A.V. Poulimenou - Asset Liquidation In Bankruptcy: The Exception - Sale Of The Business As A Whole Or As Functional Units

Summary: This article examines the process of selling individual assets in bankruptcy, as outlined in Law 4738/2020, with emphasis on the deviations from the Greek Code of Civil Procedure and the legislative intent to accelerate liquidation for the benefit of creditors.

I. The Concept of the Business as a Whole and its Functional Units

Liquidation of the bankrupt estate occurs through the trustee's initiative by selling individual assets. These are auctioned via electronic means through the e-auction platform. The Insolvency Code ("IC") outlines the liquidation process, largely modeled after the Code of Civil Procedure but adapted to bankruptcy specifics.

As an exception to this rule, the IC introduces the possibility of selling the business as a whole or as functional units. This is applicable when the business retains an integrated or detachable productive capacity, allowing it to be transferred as a going concern despite the debtor's bankruptcy. This is permitted only if an actual business exists and if the case does not fall under small bankruptcy procedures.

This sale may be requested by bankruptcy creditors representing at least 30% of the total claims, including at least 20% of secured creditors. The request can be submitted either during creditor-initiated proceedings or by intervention in a debtor-filed petition. If granted, the trustee must carry out the liquidation as ordered by the court. A mixed liquidation (both global and individual) may also be ordered. In the absence of specific legal provisions, a combined application of relevant rules is required, which poses practical difficulties. Notably, this part of the ruling constitutes a separate chapter and may be challenged.

The IC borrows the notion of business as a whole from Law 4307/2014 on special liquidation, with the difference that only assets are transferred under the IC. "Business as a whole" includes all assets listed in the latest approved balance sheet and any unlisted assets and rights — including receivables, trademarks, patents, goodwill, licenses, etc.

Similarly, "functional units" correspond to business branches consisting solely of assets that form an autonomous operation. These are transferred free of encumbrances and along with relevant contracts, unless the trustee opts for individual sale of any contract. The trustee determines which assets and receivables will be bundled into each functional unit.

II. On the Process

The liquidation schedule — the order of sale and the elements of each unit or asset — is set by the trustee and approved by the Creditors' Assembly unless already determined by the court. The sale occurs via public e-auction before a notary, representing a legislative innovation versus prior law. Unlike individual estimation or regular civil enforcement auctions, no valuation or minimum bid is required.

The winning bid is submitted by the trustee within one month of the auction's conclusion for approval by the Creditors' Assembly, which may approve it or demand a higher price. If approved, the business or unit is transferred to the bidder through a contract signed with the trustee and paid in full. This contract constitutes a final adjudication under Article 160 IC.

If the auction fails (no bids or rejection by the Assembly), the process ends, and the trustee moves forward with individual asset sales. However, the Assembly may instead decide to conduct a new auction within 18 months. A partial success is also possible, where some units are sold and others revert to individual sale.

The process concludes 18 months from the bankruptcy declaration unless a new auction is pending or the Assembly decides to extend it. After conclusion, the trustee resumes individual sales.

To ensure the success of whole-business liquidation, the IC includes support provisions that differ from individual sales. For example, secured creditors are barred from individual actions without time limits. It also provides a special framework for ongoing contracts — their automatic termination is suspended unless the law states otherwise. Articles 107 and 171(5) further weaken contractual clauses allowing termination upon bankruptcy unless it harms the bankrupt estate. The trustee may enter into new contracts for operational needs, which the Assembly can terminate within 30 days. Notably, bankruptcy is not grounds for revoking administrative licenses, and tax relief provisions from prior laws still apply.

Of particular interest is the lack of recourse against enforcement actions — whether in whole-business or individual asset liquidation. If this legislative gap is unintentional, the best remedy appears to be an adapted application of Article 933 of the Code of Civil Procedure. The IC only allows challenge to the distribution table prepared by the trustee, which is where objections to verified claims are also raised.

III. Conclusion

The Insolvency Code provides this special procedure of whole-business liquidation to offer a clear path from the declaration of bankruptcy. The decision between whole-business or individual asset sale is not left to the discretion of bankruptcy organs but is dictated by the court. The resulting inflexibility is partially offset by auction failure provisions.

Preserving the business — without preserving the bankrupt entity — is more complex than selling off assets and requires a specialized framework. The IC is structured to combine speed with value preservation, maintaining the validity of licenses and contracts to maximize proceeds from the sale.