Debt-to-Equity Swap in Greece

A debt-to-equity swap in Greece is a restructuring mechanism that converts outstanding debt obligations into ownership stakes in the debtor company. It is available both within formal insolvency proceedings and through out-of-court restructuring frameworks. For creditors, the instrument offers a path to recovery that preserves the going-concern value of a distressed business. For debtors, it reduces the debt burden and restores financial viability without requiring immediate cash outflows. This guide covers the Greek legal framework, the procedural steps, the roles of the competent authorities, the practical risks, and the key decisions that creditors and debtors must make before committing to a debt-to-equity swap in Greece.

A debt-to-equity swap is a transaction in which a creditor agrees to extinguish all or part of a monetary claim against a company in exchange for newly issued shares or other equity instruments in that company. The creditor moves from a fixed-income position to an equity position, accepting the risks and potential upside of ownership. In Greece, the mechanism is not a single statutory instrument but a tool that operates across several legal frameworks, each with its own procedural requirements and protections.

The conversion can be agreed bilaterally between the debtor and one or more creditors, or it can be imposed through a court-approved restructuring plan that binds dissenting creditors. The distinction matters enormously in practice. A bilateral conversion requires unanimous consent among the parties involved and must comply with Greek company law on share issuance. A court-approved plan can override holdout creditors, but it requires satisfying statutory voting thresholds and judicial scrutiny.

In practice, founders and foreign investors should understand that a debt-to-equity swap in Greece is not a simple accounting entry. It triggers obligations under the Greek Companies Act (Law 4548/2018 for sociétés anonymes and Law 4072/2012 for limited liability companies), requires amendments to the company';s articles of association, and must be registered with the General Commercial Registry (GEMI). Each of these steps has its own timeline and cost.

Greek insolvency law has undergone substantial reform in recent years. The current framework rests on three primary instruments: the Insolvency Code (Law 4738/2020, known as the "Ptocheftikos Kodikas"), the out-of-court workout mechanism established under the same law, and the pre-insolvency restructuring procedure. Understanding which framework applies to a given situation is the first practical decision any party must make.

The Insolvency Code (Law 4738/2020) is the central piece of legislation. It introduced a unified insolvency and restructuring framework aligned with the EU Directive on restructuring and insolvency (Directive 2019/1023). The Code explicitly contemplates debt-to-equity conversions as a restructuring measure within a reorganisation plan. A reorganisation plan under the Code can include provisions for the conversion of creditor claims into equity, the issuance of new shares to creditors, and the dilution or elimination of existing shareholders.

The out-of-court workout mechanism (extrajudicial debt settlement) allows debtors and creditors to negotiate a restructuring agreement outside formal court proceedings. Debt-to-equity swaps can be included in such agreements. The mechanism is supervised by a special platform operated by the Special Secretariat for Private Debt Management and requires the participation of financial institution creditors above certain thresholds.

The pre-insolvency procedure is a court-supervised process available to companies that are not yet insolvent but face imminent financial difficulty. It allows the debtor to propose a restructuring plan, which may include a debt-to-equity conversion, to creditors and to seek court confirmation. This procedure is particularly relevant for companies seeking to restructure proactively before formal insolvency is declared.

A common mistake among foreign creditors is assuming that Greek restructuring proceedings mirror those of their home jurisdiction. Greek law imposes specific voting thresholds, creditor classification rules, and judicial approval requirements that differ materially from, for example, English schemes of arrangement or German insolvency plans.

The procedural path depends on whether the swap is pursued bilaterally, through the out-of-court mechanism, or within a formal reorganisation plan. The following describes the typical sequence for a court-confirmed reorganisation plan, which is the most comprehensive and legally certain route.

Assessing eligibility and initiating the process. The debtor must first determine whether it meets the eligibility criteria under Law 4738/2020. The company must be insolvent or facing imminent insolvency, and it must not have been subject to a confirmed reorganisation plan within the preceding five years. The debtor or a qualified creditor files an application with the competent court - typically the Multi-Member Court of First Instance in the jurisdiction where the company has its registered seat.

Preparing the restructuring plan. The restructuring plan is the central document. It must describe the proposed measures, including the terms of the debt-to-equity conversion: the amount of debt to be converted, the number and class of shares to be issued, the valuation basis for the conversion, and the resulting ownership structure. Greek law requires that the plan treat creditors of the same class equally and that it satisfy the "best interest of creditors" test - meaning no creditor should receive less under the plan than they would in a liquidation scenario.

Valuation of the company. A credible valuation is essential. The conversion ratio - how much debt is extinguished per share issued - depends on the agreed or court-determined value of the company. In practice, an independent financial advisor or court-appointed expert prepares a valuation report. Disputes over valuation are one of the most common sources of delay and litigation in Greek restructuring proceedings. Many underestimate the time and cost involved in producing a valuation that will withstand judicial scrutiny.

Creditor classification and voting. Creditors are divided into classes based on the nature and seniority of their claims. Secured creditors, unsecured creditors, and subordinated creditors typically form separate classes. The plan must be approved by a qualified majority within each class - under Law 4738/2020, this generally requires approval by creditors holding at least two-thirds of the claims in each class. A plan approved by the required majority can be confirmed by the court and made binding on dissenting creditors within the same class, subject to the "no creditor worse off" protection.

Court confirmation. The court reviews the plan for compliance with statutory requirements, including the best-interest test and the equal-treatment principle. If satisfied, the court issues a confirmation order. The confirmed plan is then binding on all creditors covered by it, including dissenters. The confirmation order is published in GEMI and takes effect from the date of publication.

Implementation: share issuance and registration. Following court confirmation, the company must implement the equity conversion. For a société anonyme (AE) governed by Law 4548/2018, this requires a resolution of the general meeting of shareholders - or, if the plan displaces existing shareholders, a court order substituting for that resolution - increasing the share capital and issuing new shares to the converting creditors. The articles of association must be amended and the capital increase registered with GEMI. For a limited liability company (EPE or IKE) governed by Law 4072/2012, the equivalent steps apply to the amendment of the company';s statutes and the registration of new partners.

In practice, founders should consider that the share issuance step can take four to eight weeks after court confirmation, depending on the complexity of the capital structure and the responsiveness of the notary and GEMI. A non-obvious requirement is that any pre-emption rights of existing shareholders must be formally waived or excluded as part of the restructuring plan, failing which existing shareholders could challenge the issuance.

When a creditor converts debt into equity in Greece, it acquires the rights of a shareholder under Greek company law. For creditors accustomed to the protections of a fixed-income position, this transition requires careful consideration.

Shareholder rights under Law 4548/2018. A creditor that receives shares in an AE acquires voting rights, dividend rights, and rights to information. The extent of these rights depends on the class and number of shares issued. In practice, restructuring plans often issue ordinary shares with full voting rights to converting creditors, giving them a controlling or significant minority stake. Some plans issue preferred shares with limited voting rights but priority dividend or liquidation rights, which may be more attractive to creditors seeking downside protection.

Minority shareholder protections. Greek company law provides statutory protections for minority shareholders, including the right to request a special audit, the right to challenge resolutions that are contrary to the company';s interests, and squeeze-out and sell-out rights in certain circumstances. A creditor that receives a minority stake should assess these protections carefully before agreeing to the conversion terms.

Exit mechanisms. A creditor-turned-shareholder in a private Greek company faces limited liquidity. There is no automatic exit mechanism. The restructuring plan should therefore address exit provisions, such as drag-along and tag-along rights, put options, or a commitment by the debtor to pursue a sale or listing within a defined period. A common mistake is to agree to a debt-to-equity conversion without negotiating exit rights, leaving the creditor locked into an illiquid equity position.

Tax treatment of the conversion. The tax consequences of a debt-to-equity swap in Greece depend on the circumstances. For the debtor, the extinguishment of debt may give rise to taxable income under the Greek Income Tax Code (Law 4172/2013), unless a specific exemption applies. For the creditor, the conversion may trigger a realisation event for capital gains or loss purposes. Both parties should obtain specific tax advice before executing the transaction. Many underestimate the tax dimension, which can materially affect the economics of the swap.

If you are a creditor or debtor navigating a complex restructuring in Greece, early legal and financial advice is essential. Contact info@vlolawfirm.com - we can help structure the setup correctly the first time.

Not every debt-to-equity swap in Greece requires court involvement. Where the debtor and all relevant creditors agree, the conversion can be executed as a purely contractual matter, subject to compliance with company law formalities.

Bilateral and multilateral agreements. A debtor and one or more creditors can agree to convert debt into equity without initiating any formal insolvency or restructuring procedure. This approach is faster and less costly than a court-supervised process, but it requires unanimous consent. If any creditor refuses to participate or to release its claim, the bilateral route is unavailable for that creditor';s portion of the debt.

The out-of-court workout platform. Law 4738/2020 established a digital platform for out-of-court workouts, supervised by the Special Secretariat for Private Debt Management. The platform facilitates negotiations between debtors and financial institution creditors. A workout agreement reached through the platform can include debt-to-equity conversion provisions and, once signed by the required majority of creditors, becomes binding on participating creditors. The platform is designed for cases involving multiple financial institution creditors and is less suited to complex multi-creditor situations involving trade creditors or bondholders.

Scenario: a foreign bank creditor converting a loan. Consider a foreign bank holding a secured term loan to a Greek manufacturing company. The company is cash-flow positive but over-leveraged. The bank and the company agree bilaterally to convert a portion of the loan into equity, reducing the debt service burden and giving the bank a minority stake. The conversion is documented in a debt conversion agreement, followed by a shareholder resolution increasing the share capital, an amendment to the articles of association, and registration with GEMI. The process takes approximately six to ten weeks from agreement to registration, assuming no complications.

Scenario: a restructuring plan binding dissenting creditors. A Greek retail company has multiple creditor classes, including secured bank lenders, unsecured trade creditors, and subordinated bondholders. The company proposes a reorganisation plan under Law 4738/2020 that converts the secured bank debt into a controlling equity stake, partially writes down the unsecured trade debt, and eliminates the subordinated bonds. The secured creditors vote in favour; a minority of trade creditors dissent. The court confirms the plan, binding the dissenting trade creditors, after satisfying itself that they receive at least as much as they would in liquidation. Implementation follows court confirmation, with GEMI registration completing the process.

Foreign creditors and investors participating in a debt-to-equity swap in Greece face a set of practical challenges that domestic parties may navigate more easily.

Due diligence on the Greek company. Before agreeing to receive equity in a Greek company, a foreign creditor should conduct thorough legal and financial due diligence. This includes reviewing the company';s GEMI filings, its articles of association, any existing shareholder agreements, pending litigation, tax liabilities, and regulatory licences. Greek companies are required to file annual financial statements with GEMI, and these are publicly accessible. However, the quality and timeliness of filings varies, and gaps in the public record are not uncommon.

Foreign investment considerations. Greece does not impose general restrictions on foreign ownership of Greek companies, but certain sectors - including media, energy, and defence-related industries - are subject to specific regulatory approvals. A foreign creditor receiving equity in a company operating in a regulated sector should verify whether the conversion triggers any notification or approval obligation under Greek or EU law.

Currency and repatriation. Greece is a eurozone member. There are no currency conversion issues for eurozone-based creditors. Capital repatriation is generally unrestricted within the EU, but creditors from outside the EU should verify applicable rules under Greek foreign exchange regulations and their home jurisdiction';s rules.

Enforcement of the restructuring plan. A court-confirmed reorganisation plan under Law 4738/2020 is enforceable as a court order. Foreign creditors can rely on the plan';s binding effect on dissenting creditors. The plan is also entitled to recognition within the EU under the EU Insolvency Regulation (Regulation 2015/848), which facilitates cross-border enforcement.

Governance after conversion. A creditor that becomes a significant or controlling shareholder in a Greek company takes on governance responsibilities. Greek company law imposes duties on directors and, in certain circumstances, on controlling shareholders. A creditor-turned-shareholder should consider whether to appoint a representative to the board of directors and how to exercise its shareholder rights effectively.

A non-obvious requirement is that a foreign creditor receiving shares in a Greek AE may need to comply with Greek beneficial ownership registration requirements under Law 4557/2018 (anti-money laundering legislation), which requires disclosure of ultimate beneficial owners to the Greek UBO Register. Failure to comply can result in administrative penalties.

What are the main risks for a creditor agreeing to a debt-to-equity swap in Greece?

The primary risk is that the creditor exchanges a fixed, enforceable claim for an equity stake whose value is uncertain and potentially illiquid. If the company';s restructuring fails and it subsequently enters liquidation, the creditor-shareholder ranks behind all creditors in the distribution of assets. A second risk is valuation: if the conversion ratio overvalues the company, the creditor receives less economic value than the debt extinguished. A third risk is governance: as a shareholder, the creditor is exposed to decisions made by the board and management, which it may not fully control. Negotiating robust shareholder protections, exit rights, and information rights before agreeing to the conversion is essential to managing these risks.

How long does a debt-to-equity swap take to complete in Greece, and what does it cost?

The timeline depends heavily on the route chosen. A bilateral conversion between a debtor and a single creditor, where all parties agree and the company law formalities are straightforward, can be completed in six to ten weeks. A court-supervised reorganisation plan under Law 4738/2020 typically takes several months from filing to court confirmation, and a further four to eight weeks for implementation. Professional fees - covering legal counsel, financial advisors, and notarial costs - are a significant component of the total cost. For complex multi-creditor restructurings, professional fees can reach the mid-to-high tens of thousands of euros or more. State and registration charges at GEMI are modest relative to professional fees but should be budgeted for.

Can a debt-to-equity swap be used to restructure tax debts owed to the Greek state?

Tax debts owed to the Greek state (AADE - Independent Authority for Public Revenue) are subject to specific rules and cannot generally be converted into equity through a private restructuring agreement. However, Law 4738/2020 allows the inclusion of public creditors, including the tax authority, in a reorganisation plan under certain conditions. The state';s participation is subject to specific statutory constraints, and the tax authority has limited flexibility to accept equity in lieu of cash. In practice, tax debts are more commonly addressed through instalment arrangements or partial write-downs within a reorganisation plan rather than through equity conversion. Specialist advice is essential when public creditors are involved.

A debt-to-equity swap in Greece is a powerful restructuring tool, but it requires careful navigation of the Greek insolvency framework, company law, and tax rules. The choice between a bilateral conversion, an out-of-court workout, and a court-supervised reorganisation plan shapes the timeline, cost, and legal certainty of the outcome. Both creditors and debtors must address valuation, governance, exit rights, and tax consequences before committing to the transaction.

VLO Law Firms advises international clients on bankruptcy and restructuring matters in Greece. We can assist with structuring debt-to-equity conversions, preparing and negotiating reorganisation plans, conducting due diligence on Greek companies, and managing the GEMI registration process. To request a consultation, contact: info@vlolawfirm.com