Published 2003

A new law on corporate bonds, securitisation and insolvency netting was passed last week in Greece awaiting now publication in the Greek Government Gazette. Although certain of its provisions leave room for variant interpretations, the law is generally regarded as a positive step towards the modernisation and development of the corporate fixed income market in Greece. It provides Greek companies with alternative means of funding that were difficult to obtain in the past due to the then existing legislation.

More specifically, the main provisions of the new statute are as follows:

Corporate Bonds

• The provisions of the law apply only to bonds issued by a corporate having its principal place of business in Greece. There are four types of corporate bonds contemplated: ordinary, exchangeable (into bonds, shares or other securities of the issuer or a third party), convertible, and bonds that provide a right to participate in the profits of the issuer.

• The decision on the issuance of bonds lies primarily with the company’s shareholders. It can also be ceded to the Board of Directors either via (a) a shareholders’ resolution taken at an extraordinary general meeting or (b) a specific provision in the issuer’s by-laws.

• The terms and conditions of the bonds under issue are determined in general by the relevant body that has been vested with the decision on issuance. With the exception of the nominal amount and type of bonds under issue, the shareholders may resolve to cede authority to the Board of Directors to determine all other terms and conditions and the latter may further cede authority to a single member only or to certain of its members.

• Except if provided otherwise under their terms and conditions, the bonds are freely transferable. They can be re-acquired by the issuer without limitation in general on the condition that, if the bonds are convertible or exchangeable to the issuer’s equity, the issuer can only convert or exchange them in compliance with the relevant laws regarding acquisition of one’s own shares.

• All bondholders in dematerialised issues, issues under a securitisation or issues that are secured by the issuer’s real property are organised by the law as a group having its own rights. In all other instances, the organisation of the bondholders as a group is not required. Each bond corresponds to one vote in the relevant bondholders’ meetings. However, a person holding more than 25% of the issuer’s shares cannot participate in the bondholders’ meetings. A bondholders’ resolution cannot be invalidated after the lapse of six months. The law further includes certain provisions on the convocation and resolutions of the bondholders while for all those related matters for which the law or the indenture remains silent, the Greek Law 2190/20 on Sociétés Anonymes will apply by way of analogy.

• If the bondholders are organised as a group, the issuer must appoint their representative which must be either a credit institution or an investment services firm that can provide underwriting services in Greece. The issuer and certain other connected persons (an exhaustive list of which is set out in the law) cannot act as a representative of the bondholders. The representative, inter alia, receives and deposits all moneys due under the bonds in a bank account that is by law segregated from the representative’s own accounts. These funds cannot be confiscated and cannot be the subject of a right to set-off or other encumbrance proposed by the representative or its creditors. Any acts of the representative that are ultravires are binding on the bondholders and their successors vis-à-vis the issuer and third parties, except if the issuer or such third parties knew that the representative acted beyond its actual authority.

• The issuance of the bonds, the provision of security thereon, any relevant or ancillary contract and any registration in public registries (where required), any sale, transfer or re-payment thereof and in general the exercise of any rights that the bonds confer are exempted from any direct or indirect tax, duty, contribution, levy, right or other encumbrance, with the exception of value added tax.

Securitisation

• The law defines securitisation as the issuance and distribution via a private placement (only) of bonds that are repayable by (a) the income generated from receivables purchased by the issuer; or (b) loans, credit agreements or financial derivatives that the issuer enters into. “Private placement” means distribution of the bonds to a maximum of one hundred and fifty investors.

• Mutual funds and portfolio investment companies with registered offices in Greece may participate in a private placement, provided that the bonds under issue have been rated by an internationally recognised rating agency as “investment grade”.

• The transferor of the receivables can only be a “merchant” (as defined by the Greek laws) that has its principal place of business or residence in (a) Greece; or (b) abroad, provided that it has a place of business in Greece.

• The transferee of the receivables and exclusive issuer of the bonds can only be a special purpose vehicle (“SPV”). The SPV may be (but is not required to) set up in Greece; if so, it will have to take the form of the Greek société anonyme.

• The nominal amount of each bond issue must be at least EUR100,000.

• There is no restriction as to the type of receivables that are eligible for transfer under a securitisation. Any additional purchase of receivables is permitted, provided that the bond issue is not downgraded. Any rights of third parties (e.g. secured creditors of the transferor) arising from the receivables are not affected by the transfer.

• The securitisation must be registered in the public registry of Law 2844/2000. Once registered, the transfer of the receivables is valid erga omnes and no further notice of the transfer to the debtors is required.

• The administration of the receivables may be delegated to the transferor or a credit or financial institution providing services within the EEA. If the SPV does not have a place of business in Greece and the receivables under transfer are claims against consumers which are payable in Greece, the administration must be handled by the transferor or a credit institution with a place of business in Greece. The administrator receives and deposits all moneys due under the receivables in an interest-bearing bank account kept either with itself or with a credit institution with operations within the EEA. The funds deposited with the bank account are by law segregated from those of the administrator and cannot be confiscated, be the subject of a right to set-off or other encumbrance or be included in the insolvent administrator’s estate.

• As from the date of registration in the public registry of Law 2844/2000, the sale and transfer of receivables cannot be affected by any collective proceedings instituted by creditors of the transferor, the SPV, the security providers or the administrator of the receivables. This protection holds true also for all future claims even if these were born after the institution of the relevant proceedings.

• For the purposes of the securitisation only, the general duty of bank confidentiality does not apply in the relation of the transferor with the SPV or that of the SPV with its creditors.

• In respect of real property securitisation, the bonds issued must be repaid by (a) the income and revenues generated from the operation or sale of such real property; or (b) loans, credit agreements and financial derivatives entered into by the issuer. The transferors (either because of a true sale or usufruct set up on the real property) can only be the Hellenic Republic, a Greek public corporation, a credit institution, an insurance company or other corporate that is either 100% owed by these entities or is listed in the Athens Stock Exchange and its total assets exceed EUR350,000,000. The transferee (SPV) is by law the exclusive issuer of the bonds. The SPV must be set up as a corporation in Greece and be subject to the Greek laws on sociétésanonymes. The transferor must notify the tenants, and every other person that is contractually related to the owner of the property, of the transfer. The relevant publicity requirements for the transfer are twofold: first, in the public registry of Law 2844/2000, and second, depending on whether the transferor is the Hellenic Republic or some other entity, in the relevant public registries of real property existing in Greece. No further transfer, usufruct or security on the real property is allowed.

• Upon the fulfilment of certain formalities, (a) the transfer and collection of the receivables or the loans, credit agreements and the financial derivatives that the issuer enters into; (b) the transfer of real property to and from the SPV and its re-transfer to the original transferor; and (c) the profit realised from the transfer of receivables or real property, are exempted from any direct or indirect tax, duty, contribution, levy, right or other encumbrance.

Insolvency set-off

• The new law also contains the long-anticipated provision regarding insolvency set-off. More specifically, article 16 provides that:
  In case of bankruptcy or other collective measure or proceeding which results into the deprivation or limitation of the right to dispose one’s own assets, the set-off, inclusive of the multilateral and insolvency set-off, of counterclaims that are derived from (a) transactions of whatever nature (sic) or (b) over-the-counter derivative transactions between parties at least one of which is the Hellenic Republic or an institution of those defined in paragraph 5 of article 2 of Law 2396/1996 are permitted and valid against all creditors (of the insolvent party), on the condition that the right to set off is governed by an agreement which is concluded by a document with a certified date which precedes the day of declaration of the bankruptcy or the initiation of the collective measure or proceedings in question.

• The provision is of paramount importance for financial transactions with Greek counterparties as it opens the doors for Greece to become finally a friendly netting jurisdiction. However, there are still areas of uncertainty (e.g. what products qualify as “OTC derivatives”?), which we trust will be clarified through market practice and case law.