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Summary:While restructuring agreements concluded through the out-of-court mechanism are increasing, a large portion of settlement arrangements—especially in the context of business loans—are ultimately reached through bilateral negotiations directly with loan servicers. It is therefore useful to set out the key factors that determine the outcome of such negotiations.
In recent years, it has become common for borrowers to approach Servicers (Loan and Credit Claims Management Companies) in an effort to achieve a consensual solution for their non-performing loans. However, the negotiation process often reveals issues of problematic conduct. Servicers may, for example, seek to exert pressure on the borrower by threatening enforcement measures—or even initiating such measures—while negotiations are ongoing. Yet, the transfer of the loan (whether to a "Credit Purchaser" under Law 5072/2023 or to an SPV under Law 3156/2003) does not extinguish the borrower's rights. This is expressly affirmed in the legislative framework (see Article 21(11) of Law 5072/2023), which imposes, among other duties, an obligation of good-faith, fair and professional conduct (Article 13(1) of Law 5072/2023).
- Collateral: The assessment focuses on the value of the business's real estate (encumbered or not), taking into account existing charges. But which value applies—the one posted on the out-of-court platform, the objective tax value, the borrower's own valuation, or the value determined for auction purposes under Article 954 CCP? In practice, the Servicer determines the value, usually commissioning its own appraiser. The borrower may challenge this by submitting an independent valuation or legal/technical reports on the asset's defects. The goal is to demonstrate the forced-sale value, since higher valuations reduce the scope for write-offs. While the borrower cannot impose a valuation, any substantiated challenge may later support an argument of abusive conduct.
- Free Cash Flows (FCF): Servicers almost always require a business plan—prepared at the borrower's expense—which will determine the available cash flows for debt servicing. Disagreements often arise regarding revenue recognition, questionable balance-sheet items, shareholder loans, etc. Servicers may demand suspension of dividends during the restructuring and may seek interim payments from non-essential asset sales. The borrower may argue that EBITDA must also cover maintenance, capex or the basic livelihood of shareholders.
- Judicial contestation: Any legal objection the borrower may have—e.g., statute of limitations, Law 3259/2004, etc.—will not be considered unless there is at least a first-instance judgment supporting it (e.g., from an action, objection or Article 632 CCP proceedings). Extrajudicial notices invoking abusive contractual terms rarely produce immediate results.
- Time horizon: If the Servicer anticipates significant delay in enforcement (sometimes beyond the typical 1–2 years), it may be more willing to agree to a higher write-off, since amounts recoverable after several years have a lower present value.
- Debts to the State / social security funds: These entities are priority creditors under Article 975 CCP. In an auction, their priority significantly reduces the Servicer's recovery (often to as little as 25% or, if no unsecured creditors exist, to one-third—subject to relevance of Article 977A CCP). Some businesses intentionally allow tax/social security debts to accumulate—while remaining in instalment schemes to avoid enforcement—to secure a negotiation advantage vis-à-vis Servicers.
These principles emerge from numerous real-world cases, illustrating the practical dynamics that unfold in meeting rooms and online negotiations. Insolvency and NPE law remains a living framework, closely tied to economic conditions and market realities. And the negotiation does not end here: once economic terms are agreed, the parties must still settle the legal architecture of the deal—default clauses, automatic termination events, covenants, negative pledge provisions and other contractual terms.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
