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It is well known to anyone engaged in business that the position of a Chief Executive Officer entails responsibility not only towards the company's shareholders, but also towards the State and the e-EFKA. With regard to a wide range of taxes as well as social security contributions, the legal representative of a company (e.g. a Société Anonyme – S.A.) is considered liable and may be held personally accountable with their own assets.
For this reason, the Greek legislator introduced the institution of the "second chance" for representatives of legal entities as well (Article 195 of Law 4738/2020).
It was stipulated therein that the "honest" representative is discharged—after the lapse of 36 months from the submission of the company's bankruptcy application or 24 months from the declaration of bankruptcy—from any joint and several liability for debts owed to the State and e-EFKA that arose 3 to 5 years prior to the bankruptcy (the duration depends on when the company ceased payments).
Therefore, without the representative having to declare personal bankruptcy (and thus without losing their personal assets, etc.), the bankruptcy of the company leads to their discharge from debts owed to the State and e-EFKA, which would otherwise continue to burden them personally.
According to the explanatory memorandum of the law, this provision is based on the finding that the personal liability of representatives of legal entities, in the event of the latter's bankruptcy, acted as a deterrent to entrepreneurship and discouraged capable managers from undertaking the management of companies facing financial distress.
There is only one case in which this discharge does not occur: if an appeal is filed by e-EFKA and/or AADE. Thus, if within the above-mentioned period of 24 or 36 months e-EFKA and/or AADE challenge the discharge, a court will determine whether the representative was ultimately "honest" or not. If deemed honest, the discharge is granted; otherwise, the debts remain attached to the individual.
The Greek legislator has thus introduced the "second chance" mechanism for representatives of legal entities.
In a 2012 communication, the European Commission provided an initial definition of an "honest" debtor as follows: "An 'honest' business failure is one in which the failure did not result from the fault of the owner or manager, but from circumstances beyond the management's control and occurred in good faith, as opposed to cases where bankruptcy was fraudulent or due to irresponsible management."
Greek courts have already begun examining such cases. In general, a representative who makes a bona fide effort to prevent the company's bankruptcy—without siphoning off corporate resources (asset/cash flow/loan tunneling, etc.)—is considered "honest." It is also viewed positively if the representative attempts to settle the company's debts, even if ultimately unable to prevent cessation of payments. For example, in a recent decision of the Court of Appeal of Thrace, it was held that repeated attempts to regulate debts, despite failure to comply due to adverse economic conditions, demonstrate good faith rather than bad faith.
This is the first time such a provision has been introduced in the Greek legal framework. The regulation has already begun to be applied in practice with notable results. The key reason is that the representative is not required to initiate legal proceedings themselves or prove their honesty; instead, AADE and/or e-EFKA must file an appeal within a specified deadline and bear the burden of proving that the representative acted in bad faith or fraudulently.
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.
