A look at corporate, personal and, where relevant, partnership insolvency proceedings in Italy, with a brief description to explain key features, as part of our Dictionary of Insolvency Terms in EU Member States. In particular, we highlight who controls the procedure and whether it is likely to be accompanied by a moratorium to prevent enforcement.
Restructuring and insolvency processes
Composition plan with creditors
- A court-supervised procedure where a corporate debtor in financial difficulty/insolvent seeks to combine all outstanding indebtedness by submitting a proposal to all creditors to the court.
- The procedure is initiated by the debtor filing a petition with the court with a number of supporting documents including the restructuring plan and an independent expert’s opinion verifying the debtor’s financial position and the feasibility of the proposal. It is also possible to file a “straightforward petition” for settlement while reserving the right to file the proposal to creditors and the other supporting documents within usually 60 to 120 days (extendable to a maximum of 180 days). Within the same period, it is possible to negotiate and file a debt restructuring agreement in lieu of a petition for settlement.
- The plan may be based on any type of composition: debt rescheduling, transfer of assets or business units to third parties, assignment of assets or business units to creditors, debt for equity swaps, etc.
- The plan must provide for the repayment of unsecured creditors in an amount at least equal to 20% of their claims. Such minimum threshold does not apply to restructuring plans based on business continuity.
- The proposal must be: (a) approved by a majority in value of creditors (if the creditors are split into classes, it must also be approved by a majority of the classes), and subsequently (b) validated by the court.
- The proposal may also provide for the restructuring of the tax indebtedness which, even without the consent of the Tax Authority, may be validated by the Court in that event that: (a) the consent of the Tax Authority is necessary for the achievement of the approval threshold (ie at least 60% of the outstanding claims) and (b) the proposal is more satisfactory for the Tax Authority than that available in a liquidation.
- Upon validation, the composition plan with creditors will bind all creditors whose claims were in existence as at the date of the filing.
- The debtor remains in control of its assets throughout the procedure (under the supervision of a court-appointed official with pervasive powers) in order to continue trading. The debtor will require prior approval from the court to enter into any extraordinary transactions. Accordingly, all acts, payments and security interests contemplated by the composition plan with creditors and validated by the court are exempted from claw-back.
- The proposal can provide for secured creditors not to be repaid in full, provided that an independent expert certifies that the secured claims are being repaid for an amount at least equal to the value of the secured assets in a liquidation scenario. In such case, the unpaid portion of the claim is downgraded to an unsecured claim for voting purposes.
- When the plan proposed by the debtor does not allow for repayment of unsecured claims in an amount at least equal to 40% of their nominal value (if based on liquidation) or 30% (if based on business continuity), creditors holding claims representing at least 10% of the aggregate debt (even if the claims have been purchased after the filing) may submit a competing proposal. The deadline for the submission falls on the 30th day prior to the creditors’ hearing scheduled by the court for the voting process.
- The accrual of interest is suspended for the entire duration of the proceeding, save for claims secured by pledges, liens or mortgages.
- The terms and the performance of pending contracts are not affected by the filing of the proposal. The company may seek court approval to terminate or suspend the effects (for a maximum period of 60 days) of pending contracts. When authorising the termination or suspension of pending contracts, the court will set an indemnity to be paid to contractual counterparties.
- When a petition for settlement is filed with the court and registered on the Enterprises Register (the public register of all companies incorporated under Italian law), the debtor is granted an automatic stay, preventing all creditors from instituting or continuing any interim proceeding or enforcement against the company and its assets. The automatic stay does not, however, prevent enforcement of share pledges granted pursuant to the financial collateral directive.
Accordi di ristrutturazione dei debiti
Debt restructuring agreement (DRA)
- A corporate debtor can enter into an out-of-court DRA with its creditors, which should subsequently be validated by a court decree.
- The debtor does not need to be insolvent and should negotiate with creditors representing at least 60% of the aggregate outstanding debt.
- The DRA must be published in the Enterprises Register along with an independent expert’s report (certifying the accuracy of the debtor’s data and the feasibility of the underlying restructuring plan) and the court’s validation of the plan. Within 30 days of its publication, creditors and/or other interested parties may challenge the DRA.
- On publication of the DRA, an automatic stay for 60 days prevents all creditors from commencing any enforcement actions against the debtor and its assets. In certain circumstances, such an automatic stay may also apply pending the negotiation of the agreement.
- A validation decree completes the procedure. After validation, the debtor must implement the DRA with no further intervention by the court and can carry on business as normal in line with the provisions of the DRA.
- The DRA may also provide for the restructuring of the tax indebtedness which, even without the consent of the Tax Authority, may be validated by the Court in that event that: (a) the consent of the Tax Authority is decisive for the achievement of the approval threshold (ie at least 60% of the outstanding claims) and (b) the proposal is more satisfactory for the Tax Authority than a liquidation scenario.
- In the event that the DRA (or underlying restructuring plan) is amended (before or after the validation of the DRA by the Court), a new report shall be issued by the independent expert notwithstanding that such an amendment has occurred before or after the validation of the DRA and new consent shall be sought amongst the creditors.
- All acts, payments and security interests granted over assets of the debtor in implementing the validated DRA are exempted from claw-back actions in cases of subsequent bankruptcy.
Accordi di ristrutturazione ad efficacia estesa
DRA with the extended effects
- The effects of the DRA may be extended (cram – down) to non-adhering creditors belonging to the same class under the following circumstances and conditions: (a) such creditors have been duly informed of the negotiations relating to the DRA and were granted the opportunity to participate in good faith; (b) they have received complete and up-to-date information on the economic and financial performance of the debtor; and (c) they shall be satisfied in a measure which is not lower than what they would be awarded with any other practicable solution (ie liquidation); (d) the plan is approved by creditors representing at least 75% of the outstanding indebtedness of each class; (e) the plan is on a going-concern basis (either directly or indirectly); and (f) the debtor has notified them with the agreement together with all the relevant documentation.
- Other provisions applicable to ordinary DRAs remain unaltered, eg independent expert report, automatic stay, control of the debtor’s asset.
- The creditors can be split into several classes, provided that each class includes creditors having homogeneous legal positions and economic interests.
- The non-adhering creditors shall not be required to undertake new obligations (eg granting and/ or maintaining credit lines or otherwise providing any kind of new financing).
- In addition to the above, special provisions may apply to DRAs entered into with financial creditors (eg banks and other financial intermediaries) whose credit exposure exceeded 50% of the aggregate outstanding debt. In particular, while the same terms and conditions already mentioned (please see par. 1.3.(i) point (a)(b)(c)(d) and (f)) remain applicable in this case as well, such DRA may also assume the liquidation of the entire company’s assets, with no impact on the position of non-financial creditors.
- The non-adhering creditors (to whom the debtor requests the extension of the DRA’s effects) may file an opposition to the court within 30 days of the relevant notification from the debtor, in order to obtain a declaration of non-application of the DRA’s effects.
Accordi di Ristrutturazione agevolati
- The DRA may be executed also with the sole support of creditors representing not less than 30% of the total company’s indebtedness (so called facilitated DRA) to the extent that, the debtor has not filed a “straightforward petition” for the admission to the Composition plan with creditors (ie domanda di concordato “in bianco”, please see par. 1.1.(ii) of the Composition plan with creditors), not requested the 120-days moratorium in respect of the payment for the non-adhering creditors, and (c) never requested the application of any protective measures against enforcement actions or precautionary proceedings during the negotiations of a restructuring plan.
Piano di Risanamento
- An out-of-court procedure where a corporate debtor in financial difficulty drafts a rescue plan aimed at restructuring its debts and rebalancing its financial position.
- The rescue plan must be supported by an independent expert’s report, assessing the truthfulness of the company’s data and whether it is reasonably capable of enabling the company’s debt to be restructured and its financial position to be rebalanced.
- The debtor does not need to be insolvent in order to commence this procedure. Pre-emptive approval by the court is not required for the rescue plan to be effective.
- The debtor remains in control of its assets during the execution of the plan, and certain transactions completed during the same period are exempted from claw-back actions in case of bankruptcy.
- The implementation of the rescue plan has to be monitored on a regular basis as, in case of material deviations between the actual performance of the company and the forecasts set forth by the rescue plan, all acts/payments made after the occurrence of such material deviation cannot benefit from the protections afforded by the law, eg exemption from claw-back actions.
- No automatic stay prevents secured creditors’ enforcement actions.
Convenzione di moratoria dei pagamenti
- The standstill agreement is an out-of-court procedure (aimed at temporarily regulating the financial difficulties of a debtor) pursuant to which the creditors undertake to grant the debtor with a moratorium for the outstanding claims.
- The effects of the standstill agreement may be extended to the other dissenting creditors with a cram down mechanism similar to those applicable to the DRA with extended effects (please see par. 1.3.(i) above).
- Other provisions applicable to ordinary standstill agreement remain unaltered (eg those in respect of the issue of an independent expert report and the automatic stay mechanism whereby any secured creditors is prevented from bringing an enforcement claim while the moratorium applies.
- The crammed down creditors shall not be required to undertake new obligations (eg grating and/or maintaining credit lines or otherwise providing any kind of new financing).
- The crammed down creditors may file an opposition within 30 days of the relevant notification from the debtor, seeking a declaration of non-application of the moratorium by the competent court.
- The debtor remains in control of its assets when the agreement is effective.
Amministrazione Straordinaria (Prodi-bis)
Extraordinary administration (also Prodi-bis proceeding)
- An administrative procedure commenced by court order with subsequent involvement of the government.
- Can be initiated as an alternative to bankruptcy proceedings for a company as long as there is a realistic prospect of rescuing the business and achieving the proposed restructuring.
- Available to insolvent debtors with at least 200 employees and liabilities exceeding two-thirds of total assets and total turnover.
- Upon declaration of the debtor’s insolvency, the court assesses the likelihood of a positive outcome from restructuring the business.
- An automatic stay applies throughout the process that prevents any creditor from commencing or continuing any enforcement action against the debtor. The commissioner prepares a liquidation or restructuring plan that must be approved by the relevant government department. The creditors do not participate or vote on the plan unless it contains a proposal to close the administration by a settlement with creditors.
Amministrazione Straordinaria delle grandi imprese insolventi (Marzano)
Extraordinary administration of large enterprises (also Marzano proceeding)
- An administrative procedure that is commenced by court order with subsequent involvement from the government.
- The procedure is available to insolvent corporate debtors with at least 500 employees and liabilities amounting to (at least) EUR300 million.
- The debtor initiates the proceedings by applying to the Ministry of Economic Development (MED) for extraordinary administration. The debtor may simultaneously file an application for the declaration of its insolvency.
- The MED designates one or more extraordinary commissioners (up to a maximum of three) setting out their specific powers. The extraordinary commissioner is in charge of running the company and managing its assets in lieu of the management body.
- A supervisory committee is also appointed to act as a consulting body. This issues non-binding comments/opinions on the actions of the extraordinary commissioner(s).
- The commissioner can propose a compromise agreement with creditors’ approval (by means of simple majority).
- Admission to the procedure does not trigger the automatic termination of pending contracts, although the extraordinary commissioner has the power to set aside agreements providing for future performance.
- Once the restructuring programme (either aimed at the divestment of the company’s asset or at business turnaround) is authorised, the extraordinary commissioner is entitled to institute claw-back actions to the extent that they are beneficial for creditors.
- An automatic stay of proceedings is in place throughout the extraordinary administration. The stay prevents secured creditors from bringing any enforcement actions.
- A terminal proceeding available to companies and entrepreneurs.
- A company or entrepreneur is declared bankrupt when it is insolvent, ie when it is unable to pay its debts when they fall due. The assessment of a company’s solvency depends, inter alia, on: (a) whether the liquidity shortfall can be resolved in a reasonable timeframe, ie the liquidity crisis is temporary; and (b) whether the company is capable of meeting its payment obligations by way of ordinary means, ie without entering into harmful or fraudulent acts.
- Companies that do not exceed the following thresholds are exempted from bankruptcy: (a) the value of corporate assets has not exceeded EUR300,000 for the three years prior to the petition for bankruptcy (unless the business activity has been carried out for a shorter amount of time); (b) the annual gross revenue has not exceeded EUR200,000 for the three years prior to the petition for bankruptcy (unless the business activity has been carried out for a shorter amount of time); and (c) the total amount of corporate debts does not exceed EUR500,000. The insolvent company has the burden of establishing that these thresholds have not been exceeded, so as to avoid a declaration of bankruptcy.
- Following a declaration that the company or entrepreneur is insolvent; the court appoints a supervising judge and a court-appointed bankruptcy trustee to manage the company and liquidate its assets to distribute the relevant proceeds to creditors in accordance with their legal ranking.
- The debtor no longer has control of its assets: these are managed by a court-appointed trustee.
- Creditors must file a proof of claim with the court.
- The supervising judge appoints a creditors’ committee that supervises the work of the court appointed bankruptcy trustee(s), authorises certain actions and expresses opinions in the cases provided by law.
- The accrual of interest is suspended until completion of the procedure, unless the claims are secured by pledges, liens or mortgages.
- Debts of the company or entrepreneur, even if not due and payable as at the date of the declaration of bankruptcy, are immediately due by operation of law, eg debts arising from loans and financings are accelerated.
- An automatic moratorium arises upon declaration of bankruptcy: all enforcement actions including those brought by secured creditors are stayed, other than those relating to fondiario loans and pledges over shares granted in accordance with the financial collateral directive.
Liquidazione coatta amministrativa
Mandatory administrative liquidation
- A court-supervised insolvency procedure reserved for banks and financial institutions, aimed at liquidating the entirety of their assets. This can be initiated at the request of the bank’s management, shareholders, judicial receivers or liquidators.
- The Ministry of Economy and Finance can initiate such a procedure: (a) if the bank or financial institution is failing or likely to fail, eg in case of insolvency or financial distress; and (a) if the situation in (i) cannot be resolved in due time by alternative measures, including the involvement of one or more private entities, government support or supervisory procedures.
- The failing entity’s assets are under the control of one or more commissionaires appointed to manage both the bank’s ordinary business and the asset disposal.
- An automatic stay affects creditors’ interim relief and enforcement action against the corporate assets, unless the securities have been granted in accordance with the EU financial collateral directive.
Composizione della crisi da sovraindebitamento (e piano del consumatore)
Composition for over indebtedness
- An out-of-court procedure available to over-indebted entrepreneurs (sovraindebitamento) who cannot declare bankruptcy because they do not satisfy the requirements and thresholds set out in the Italian Bankruptcy Law.
- The composition for over-indebtedness can be executed with (a) a crisis settlement agreement; (b) the liquidation of the assets of the debtor; and (c) the implementation of a consumer plan (piano del consumatore) (if the debtor is a consumer).
- The proposal, filed with the court, shall include a report issued by the OCC (organismo di composizione della crisi) providing for certain information and assessments (eg the assessment on the completeness and reliability of the documentation, the description of the criteria adopted for the identification of the classes of creditors and, in the sole event of a crisis settlement agreement, also the assessment on the convenience of the plan compared to the liquidation scenario).
- The debtor may submit a proposal to creditors concerning the restructuring of the debts and the satisfaction of the relevant claims through different methods (rescheduling plans, issue of new securities, liquidation of specific assets).
- When over-indebtedness has a common origin or when members of a family are cohabiting, a single settlement procedure can be submitted.
- The proposal can provide for secured creditors not to be repaid in full, provided they receive no less than they would receive in a liquidation scenario.
- The decree establishes a stay preventing all creditors, whose claims originated before the proposal, from commencing enforcement action, from obtaining a seizure or exercising pre-emption rights over the debtor’s assets.
- The proposal needs to be approved by creditors representing at least 60% of the aggregate outstanding debt. Secured creditors due, under the proposal, to be repaid in full will not count towards the 60% threshold. Where creditors are divided into classes, the proposal must be approved by the majority of the classes.
- For the proposal to be effective, a validation by the court is also required. Pending the validation, the debtor remains in control of its assets in order to continue trading.
- An additional stay applies to claims originating after validation of the proposal.
- The proposal may also provide for the restructuring of the tax indebtedness which, even without the consent of the Tax Authority, may be validated by the Court in that event that: (a) the consent of the Tax Authority is decisive for the achievement of the approval threshold (ie at least 60% of the outstanding claims) and (b) the proposal is more satisfactory for the Tax Authority than a liquidation scenario.
- If an individual is not able to offer his creditors any benefit (either directly or indirectly) he may request to the court, and obtain only once in a lifetime, the discharge of his debts.
Liquidazione del patrimonio
- An alternative to the piano del consumatore procedure where the debtor may apply to the court to seek the liquidation of all their assets (other than certain specific claims and receivables expressly identified by law) on providing a list of all their assets.
- The proceedings are opened with a decree and the court: (a) appoints a liquidator whose role is to prepare a statement of liabilities, manage and liquidate the debtor’s assets, and distribute the relevant proceeds to creditors in accordance with their legal ranking (the plan); and (b) establishes a stay preventing all creditors whose claims originated before the plan from commencing enforcement action, seizing or exercising pre-emptive rights over the debtor’s assets.
- On completion of the liquidation procedure: (a) an additional stay applies with regards to creditors whose claims originated after the validation of the plan; and (b) the court orders the cancellation of mortgages and liens over the debtor’s assets.
- The security package of financing governed by Italian law customarily includes: (a) mortgages (ipoteca) over immovable properties such as land plots and buildings; (b) pledges (pegno) over movable assets, shares (in case of a società per azioni) or quotas (in case of a società a responsabilità limitata) and bank accounts; and (c) an assignment of receivables by way of security with respect to rents and other payments due to the debtor, eg indemnities from insurance policies.
- Among the loans secured by means of a mortgage, are the so-called fondiario loans, which are forms
of medium – and long-term financing provided by banks and secured by a first-ranking mortgage over the financed property. They differ from the so-called ipotecario loans, which have greater flexibility in structuring the terms of an event of default.
- Enforcement steps for a mortgage include:
- Obtaining an enforcement order (titolo esecutivo) against the debtor.
- Notifying the debtor of the enforcement order (atto di precetto), not required for fondiario loans to the extent that it has been duly notarised.
- Notifying the debtor of foreclosure (atto di pignoramento).
- Issuing a sale order and schedule the hearing for the sale, on the basis of the evaluation of the court-appointed expert.
- Selling the assets: secured creditors may credit bid and repossess the asset.
Pegno non possessorio
- The Ministerial Decree No. 114/2021 has implemented Article 1 of the Law Decree No. 59/2016 (with just a 5 years delay) which established the non-possessory movable pledge with which entrepreneurs are entitled to pledge assets utilised for the ordinary business (eg wool, fruit, nails, etc) without being forced to dispossess the assets (making them unusable). Such pledge shall secure claims relating to the specific business.
- With the introduction of the Non-Possessory Pledge, the lack of dispossession means that the debtor/entrepreneur has the possibility to transform or dispose of the pledged asset, while at the same time having access to a loan secured by pledge, without any negative impact on production. In other words, what takes place is the so-called “rotating nature of the pledge” through which the pledge is transferred indifferently to the new asset resulting from the transformation, replacement or disposal or also to the asset that may be acquired with the sums received from the sale of the asset originally subject to pledge. This is without prejudice to the right of the secured creditor to take conservative or injunctive actions in the event of any abuse in the use of the pledged assets by the pledgor.
- Pursuant to the just issued MEF Decree 114/2021, the Ministry of Economy and Finance has at last implemented the “Registro pegni” to be managed by the Italian Tax Authority (Agenzia delle Entrate) for the necessary formalities to “materially” create the pledge through registration.
- The Non-Possessory Pledge takes rank and is effective against third parties as well as in the context of insolvency procedures exclusively following its registration in such register (the registration requires a public deed, a notarial authenticated or judicially certified private deed, a contract digitally signed by the parties or a court order).
- The pledge shall be renewed on the expiry of the 10th year of the date of its registration by submitting a simple request to the registrar expressly requesting the renewal of the pledge.
- Having the 10 year term elapsed, the creditor, though, will not be able to avoid the pledge being assigned with the new grade envisaged at the date of the new registration.
EU Directive Implementation
The EU Directive 2019/1023 on Restructuring and Insolvency1 requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2022 (as the option to extend that deadline by one year from July 2021 has been exercised). The intention of the EU Directive 2019/1023 is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.
Notable features required to be included in Member States’ national laws include:
- An effective preventive restructuring framework to enable debtors experiencing financial difficulties
to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
- A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
- An ability to cram down dissenting classes of creditors.
- Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
- Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.
Regulation of the administrators’ profession
- Italy’s bankruptcy law has been significantly amended by the Italian Legislative Decree no. 14/2019 (ie the New Italian Insolvency Law) coming into force in May 2022 (except for certain provisions amending the Italian civil code which have already entered into force and the “early warning” system aimed at identifying, in advance, the occurrence of insolvency situations which will come into force on December 2023).
- The postponement of the New Italian Insolvency Law has been required in order to facilitate a better harmonization of the provisions included in the EU Directive 2019/1023 with the Italian bankruptcy law.
- The New Italian Insolvency Law intervenes not only on the insolvency discipline but also on the discipline contained in the Italian Civil Code that concerns, directly or indirectly, the crisis of companies: notably, the reform sets rules regarding organizational systems directed to promptly discover and take action in case of a crisis situation, in order to avoid the loss of continuity of the business.
- Note that the Italian legal system is grounded on the general principle tempus regit actum, pursuant to which an act is governed by the law in force when the act took place. Accordingly, article 390, first paragraph, of the New Italian Bankruptcy Law expressly provides that petitions for, inter alia, the validation of DRA and the opening of composition plans with creditors’ proceedings, the ascertainment of the insolvency state of entities subject to mandatory administrative liquidation, bankruptcy proceedings filed and/or pending before the New Italian Insolvency Law comes into effect remain subject to the provisions in force at that time.
- The New Italian Insolvency Law does not include provisions amending the regulation of the Marzano and Prodi-bis procedures, which remain subject to the current provisions.
- As a general outline, the following significant amendments are introduced by the New Italian Insolvency Law and will come into effect partly in 2022 and in 2023 in relation to the alert mechanism:
- Replacing the term “bankruptcy” with “judicial winding-up procedure”: the change is mainly justified by the need to avoid the negative and disparaging connotations that are traditionally associated with the word “bankruptcy”.
Regulation of the administrators' profession
- Introducing specific procedures of alert and assisted resolution of the crisis, aimed at facilitating the appearance of the situation of financial distress in its initial phase and simplifying the negotiations between the debtor and its creditors on a confidential basis. Specific bodies established in each Chamber of Commerce will be in charge of these procedures.
- The possibility to present unitary proposals for the recovery of the “group crisis.” Such provisions are aimed at regulating intra-group operations and transactions to preserve business continuity, with the purpose of guaranteeing the protection of the shareholders and of the creditors of each company within a group.
- The entry into force of the New Italian Insolvency Law (initially scheduled for 15 August 2020) was postponed due to the Covid Emergency to May 2022 by Italian Law Decree no. 118/2021 which – given the increasing number of insolvent companies and the relevant need to provide new and effective tools to prevent and/or deal with the financial crisis situations – introduced urgent measures on business crisis and corporate reorganisation and, provided for the introduction of (a) a new out of court restructuring procedure (ie composizione negoziata per la soluzione della crisi di impresa) and (b) few amendments to the Italy’s bankruptcy law anticipating certain provisions included in the New Italian Insolvency Law.
- The Law Decree no. 118/2021 is expected to be converted into law by the October 2021 and, in the context of such conversion, further amendments to the legal framework may occur.
Composizione negoziata per la soluzione della crisi di impresa
Composition procedure for the resolution of the company crisis
- In a situation of crisis or early crisis, the debtor may request the admission to the composition procedure for the solution of the company crisis (eg Composizione negoziata per la soluzione della crisi di impresa) by completing a self-test on the website of the Chamber of Commerce (eg Camera di commercio).
- The Chamber of commerce will decide on the debtor’s request, and, will appoint an independent expert with the task of facilitating negotiation.
- The expert will open discussion with the creditors and the debtor and provide assistance for completion of the procedure. An agreement among the parties shall be reached within 180 days of the appointment of the expert.
- Such term can be postponed (i) upon request of all parties involved and with the agreement of the expert or (ii) if required to allow the debtor to complete the application to the court for the protective measures.
- In the event that the expert believes that there are no chance of recovery for the debtor, he/she may cause the termination of the procedure.
- The debt can ask the Court to grant protective measures pending negotiations.
- The protective measures may not affect the credit rights of the employees.
- The protective measures may be authorized for a period not lower than 30 days or higher than 120 days and may be extended up to a maximum of further 240 days.
- At any time, the protective measures can be revoked by the court if they are not strictly necessary or in the event that such measures are found to be disproportionate compared to the damage that could be suffered by creditors.
- The debtor shall also be entitled to request the disapplication of the provisions of the Civil Code relating to the recapitalization of the company.
- During the procedure, the debtor will maintain the management of the company, with exception of: (a) extraordinary operations that shall be notified in advance to the expert; (b) the obtainment of the super senior financing (ie finanziamenti prededucibili) that shall be authorized by the court to the debtor.
- Please note that the Expert may suggest (and the court may impose) temporary amendments to agreements in case of an economic imbalance, caused by the COVID-19 pandemic, occurs during the performance of ongoing contracts.
- The Composition procedure may be also requested in respect of groups. In such event, a sole expert may be appointed.
- Several exits for this preliminary interim negotiation (a) a DRA between the debtor and its creditors; (b) a standstill agreement; (c) a rescue plan; (d) a facilitated DRA. Or if the negotiation was not successful, the debtor may opt to file for (a) the new simplified concordato proposal for liquidation purposes; (b) a rescue plan; or (c) ordinary bankruptcy proceedings or extraordinary administration.
Proposta di concordato semplificata
Simplified Concordato for Liquidation Purposes
- In case of failure of the Composition procedure for the resolution of the company crisis, the debtor may file with the court a proposal for concordato with a liquidation plan (also indirect liquidation eg sale of the going concern leaving a bad co) and the proposal is published in the Chamber of Commerce and notified to all creditors. The completion of the composition procedure is a pre requisite to file a request for this kind of concordato.
- This concordato is completely different to the existing one since the creditors will not be required to vote and the plan will be adopted with the sole approval of the Court.
- The creditors will be entitled to judicially challenge the Court approval by appeal (which outcome can also be challenged at the Supreme Court).
- The absence of vote in the intent of the law maker is justified by the fact that the composition procedure has to take place mandatorily before the filing.
Recognition of foreign insolvency processes
EU Regulation on Insolvency Proceedings
- The EU Regulation on Insolvency Proceedings2 applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.
Recognition of third country insolvency processes
In general, the court before which the request to open insolvency proceedings has been filed must decide if it has jurisdiction over the case. If the court decides to open proceedings, it must specify if it is a main or secondary proceeding.
With reference to the immediate recognition of foreign bankruptcy judgments and decisions, the Italian courts can refuse to recognize them only if they may produce effects that are against Italian public order.
In order to ensure that creditors and judges receive correct information and to avoid the opening of parallel proceedings, it is provided that each EU country will provide a publicly accessible electronic register where relevant information on cross-border insolvency cases must be published.
Insolvency changes in response to COVID-19
Within the context of the COVID-19 pandemic, the Italian government, in order to enhance Italian companies’ protection from the negative consequences of the pandemic and support their business continuity and operation, has adopted, inter alia, the Law Decree no. 23/2020, converted into Law no. 40/2020 (for more information on changes to insolvency law in Italy as a result of the COVID-19 pandemic please see our Guide to changes in insolvency law in response to COVID-19) and, most recently, the Law Decree no. 73/2021, converted into Law no. 106/2021, has provided, inter alia, the extension until
31 December 2021 the term of the ex lege moratorium of bank debts (granted pursuant to the Decree
Law No. 18/2020, converted, with amendments, by Law No. 27/2020).
Decree no. 73/2021, converted into Law no. 106/2021, has provided, inter alia, the extension until 31 December 2021 the term of the ex lege moratorium of bank debts (granted pursuant to the Decree Law No. 18/2020, converted, with amendments, by Law No. 27/2020).
The extension applies only to the principal of the loans and is also subject to prior notification to be sent to the financing entity by 15 June 2021, based on the 2021.
For more information on changes to insolvency law in Italy as a result of the COVID-19 pandemic please see our Guide to changes in insolvency law in response to COVID-19.
Law stated as at 1 October 2021.
Contact: Antonio Lombardo
1Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.
2Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast).