The reorganisation effort of distressed companies often requires new funding. This has led the Italian insolvency system to abandon punitive solutions in favour of incentives for companies in distress. An interesting aspect of this change is represented by the new rules adopted in recent years with regard to financing granted by shareholders of companies in crisis.
Bankruptcy agreements are governed by Articles 124 to 141 of the Bankruptcy Law and aim to speed up bankruptcy proceedings. When a bankruptcy agreement proposal is filed with the bankruptcy court, the delegated judge seeks the receiver's opinion and the approval of the creditors' committee. For a proposal to be approved, it must obtain a favourable vote of a majority of the creditors admitted to vote by Article 127 of the law.
The new civil insolvency proceedings look set to become increasingly important, especially considering their application to the large number of microenterprises and business entities which operate below the thresholds set out in Article 1 of the Bankruptcy Law. The new deed arrangement is a confirmation that the legislature has understood (at last) the economic importance of microenterprises in Italy and the need to regulate their financial difficulties, the impact of which could no longer be ignored.
The recent enactment of Law 155 represents an ideal opportunity to modernise Italian insolvency proceedings through a comprehensive set of guiding principles and criteria to be applied to rationalise the associated judicial proceedings. Key changes include the development of mechanisms to recognise and resolve a debtor's business crisis before it becomes irreversible and the simplification of judicial proceedings, which will be faster and prioritise proceedings that allow business continuity.
In the recent rescue of two major national banks, the Ministry of Economy and Finance considered the banking sector's traditional measures for an administrative compulsory liquidation to be inadequate and insufficient. As a result, it issued Decree-Law 99, which placed the banks into administrative compulsory liquidation and introduced instruments to manage their financial crisis.
Decree-Law 83, which reformed Italian bankruptcy law, entered into force in August 2015. One of the drivers of the reform was a desire to discourage pre-packaged restructuring deals originating from the debtor and to implement the efficiencies of concordato preventivo (ie, composition with creditors) proceedings, opening them up to the market and generating new opportunities for both investors and distressed companies.
The Rordorf Commission was established in January 2015 to develop draft legislation to reform the existing Insolvency Act. One of the commission's primary goals is to provide for the coordinated management of financial distress and insolvency in corporate groups through the introduction of group-wide pre-bankruptcy composition agreements. Parliament recently approved an excerpt of the commission's proposed reforms, which will be transposed into decree-laws following Senate approval.
Debt restructuring agreements provide an instrument to entrepreneurs in financial distress that wish to undertake a negotiated solution with creditors in an out-of-court process. A ministerial commission on the rules governing insolvency procedures has recently stressed the need to revitalise this instrument by making a contractual compact enforceable and binding on all creditors – even those that are not parties to it.
The minister of justice set up a commission in 2015 to develop draft legislation designed to reform, review and reorganise the rules governing insolvency procedures in Italy. Of the tools considered by the commission, the pre-bankruptcy composition agreement procedure is believed to be the most effective tool to solve business crises favourably. Indeed, if correctly applied, it can protect a debtor's business in potentially reversible insolvency situations.
The minister of justice set up a commission in 2015 to develop draft legislation designed to reform, review and reorganise the rules governing insolvency procedures in Italy. The commission's proposed statutory instrument introduces alert and mediation procedures to safeguard a troubled firm's value by hastening the timely discovery of conditions of financial and business distress without the need to wait for the firm's too-often belated reaction.
Changes have been introduced to the Insolvency Act concerning the assignment of assets and the performance of composition agreements. The legislature has revised the rules on the performance of composition agreements by providing for new collaborative duties. Further, a new form of debt restructuring has been introduced for the benefit of businesses with debts claimed by banks or other financial institutions.
Parliament recently introduced changes to the Insolvency Act which address bankruptcy, debt restructuring arrangements and the pre-bankruptcy agreement procedure. The most significant changes to the latter include the treatment of executory contracts and bridge loans in support of firms subjected to the pre-bankruptcy agreement procedure.
Parliament recently introduced major changes to the Insolvency Act with the aim of fostering economic growth. Pre-bankruptcy agreement procedures have been opened up to competition, allowing creditors to submit competitive proposals. This is expected to avert the risk of unsuitable pre-bankruptcy agreements being proposed and could result in significant rates of debt satisfaction.
Composition is one of the legislative tools that helps businesses to avoid being declared bankrupt. It allows a debtor in difficulty to submit a proposal to creditors for approval on the basis of a plan providing for the appropriate timing of debt extinguishment. Pre-composition allows a debtor to benefit from the protective effects of a composition proper before filing the requisite statutory documents.
The pre-bankruptcy composition with creditors, governed by the Bankruptcy Act, is a popular legal tool used to bring about an agreement between the debtor and its creditors under the supervision of a tribunal. The act allows creditors to seek termination of the agreement due to non-performance, provided that the debtor's failure to perform "is not of minor importance"; however, interpreting this phrase requires careful assessment.
Striking a limited company from the Companies Register is not an isolated move, but the outcome of several actions carried out in the liquidation process. Under an early approach supported by the Supreme Court, neither removal from the register nor the company's dissolution through the opening of the liquidation procedure can extinguish the company. However, an alternative approach has recently risen to prominence.
A notable recent amendment to the Bankruptcy Act is a provision that an insolvent debtor may file a 'blank' (ie, reserved) petition for composition with creditors. This allows the debtor to accelerate the operation of certain protective effects without having all of the documents needed to make a full application for creditor composition. Although widely used since its introduction, this procedure has raised several controversial issues.
The Decree-Law on Urgent Measures for the Country's Growth made major amendments to the Bankruptcy Act in respect of pre-bankruptcy composition with creditors, which is one of the most common tools to manage insolvencies. The pre-composition device has been widely used – and misused – since its introduction. With a view to removing ambiguities, Parliament recently took remedial action by issuing a new decree-law.
The concordato preventivo procedure allows a debtor to submit a proposal to a majority of its creditors that outlines the applicable measures and timeframe for the satisfaction of its debts in a judicial process supervised by a tribunal. However, despite recent legislative changes, the extent of the tribunal's investigatory powers remains poorly defined. A recent Supreme Court decision has provided welcome clarity on the matter.
In addition to amendments to the composition procedure, the Decree-Law on Urgent Measures for the Country's Growth introduced new provisions applying to debt restructuring agreements pursuant to Article 182bis of the Insolvency Act, as well as some crossover provisions applicable to both composition with creditors and debt restructuring agreements.