The following are the main insolvency/restructuring proceedings in Italy: (i) bankruptcy, (ii) court arrangement with creditors and (iii) debt restructuring agreements. However, other minor procedures exist, such as those provided for over-indebtedness, as listed in point 3 above.
As required by Art. 1 of the Bankruptcy Act, entrepreneurs carrying out a business activity, excluding state entities, which exceed the following thresholds are subject to arrangement with creditors and bankruptcy:
- Assets in each of the last three financial years greater than €300,000.00;
- Gross revenues in each of the last three financial years greater than €200,000.00;
- Payables, including those not overdue, greater than €500,000.00.
The key insolvency procedure is bankruptcy (“fallimento”). Bankruptcy is a court-supervised procedure for the liquidation of an insolvent company’s assets and distribution of the proceeds. It results in the company’s dissolution. As noted above, bankruptcy applies to business undertakings, with the exception of state entities and small businesses.
The procedure is started by an order of the court having jurisdiction over the debtor’s principal place of business on the basis of a petition which may be submitted by: i) the debtor himself (or the directors of the debtor company); ii) a creditor; iii) the public prosecutor. The court must serve the debtor with a subpoena requiring them to attend a hearing of the bankruptcy petition. The proceeding is carried out and supervised by the following parties: a receiver; a deputy judge; a creditors’ committee representing all creditors.
The Bankruptcy Court will verify whether the petition for bankruptcy is formally valid and whether the conditions for bankruptcy are met. If both are confirmed, the Bankruptcy Court will declare the company bankrupt. The bankruptcy judgment has immediate effect starting from the day of its docketing.
The arrangement with creditors (“concordato preventivo”) is a court-supervised procedure, the purpose of which is to discharge the debtor’s debts and avoid bankruptcy. The debtor must submit a plan, which can provide for the restructuring or discharge of debts in whatever form, including transfer of assets, assumption of debts or any other transaction. In order to strengthen the position of the unsecured creditors, Article 160 of the Italian Bankruptcy Act provides that the concordato proposal must grant the payment of at least 20% of the unsecured creditors’ claims. This provision does not apply to proposals that contemplate business continuation pursuant to Article 186bis of the Italian Bankruptcy Act.
Only the debtor is entitled to start a composition plan and the relevant decision must be taken by the management body (usually the board of directors) of the company. The composition plan must be submitted to the Bankruptcy Court of the district where the debtor has its main place of business in Italy.
Moreover, in order to give the distressed company more time to prepare a viable proposal, the law also provides that the debtor may file an application for composition with creditors and simply attach the latest three financial statements, postponing to a later time the filing of the proposal, the plan and the documents to be annexed thereto (“concordato in bianco”). These other documents must be filed within a term fixed by the delegated judge (from 60 to 120 days), which term can be extended by an additional 60 days maximum. During such period, creditors are prohibited from starting or continuing enforcement and foreclosure proceedings over the debtor’s assets (“automatic stay”).
The Italian Bankruptcy Act allows for debt restructuring arrangements (“accordi per la ristrutturazione di debiti”) under Art. 182bis, whereby a debtor “in a state of crisis” enters into a composition with creditors which is binding on all the debtor’s creditors, provided that:
- The debt restructuring arrangement is agreed by creditors representing at least 60% of the value of the debts; and
- The reasonableness and feasibility of the debt restructuring arrangements, the truthfulness of the company’s accounting data and the suitability of such arrangements to ensure repayment of those creditors who did not agree with such arrangements are certified by an independent expert who fulfils the requirements set out in Article 67 of the Italian Bankruptcy Act.
In any case, the debtor must guarantee full satisfaction of the creditors who have not approved the arrangements.
The Italian Bankruptcy Act does not mandate a specific format for the debt restructuring arrangement. The parties can freely determine the specific obligations and how these are to be performed. For example, they may include the waiver of interest, guarantees, total or partial transfer of assets, different treatments between different classes of creditors or simple rescheduling.
The debt restructuring arrangement is subject to homologation (confirmation). To that end, it is recorded in the Companies Register; within 30 days of registration, creditors and any interested party may file an objection. If the Bankruptcy Court considers that the aforementioned conditions are met and that objections, if any, are ill-founded, it issues a decree of homologation. If the Bankruptcy Court does not homologate the debt restructuring arrangement, it does not automatically declare the bankruptcy of the debtor.