruptcy regime existing at the time of the writing of the report was ill-suited for the needs of modern business environment. The authors argued that the Greek bankruptcy law “(a) is directed to the proportional satisfaction of creditors, (b) is not concerned with the business future of the company, and (c) precludes social control during the bankruptcy procedure” (p. 35). Therefore, the authors call for reforming the existing system with a view of to give companies in financial distress more chance for survival and reorganization. Although the authorities, according to the report, had made several attempts to address the above-mentioned issues by introducing amendments to the existing requirements, these measures “have however led to a quite complex and rigid legal framework, insufficient to reflect today’s business needs” (p. 36). The 2007 Article IV Consultations report by the IMF noted that Greece was in the process of introducing a new bankruptcy code as a part of the strengthening of its institutional framework. The World Bank Doing Business 2009 report mentions that Greece has adopted a new bankruptcy law “that is expected to allow more companies in distress to emerge as going concerns” (p. 50). However, there is insufficient information publicly available as to the compliance of the new law with the World Bank Principles.

Greece, per the U.S. Department of Commerce, accepts binding international arbitration of commercial disputes between foreign investors and the Greek State. Foreign court judgments are enforced, although slowly, by the local courts. Foreign firms have generally been satisfied with this arbitration. On the other hand, foreign companies have in the past complained that Greek courts do not always provide unbiased and effective recourse. The International arbitration and European Court of Justice judgments supersede local court decisions.

The World Bank’s 2009 Doing Business in Greece snapshot of closing a business evaluates the effectiveness of the insolvency regime in Greece along three dimensions: the average time (in years) to complete a bankruptcy proceeding, the average cost of such proceedings (as a percentage of the estate), and the recovery rate to creditors (expressed in cents on the dollar). For Greece, the time averages 2 years, and the cost is, on average, 9% of the estate. Creditors recover, on average, 44.2 cents on the dollar. By comparison, member states of the Organization for Economic Co-operation and Development average 1.7 years, 8.4% of the estate in costs, and a recovery rate of 68.6 cents on the dollar.