Criteria for automatic debt settlement scheme

Criteria for automatic debt settlement scheme

Businesses with debts of between 20,000 and 50,000 euros will need to neet all three criteria set for their inclusion in the automatic extrajudicial debt settlement mechanism, according to a joint decision issued by the ministers of finance and labor, which has been sent to the country’s creditors for approval. The mechanism in question does not require a sustainability report regarding the company applying for the debt arrangement scheme.

To qualify, businesses must have a positive net EBITDA (earnings before interest, tax, depreciation and amortization) in the last financial year (or twice in the last three years before the submission of the application for inclusion), the company’s debts should not be more than eight times its EBITDA, and total debts – when the state and social security entities are involved – should be less than 4 percent of the total value of the debtor’s property, which is a criterion to keep strategic defaulters out.

The decision effectively activates the process for the rapid settlement of small and medium-sized enterprises’ arrears. The number of tranches will depend on each indebted company’s financial figures, with the maximum number reaching 120.

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