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The Italian insolvency law reform project

  • Italy
  • Litigation and dispute management

22-11-2017

By the Law 155/2017, that came into force on 14 November 2017, the Italian Parliament delegated the Government to adopt, within the next twelve months, a comprehensive and organic reform of the insolvency proceedings and the rules governing the business crisis.  The rules governing liens and security interest will also be reformed.
Although the reform will be converted into binding law provisions not before the end of 2018, nevertheless foreign lawyers and investors may be interested in knowing in advance the guidelines of the new regulation.
Law 155/2017 provides that the Italian Government shall take into account the EU legislation and in particular the Regulation (EU) 2015/848, the Commission Recommendation 2014/135 and the principles of UNCITRAL model law on insolvency.
Law 155/2017 consistently states that in the reform of the insolvency proceedings:

  • the term “bankruptcy” (“fallimento”) shall no longer be used and shall be replaced by the term “judicial liquidation” (“liquidazione giudiziale”);
  • priority shall be given to proceedings aimed at overcoming the crisis by carrying on the business as a going concern (even through a new entrepreneur), provided that they are in the interest of the best satisfaction of creditors. Therefore the reform:
    • shall provide that judicial liquidation has to be commenced only when no other suitable solution has been proposed by the debtor;
    • shall facilitate debt restructuring agreements (“Accordi di ristrutturazione dei debiti”: under the current law, a debt restructuring agreement is entered into by and between the debtor and creditors representing at least 60% of all claims; such agreement is subject to approval by the bankruptcy court and is only binding upon the participating parties.  Law 155/2017 provides that debt restructuring agreements shall be facilitated, inter alia, by reducing the minimum percentage of claims involved in the agreement);
    • shall encourage out-of-court debt restructuring plans (“Piani attestati di risanamento”: under the current law, such plans are to be reviewed by an independent expert accountant; agreements between a debtor and any of its creditors that are based on the reviewed plan and provide for new financing are granted with some protection against claw-back actions);
    • shall provide that the traditional pre-bankruptcy arrangement with creditors (“concordato preventivo”: a procedure enabling the debtor to agree a restructuring plan with the majority of its creditors, that, if approved by the creditors and confirmed by the court, is also binding upon the dissenting creditors) has to be focused on business continuity.  The liquidation of debtor’s assets under a pre-bankruptcy arrangement with creditors shall be allowed provided that (i) new external financing is provided in order to increase creditors satisfaction and (ii) it ensures the payment of at least 20% of all unsecured claims;
  • a definition of “state of crisis” (i.e. the likelihood of future insolvency) shall be provided having regard to the concepts of business economics;
  • a sole procedure shall be introduced for the acknowledgment of the existence of the state of crisis or insolvency and this model shall be applied to any debtor (with the exception of public entities). The competent court shall be determined having regard to the “center of the debtor’s main interests” as defined in EU legislation;
  • early warning procedures” and “out-of-court procedures for the settlement of the crisis between” shall be introduced to facilitate the early disclosure of the crisis and the negotiations between the debtor and the creditors.

Early warning procedures and out-of-court procedures for the settlement of the crisis will be a novelty in Italian regulations.
Out-of-court procedures for the settlement of the crisis -which shall not apply to either listed or large companies- shall be commenced upon debtor’s demand and shall be carried out by a special body to be set up at every office of the Chamber of Commerce.
These procedures will be confidential although the Chamber body shall immediately inform the qualified public creditors (inter alia, the Tax Revenue Agency and social security entities) of the filing of the debtor’s demand.
The procedure shall be completed within a reasonably short term.  If no appropriate measures to ensure the settlement of the crisis are identified and there is evidence of the debtor’s insolvency, the Chamber body shall immediately inform the court prosecutor in order to allow the prompt detection of the insolvency.
With reference to the early warning procedures, the reform shall provide that:

  • company internal and external auditors of the company shall have the duty to immediately inform the directors of the likelihood of insolvency and, where no suitable reply is provided by the directors, to promptly inform the competent Chamber body;
  • qualified public creditors shall be under the duty to immediately report to the company auditors and to the competent Chamber body the persistence of unpaid taxes or social security contributions;
  • further to auditors’ and/or qualified public creditors’ queries, the Chamber body shall convene the debtor and its auditors without delay, in order to verify its economic and financial situation and identify, in the shortest possible time, the appropriate measures to solve the crisis;
  • in the frame of out-of-court procedures, while the negotiations with creditors are pending, the debtor shall be entitled to ask the court to grant certain protective measures;
  • certain incentives (both financial and with regard to personal and even criminal liability) shall be granted to the debtor who has promptly applied for an out-of-court procedure for the settlement of the crisis or the commencement of insolvency proceedings.

 Lastly, the reform shall contain a specific regulation of the crisis and the insolvency of company  groups. In this respect the reform shall set forth, inter alia:

  • a subordinate status to the receivables of companies belonging to the same group, with some exemption in order to facilitate funding for the execution of a pre-bankruptcy arrangement with creditors or a debt restructuring agreement;
  • the possibility to file in court a sole application for judicial liquidation or for the confirmation of a pre-bankruptcy arrangement with creditors or a debt restructuring agreement, which involves all the insolvent or in crisis companies of the group, without prejudice to the autonomy of their assets and liabilities;
  • in case of a single management of a pre-bankruptcy arrangement with creditors procedure, the exclusion from the vote of those companies of the group which have claims against the companies involved in the insolvency procedure;
  • in case of a single management of a judicial liquidation procedure, the granting to the court-appointed receiver of the power to challenge transactions made before the commencement of the procedure and aimed at shifting resources from a company of the group to another one; the powers to bring liability actions, to report any irregularities in the management and to file for insolvency in respect of the companies of the group which are not involved in the procedure.