Winding-up proceedings

1. Bankruptcy (“Fallimento”)

Conditions for opening

Bankruptcy is regulated by the Royal Decree no. 267 of 1942 (“Italian Insolvency Law”) and consists of a procedure applicable to distressed companies aimed at liquidating all assets. The procedure does not apply to public entities, which are subject to different measures.

Bankruptcy applies to insolvent companies, i.e., companies which are no longer able to regularly meet their obligations. A company cannot be adjudicated bankrupt unless the following conditions jointly apply: (a) the company assets value in the last three fiscal years does not exceed Euro 300,000.00; (b) the gross income of the last three fiscal years does not exceed Euro 200,000.00; and (c) the overall amount of debts, including those not yet expired, does not exceed Euro 500,000.00.

Creditors, the public prosecutor, or the debtor itself are entitled to file the request of bankruptcy to the competent Court (that of the place where the company has its legal seat). The Court will assess the existence of the conditions set forth by law, declare the bankruptcy of the company, appoint a receiver (curatore) in charge of the management of the company’s assets and their liquidation, appoint a delegated judge (giudice delegato) in charge of supervising the whole procedure, and certify a creditors’ committee (comitato dei creditori) which is given certain functions mainly consisting of the protection of creditors’ interests.

Restructuring methods

The aim of bankruptcy is to liquidate the business and distribute the proceeds among all creditors, according to their preferential rights.

The company may also be authorised by the Court, with prior consent of the receiver, the Delegated Judge, and the creditors’ committee, to temporary continuation of the business or to the rent of the business (or specific branches of same), to be managed by the receiver, provided that said continuation is beneficial to the creditors.

Please note that as a general rule, in case of contracts not yet completely performed, the declaration of bankruptcy triggers their suspension until the receiver − having been authorized by the creditors’ committee − expresses its intention to succeed in the contract (various provisions of Italian Insolvency Law regulate the continuation or termination of specific contract types).

Typically, following the declaration of bankruptcy, the company is no longer entitled to dispose of its assets and creditors cannot start or continue enforcement or ad interim procedures against the bankrupt company.

Please note that non-gratuitous acts performed within 6 months or one year, depending on the case, before the declaration of bankruptcy, are subject to claw-back actions in order to preserve the creditors interest and to avoid the risk that the debtor cleans out all company assets before the bankruptcy procedure commences.

During the proceedings, a set-off of credits and debts is allowed.

Throughout the bankruptcy procedure, creditors, or even a third party, can propose an agreement for the settlement of the debts, which need to be approved by the majority of creditors and the Delegated Judge being then binding for all creditors.

Such agreements may provide for different treatment of creditors belonging to different classes, or restructuring of debts through any method, including through the sale of assets, or other extraordinary transactions, such as awarding creditors stocks, shares, or bonds, including those convertible into shares, or other financial instruments and debt securities.

Success rate

There is no real concept of success rate in the course of a bankruptcy procedure: the beginning of the procedure always leads to an end through a decision issued by the Judge. The success rate in terms of credit recovery is scarce for unsecured creditors (estimated approximately at 5-10% of original credit) and significantly higher for secured creditors, which must be normally fully repaid according to their title of privilege at least within limits of titles and privileges.

Pros and cons

Pros: The pros are limited to the fact that bankruptcy is a court-driven procedure, theoretically ensuring that no funds/proceeds/assets are diverted from creditors (though, in practice, long procedures involve high costs for custodians, bailiffs, the receiver, and other ancillary bodies linked to the procedure).

Cons: Bankruptcy contains more cons than pros, considering that certain cases could require time-consuming procedures lasting up to 20 years, and that the final distribution to creditors is normally very limited.

2. Compulsory administrative liquidation (“Liquidazione coatta amministrativa” − LCA)

Conditions for opening

The compulsory administrative liquidation is a procedure applicable to companies subject to public control and operating in a public interest sector (e.g., insurance companies, investment companies, banks, etc.), which are excluded from bankruptcy proceedings.

The LCA procedure applies to companies which are insolvent, have breached legal provisions of serious relevance, or whose conduct threatens the relevant public interest.

Since the scope of LCA is to protect not only the creditors, but above all, the public interest, the supervising Authority plays the same role in an LCA as is played by the Court in bankruptcy procedures; controlling the course of the entire procedure.

Insolvency of the company is stated by the Court, following a request filed either by the company itself, the relevant supervisory authority, or the creditors. The Court may even issue provisional measures aiming at protecting creditors before the opening of the procedure is formally declared.

Restructuring methods

The declaration of LCA by the relevant supervising authority is published within the following 10 days on the Official Gazette and filed at the Companies’ Register. Following the LCA declaration, corporate bodies’ functions are suspended, asset management can no longer be performed directly by the companies, and any acts and payments made after the publication of the decree which disposes the compulsory administrative liquidation are considered ineffective.

The procedure also involves a liquidator Commissioner and a board of surveillance, in charge of replacing the entrepreneur in the management of the corporate assets and for the performance of all operations necessary for liquidation and termination of the business under the coordination of the supervisory authority.

Success rate

Many companies in financial difficulty choose to mask the crisis by modifying the data contained in the accounting documents and continue to operate even in the presence of a distressed financial position. As a consequence, creditors cannot rely on high protection of their credits.

Pros and cons

There is no real concept of pros and cons in the course of LCA procedures. The recourse to such procedure is not an option for the relevant company, and represents, instead, a necessary measure which the company is subject to.

Insolvency Proceedings

1. Arrangement with creditors (“Concordato Preventivo”)

Conditions for opening

Concordato preventivo is a court-driven procedure regulated by the Italian Insolvency Law that aims at avoiding bankruptcy for companies in distress, through an agreement between the debtor and its creditors (creditors might be divided into classes in respect with the nature/title of their relevant credits). Said agreement is reached through a plan approved by the majority of creditors and confirmed by the Court.

The plan is filed together with relevant documentation, including a report by an “expert” opinion concerning the reasonableness of the plan, the truthfulness of the company’s accounting data, and the feasibility of the restructuring plan. The concordato proposal must be approved by the majority of creditors and secured creditors are not entitled to vote unless they waive their privilege. The plan approved and confirmed by the Court is compulsory for all creditors whose claims arose prior to the filing of the proposal. No enforcement or ad interim measures can be started or continued by creditors after the distressed company’s filing of the request for a concordato procedure.

Restructuring methods

The Concordato procedure may be structured as liquidation of assets or a continuation of the company’s business and may involve leases, rentals, or sales of branches of business. Throughout the procedure, the debtor is entitled to manage the company’s assets and to carry on business under the supervision of the Court. Actions and payments performed in execution of a confirmed concordato plan are not subject to claw-back actions.

Particular conditions are required if the concordato proposal provides for the continuation of the business. Notably, the plan must contain an analytic description of costs and profits predicted for the continuation of the business and the required financial needs and the relevant coverage. The expert report must confirm that the continuation of the business will enable the repayment of the company’s creditors and the plan may contain a moratorium of up to one year from its confirmation by the Court for the repayment of creditors holding privileges, pledges, or mortgages. If the company does not follow the concordato plan, the distressed company will undergo bankruptcy.

Success rate

The success rate of concordato procedures is slightly higher than bankruptcy with respect to percentages of repayment normally achieved by creditors. Nonetheless, such payments remain low in the case of unsecured debts.

Pros and cons

Pros: The pros of concordato consist of the possibility of avoiding bankruptcy − at least partial − repayment to creditors and in having a Court-driven procedure. Furthermore, courtesy of recent amendment, companies are now allowed to file a so-called “blank application”, which must include a record of all creditors and their relevant claims, and supply the Court with all required documentation, together with the restructuring plan, at a later stage. From the filing of the application creditors cannot start or continue ad interim or enforcement actions until the Court has officially rejected the company application. This new option allows a company to restructure its business by providing a simplified procedure which protects the company’s assets while helping it avoid bankruptcy.

Cons: The cons consist of the risk of bankruptcy, which is declared when the plan is not confirmed or when the company fails to comply with the confirmed plan.

2. Extraordinary administration (“Amministrazione straordinaria”)

Conditions for opening

Extraordinary administration, regulated by Legislative Decree no. 270 of 1999, allows for firms employing more than 200 employees, having a concrete possibility of recovering from economic distress, and having debts exceeding two-thirds of the company total assets as of the profits of last year, to benefit from a particular procedure which takes into account the significant commercial, productive, and employment value of the company.

Restructuring methods

The restructuring of the business is carried out by an Extraordinary Commissioner acting under the supervision of the Ministry of Industry and Commerce for a maximum period of five years.

The activity aims at reorganizing the business through a restructuring plan − supposing that the Extraordinary Commissioner asserts the possibility of recovery from the company’s financial distress − otherwise the procedure turns into bankruptcy.

The application for extraordinary administration is submitted to the Court where the company has its registered office. After having verified all requirements provided for by law and after having heard the parties concerned, the Court declares the insolvency status and issues a judgment which must be published and notified to the relevant Ministry of the Economic Development.

The recovery can take place through different solutions: by the sale of the business, on the basis of a continuing business program for a period not exceeding one year, by the economic and financial restructuring of the company, on the basis of a rehabilitation program lasting no longer than two years, and, for companies operating in the field of essential public services, through the sale of whole assets and contracts, on the basis of a continuing business operation of the company for a period not exceeding one year.

If the company is part of a group of companies, the Commissioner can submit a request for the admission of other insolvent companies belonging to the same group to the Ministry of the Economic Development by filing with the competent Court an application for the assessment of insolvency status.

Success rate

The majority of the companies applying this procedure recovered by being sold to third parties.

This procedure has raised several problems in supporting and rehabilitating big insolvent companies. In fact, a faster procedure is made available to companies having at least 500 employees and a debt of at least EUR three hundred million. The purpose is continuation of the business by restructuring the business’ debt through the sale of assets which are not strategic for the continuance of the business.

Pros and cons

Pros: Due to the important role played by the state, this procedure is able to provide a very high protection to the public interest to the detriment of the efficiency of the procedure in terms of creditor protection.

Other Restructuring Techniques

1. Arrangement for debts restructuring (“Accordi di ristrutturazione”)

Conditions for opening

The agreements for debts restructuring are an out-of Court procedure regulated by art. 182-bis of the Italian Insolvency Law for companies facing crisis but not yet considered insolvent.

Restructuring methods

The agreement on debt restructuring proposed by the company must be approved by at least 60% of the creditors (in terms of value), and will be binding only for those creditors who participate in the agreement, though it must ensure the full repayment of all creditors which did not take part in the agreement. It is also required that the payment of the creditors not party to the agreement must occur (i) within 120 days from the date of the Court confirmation, if such claims are overdue; or (ii) within 120 days from their maturity date, in case of claims not yet due at the confirmation date.

Once the agreement is approved following its publication in the Companies Register, together with a report of an expert attesting its feasibility, it becomes fully effective. The plan also needs to be confirmed by the Court in order to obtain additional legal effects. From the publication in the said registry, any enforcement action taken by the creditors is suspended for the following 60 days and no new actions can be started.

The applying company is allowed to obtain loans in the course of the procedure if an expert ascertains that they serve the restructuring of the company and the repayment of creditors. All transactions and payments carried out or granted pursuant to a debt restructuring agreement approved by the Court are not subject to claw-back actions.

Success rate

Success rate of the arrangements for debt restructuring depends on the solidity of the plan and of the underlying expert’s report.

Pros and cons

Pros: The possibility exists to finalise an arrangement not requiring 100% creditor consent, and to have an out-of-court procedure (the Court has to confirm the plan with less stringent requirements as compared to concordato preventivo). Furthermore the Judge, by means of a decree, can order the creditors to suspend any new or already started enforcement action for 60 days.

Cons: the necessary publicity of the agreement at the Companies Register and the lack of constant Court supervision.

2. Certified recovery plans (“piani attestati di risanamento”)

Conditions for opening and restructuring methods

Certified recovery plans provided for by art. 67 of Italian Insolvency Law consist of out-of-court procedures aiming at rebalancing the financial situation of the company. The plan is drafted by an independent expert appointed by the company and must respect certain strict requirements. The expert must indicate in the plan the measures that the company intends to undertake in order to sort out its financial difficulties. Furthermore, the expert must attest to the truthfulness of the company’s accounting data as well as to the restructuring plan’s feasibility. The expert could potentially incur criminal liability for a false certification and report.

The plan, if approved, will be published in the Companies’ Register upon request of the applying company. All actions performed, the payments made, and securities granted by the distressed company in the course of the plan are exempted from claw-back actions.

Pros and cons

Pros: Pros of this technique consist primarily in the reduced timing and the possibility to avoid the disclosure of a restructuring procedure of the company to the public, given that no Courts are involved nor are any third parties are informed through publicity.

Cons: Cons consist in the responsibility of obtaining an expert to draft and attest to the plan and in the lack of intervention of a Court to supervise the procedure. Also, the intervention of the expert could comprise high costs.