Restructuring and insolvency law in Italy

1. What is the primary legislation governing restructuring proceedings in your jurisdiction?

The main pieces of legislation regulating restructuring procedures are:

• the New Bankruptcy Code (Legislative Decree No. 14 of 2019, which transposed the EU Directive on Restructuring and Insolvency of June 2019 (EUR 2019/1023))
• the Italian Bankruptcy Law (Royal Decree No. 267 of 1942, as amended by the latest amendments made in 2022), for bankruptcy procedures initiated before the New Bankruptcy Code’s entry into force.

2. How are restructuring proceedings initiated?

Restructuring proceedings can be initiated with a petition by the entrepreneur (operating individually or as a company) who is in a situation of asset or financial distress.

3. Which different types of restructuring proceedings exist and what are their characteristics?

The Italian Bankruptcy Code provides several tools in order for a debtor to restructure its indebtness; the related restructuring proceedings mainly depend on the magnitude of the debt to be restructured and the number of creditors, starting from a sort of private restructuring agreement (i.e. debt restructuring agreement under art. 56 of the New Bankruptcy Code) to court arrangements with creditors, which is the step before full bankruptcy.

Debt restructuring agreement under art. 57 of the New Bankruptcy Code

An art. 57 debt restructuring agreement represents a means of reorganisation that a company in crisis resorts to in an attempt to reduce debt exposure and ensure rebalancing of the financial situation. A restructuring agreement is subject to court approval, but it is still an out-of-court instrument.

Basically, it can be defined as an agreement formed with a number of creditors representing:

• 60% of the credits – standard or ordinary agreement
• 30% of the credits – facilitated agreement
• 75% of homogeneous credits belonging to the same category  – extended agreement – and “certified” by the report of a qualified professional, who certifies the truthfulness of the data as well as the viability of the agreement.

With a restructuring agreement, it is the entrepreneur themselves who continues to run their own business, and – at the request of one party – their assets are assisted by certain protections (e.g. the blocking of enforcement and precautionary actions) to enable them to achieve rehabilitation. 

Debt restructuring agreement under art. 56 of the New Bankruptcy Code

An art. 56 debt restructuring agreement is an out-of-court tool which allows the debtor to benefit from a restructuring plan certified by an independent expert with the aim of reorganising the debt situation of an entrepreneur in a state of crisis or insolvency.  1

It is a solution proposed by the company in crisis, which can lead to an agreement with some of its creditors, proposed by the company with the aim of resolving the causes of the debtor’s crisis without the need to resort to more invasive insolvency institutions and with the guarantee offered to creditors and potential buyers of obtaining a form of protection in the event of failure of the agreement and the subsequent (eventual) bankruptcy of the debtor.

The agreement and the related plan can be kept confidential in the sense that they are not subject to mandatory forms of publicity (unless the debtor wishes to obtain some tax benefits, in which case the restructuring plan is published in the Commercial Register), and can remain known only to the debtor and each individual creditor participating in the agreement.

The purpose of the certified plan and the acts of its implementation is, therefore, to restructure the debt of the company and to restore its economic and financial stability in order to allow the continuation of its business.

The restructuring plan to be executed with certain creditors shall ensure the company’s ability to be able to continue its business by not generating losses (and, therefore, demonstrating the balance between costs and revenues in the income statement within the business plan that is now a necessary part of the content of the certified plan).

The most important characteristic of this kind of restructuring agreement is that no involvement of the court is requested.

“Composizione negoziata per la soluzione della crisi d’impresa”

The Italian “Composizione negoziata per la soluzione della crisi d’impresa” is a recent confidential, out-of-court tool by which the legislator intends to facilitate the rehabilitation of those companies that, although they are in such a state of financial distress in relation to which a crisis or insolvency is likely, have the potential to remain in the market, including through the transfer of the company or branches thereof. Basically, a company that finds itself in a condition of economic or financial imbalance that makes its crisis or insolvency likely may apply to the Chamber of Commerce for the appointment of a professional restructuring expert to assist it in negotiations with creditors and renegotiation of contracts, identifying suitable solutions to overcome the difficult situation. During the negotiations, the entrepreneur continues to manage their company without interference or control by the court or the expert. However, there are certain acts for the performance of which the authorisation of the expert is required (so-called “extraordinary acts”). As in bankruptcy proceedings (such as a composition with creditors), in order to safeguard the successful outcome of negotiations and thus the possibility of overcoming the crisis, the entrepreneur is given the opportunity to benefit during the settlement – if they require it – from “protective measures” of their assets from possible creditor initiatives.

If the negotiations with the creditors are unsuccessful, the debtor may apply for a court-controlled procedure called a simplified arrangement with creditors (“concordato semplificato”) provided that they have received the final report of the expert certifying that the negotiations were conducted in good faith and that the alternatives proposed are impracticable.

Moratorium agreement pursuant to art. 62 of the New Bankruptcy Code

A moratorium agreement concluded between an entrepreneur, including a non-commercial one, is aimed at temporarily regulating the effects of the crisis by means of a temporary moratorium of claims, subject to certain conditions to extend its effects to non-members.

The agreement may be entered into with any category of creditors (prior to the reform it was limited to bank creditors and financial intermediaries) and may have as its object:

• postponement of credit maturities
• waiver of acts or the suspension of enforcement and conservatory actions
• any other measure that does not entail a waiver of the claim.

To extend the effects of the moratorium to non-parties it is necessary that:

• the creditors to whom the effects are to be extended are grouped in categories, with homogeneous legal position and economic interests
• creditors representing at least 75% of the category’s claims adhere to the agreement
• all creditors belonging to the category are informed of the commencement of negotiations or enabled to participate in them in good faith
• the creditors themselves have received complete and up-to-date information on the assets and economic and financial situations, as well as on the agreement and its effects.

In addition, it is necessary that non-adhering creditors suffer proportionate harm consistent with the hypotheses of the resolution of the crisis or insolvency concretely pursued. This requirement is subject to the attestation report of an independent professional who also verifies the veracity of the company data and the suitability of the agreement to temporarily regulate the effects of the crisis.

Under no circumstances may new and additional financing burdens be imposed on non-adhering creditors because of the standstill agreement.

The agreement shall be communicated, together with the professional’s report, to the non-participating creditors, by registered letter with advice of receipt or at their digital domicile. An objection may be brought before the court within 30 days of the communication.

4. Are there different types of creditors and what is the significance of the differences between them?

Depending on the type of proceeding commenced by the debtor, creditors might receive different treatment depending on their respective claim. In general terms, the Italian Bankruptcy Code ranks creditors in four main categories:

• predeductible creditors – credits arising after the commencement of a procedure
• secured creditors – related to certain categories of claims (employees, tax, social security, labour, professionals, etc.) or to pledge, mortgage, liens, etc.
• unsecured creditors – the generality of creditors not having a particular privilege/security
• subordinated creditors – usually shareholders or bondholders.

Debt restructuring agreement

Debt restructuring agreements make it possible to satisfy creditors without respecting the par condicio creditorum, so that agreements can be reached on different terms for creditors with the same legal position and homogeneous economic interests.

“Composizione negoziata per la soluzione della crisi d’impresa”

In the composizione negoziata the involvement of all creditors is not even essential, nor is a segregated “mass” formed in favour of certain creditors.

The procedure is not subject to a disclosure requirement or court decree, but the application for access to the composizione is published in the Commercial Register, which is freely accessible to all citizens. Except under special conditions, third parties not involved in the procedure do not learn of the negotiations undertaken. This is because the negotiations are confidential and are conducted with the individual creditor. However, where the expert believes that the prospects for reorganisation are real, they meet with the other “interested parties” in the reorganisation process and outline possible intervention strategies by scheduling subsequent meetings at close periodic intervals.

Moratorium agreement

In a moratorium agreement the involvement of all creditors is also not essential.

The moratorium agreement must be communicated, together with the practitioner’s report, to non-participating creditors by registered letter with acknowledgement of receipt or at their digital domicile. An objection may be brought before the court within 30 days of the communication.

5. Is there any obligation to initiate restructuring/insolvency proceedings? For whom does this obligation exist and under what conditions? What are the consequences if this obligation is violated?

There is a general obligation to initiate restructuring proceedings for companies in a state of crisis.

Restructuring procedures are considered to be very convenient and flexible tools that companies resort to during the “crisis phase” to avoid incurring the “state of insolvency”.

In fact, a new type of obligation has been introduced recently for the administrative body, making it liable in case of non-implementation. In essence, the directors must:

• manage the company, providing it with adequate organisational, administrative and accounting structures in order to promptly detect the company’s crisis
• take action “without delay” to overcome the crisis and recover business continuity through the tools provided by the law for the resolution of the business crisis.

If the administrative body of the company fails to act in the performance of its duties (e.g. failing to request a restructuring procedure where convenient for the company), it could be held liable under Italian law for damages created to the company and third parties.

6. What are the main duties of the representative bodies in connection with restructuring proceedings?

The New Bankruptcy Code provides an obligation for the company’s representative body to intervene when there are warning signs of economic imbalance (i.e. non-payment of salaries, big debts, etc).

The representative bodies also have the duty to request proceedings. They are also in charge of making a decision on the content of the restructuring plan and the proposal to be submitted to the creditors, which will then be evaluated by the professional expert.

7. What are the main duties of shareholders in connection with restructuring proceedings?

The New Bankruptcy Code has established that it is exclusively up to the directors (and not the shareholders, who only need to be informed) to decide on the content of the restructuring plan and the proposal to be submitted to creditors, as well as the decision on access to a prior restructuring framework.

Some Italian authors, however, believe that the application for access submitted by the legal representative of the entity must be supported by a resolution of the shareholders’ meeting.

1. What is the primary legislation governing insolvency proceedings in your jurisdiction?

See Q1 under Restructuring. In addition, there are other more specific laws governing certain bankruptcy procedures.

2. How are insolvency proceedings initiated?

The New Bankruptcy Code provides that the application for access to the instruments of crisis and insolvency regulation is proposed by petition of the debtor.

For some insolvency proceedings, the application may be proposed not only by the debtor, but also by the bodies and administrative authorities that have control and supervisory functions over the company, by one or more creditors or by the public prosecutor.

For large companies in which public companies hold a direct or indirect shareholding, with the exception of companies listed on regulated markets, the new wording of Decree-Law 347/2003 recognises the power of a shareholder owning 30% of the capital to apply for a declaration of insolvency with immediate access to the extraordinary administration procedure.

3. What are the legal reasons for insolvency in your country?

Excluding minor companies, and large companies for which the size limits for the opening of extraordinary administration are indicated in Legislative Decree 270 of 1999 and for immediate access in Decree-Law 347/2003 and related updates, access to judicial liquidation is provided for companies that have exceeded at least one of the size requirements set forth in Article 2(1) d) of the New Bankruptcy Code, i.e. having:

• assets with a total annual amount of more than EUR 300,000 in the 3 fiscal years preceding the date of filing of the petition for the opening of judicial liquidation, or from the beginning of business if shorter
• revenues, however they result, for a total annual amount exceeding EUR 200,000 in the 3 fiscal years prior to the date of filing of the petition for the opening of compulsory liquidation or from the beginning of the activity if shorter in duration
• an amount of debts, even if not past due, exceeding EUR 500,000.

The opening of judicial liquidation also requires the existence of the company’s state of insolvency.

However, not every insolvency legitimises the opening of judicial liquidation. Such judicial procedure is allowed when the total sum of debts past due and unpaid by the company exceeds EUR 30,000 or if it is requested directly by the insolvent company.

Controlled liquidation may be available to:

• entrepreneurs who do not exceed the bankruptcy thresholds set out above
• agricultural entrepreneurs (Article 2135 of the Civil Code)
• innovative start-ups, or in any case entrepreneurs who, at the time of submitting their application, are not subject to judicial liquidation, compulsory administrative liquidation or other liquidation procedures provided for by the Civil Code or special laws for cases of crisis or insolvency, including consumers.

4. Which different types of insolvency proceedings exist and what are their characteristics?

The Italian Bankruptcy Code sets out few different types of insolvency proceedings, as summarised below.

Judicial liquidation (formerly Bankruptcy)

The New Bankruptcy Code significantly amended the provisions of bankruptcy procedure, even changing its name to “Judicial liquidation”. This is an insolvency procedure that, ordered by the judicial authority, aims to ensure the satisfaction of creditors, which in essence consists of at least partial payment of debts incurred by the entrepreneur. The main purpose of the proceedings as a whole is therefore to reinstate the entrepreneur’s assets, liquidate them and distribute them among creditors in accordance with the principle of equal treatment.

Along with the debtor and creditors, other parties participate in the judicial liquidation procedure, in particular the:

• Delegated Judge: whose role is to supervise the entire process to prevent creditors from suffering any damage
• Receiver: appointed directly by the Court and invested with the status of public official. Their function is to administer the debtor’s assets, as well as to carry out all the operations necessary for the purpose of carrying out the proceedings under the direction and supervision of the Delegated Judge and the Creditors’ Committee
• Creditors’ Committee: appointed by the Delegated Judge within 30 days of the opening of the judicial liquidation and consisting of 3-5 creditors chosen on the basis of particular criteria for the evaluation of their claims; responsible for supervising the activities carried out by the Receiver and authorising the activities themselves.

The procedure consists of two steps that can be summarised as follows:

• the Receiver prepares the liquidation programme within which the methods by which the liquidation of assets will be carried out, indicating costs and timeframe. The liquidation programme will be approved by the Creditors’ Committee and authorised by the Delegated Judge
• once this stage is completed, the procedure will move on to the sale of assets and then to distribution among the creditors.

Composition with creditors (“Concordato preventivo”)

A composition with creditors is a particular crisis regulation tool: its purpose is not in fact to impose on the debtor a judicial or administrative procedure, but is instead to formulate an agreement between the entrepreneur in crisis and their creditors so as to avoid the judicial liquidation of the former and, at the same time, ensure the satisfaction (at least partial) of the latter.

In essence, through a composition with creditors, the debtor agrees with the creditors on how they will pay their debts through the preparation of a plan that must be approved by the creditors through specific means.

An entrepreneur has the option of using a composition with creditors to be able to satisfy creditors through either business continuity or liquidation of assets. There are several types of this instrument that have different ways of satisfying creditors:

• composition in business continuity, direct or indirect (concordato in continuità) – a form of debt resolution for a company that provides for the continuation of business operations without interruption. In this case, the company’s creditors agree to defer or modify the terms of debt payment so that the company can continue to operate without interruption
• composition in liquidation (concordato liquidatorio) – its purpose is exclusively the satisfaction of corporate creditors. This is achieved exclusively through the proceeds derived from the liquidation of corporate assets
• “combined” composition (concordato misto) – combines both characteristics.

In any case, the arrangement is in the nature of judicial insolvency proceedings: agreement is reached within the framework of special protection, represented by several factors such as:

• admission to the procedure: this takes place by means of an order of the court, which verifies the existence of the requirements required by law
• appointment of the so-called judicial commissary, who is entrusted with the task of supervising the administration of the company’s assets
• presence of the judicial authority, which intervenes at crucial moments of the entire procedure. 

Compulsory liquidation (“Liquidazione coatta amministrativa”)

Administrative compulsory liquidation is the procedure envisaged for companies that are subject to public control (such as, for example, banks or insurance companies), by virtue of the fact that they carry out activities characterised by marked economic and social importance.

The insolvency procedure envisaged for these entities basically traces that of bankruptcy since it is modelled on it, except for the specific provisions envisaged because of the delicate position in which the mentioned entities find themselves and for which compulsory liquidation is specifically created.

Unlike bankruptcy, however, it is administrative in nature, since the authority called upon to manage the crisis is an administrative one instead of a judicial one and is identified by the special law applicable from time to time.

Extraordinary administration (“Amministrazione straordinaria”)

Extraordinary administration is an insolvency procedure envisaged for companies of particularly large size having as its main purpose, in addition to satisfying creditors, the preservation of the production complex in order to restore assets and safeguard jobs.

Like compulsory liquidation, this procedure is also administrative in nature as its management is entrusted to the Ministry of Productive Activities.

The proceeding differs from others, however, since it is composed of an additional observation phase aimed at assessing the existence of concrete possibilities of recovery of the business as a going concern through the full restructuring of the debt.

Controlled liquidation

The opening of a controlled liquidation may be requested by an entrepreneur only if a crisis arises, or by a creditor only if insolvency arises. The application is made before the court, which appoints the Delegated Judge and the liquidator. The court assigns time limits to the creditors to bring claims for restitution, claim or admission of claims to the liabilities and orders the release or delivery of the assets forming part of the estate to be liquidated. With the opening of the liquidation, the debtor’s assets are then managed by the liquidator, who provides for their liquidation and the subsequent distribution of the proceeds among all competing creditors, in accordance with the principle of par condicio creditorum.

Consequently acts performed by the debtor, and payments made or received by it after the opening of the compulsory liquidation, are ineffective vis-à-vis creditors. If assets remain at the end of the liquidation, they are returned to the debtor. A compulsory liquidation is closed by court decree. Three years after the opening of proceedings, a closure decree automatically orders the debtor’s release from liabilities without the need for a special application, except in cases of gross negligence or bad faith.

5. Are there different types of creditors and what is the significance of the differences between them?

Pursuant to Italian law, creditors are divided into different classes according to the quality of credit they have against the debtor. The classes comprise:

• preferencial creditors – those who have a “prededucibile” credit, i.e. one that has arisen during the bankruptcy proceedings
• secured creditors – those who are assisted by addition rights, e.g. right of first refusal or mortgage
• unsecured creditors – those who are assisted by guarantees of any kind (so-called “chirografari”).

The satisfaction of creditors in Italy is carried out according to the principle of par conditio creditorum. Basically, this means that all creditors within the same class shall be satisfied equally. Therefore, after satisfying creditors whose credits have arisen as a result of the procedure (e.g. in the case of provisional operation of the business of the company), “insured” creditors will be satisfied first since, by law, they are privileged, and only then will creditors in the last category be satisfied.

6. Is a solvent liquidation of the company an alternative to regular insolvency proceedings?

The voluntary liquidation of an insolvent is an alternative to bankruptcy proceedings, but the cost is usually significant. In fact, voluntary liquidation is a procedure governed by the Italian Civil Code that is based on the premise that all the liabilities would be paid out. In such a situation, the shareholders can choose to liquidate all the company’s assets and distribute them among creditors to satisfy them, respecting the rules set out by the legislation. 

1. If a lender wants to monitor its borrower very closely (i.e. more closely than the usual information covenants in the credit agreement require), what options are there?

As a general rule, a lender does not have the power to control how a borrower administers its assets and to substitute themselves for the debtor in the exercise of their certain rights and actions.

However, Italian law allows this through subrogation action (azione surrogatoria) if the following prerequisites are fulfilled:

• there is inaction on the part of the debtor in the exercise of such rights and actions
• such inaction results in prejudice to the creditor’s reasons.

When these conditions are met, the subrogation action enables the creditor to exercise the rights and powers of the subrogated debtor, either judicially – for example, by bringing an action to claim ownership against the person in possession of the debtor’s property, or extrajudicially – for example, by interrupting the statute of limitations of a particular action by intervening themselves in person.

2. What issues arise if a creditor extends credit facilities or offers support conditional on additional or extended guarantees to a company in financial difficulties and/or takes asset security?

A creditor who intends to extend credit lines to a company in financial distress may be held liable for “abusive granting of credit” to third parties. According to Italian law, the abusive granting of credit occurs when a lender grants credit while knowing, or being able to know, that the financed company is in a state of distress.

In fact, the support given may lead to the unwarranted delay of insolvency proceedings, with the result of aggravating the size of the debt.

On the other hand, it is possible for such support to mislead third parties into believing that the company is in such good health as to merit the establishment or continuation of business relations, resulting in an increase in the number of the company’s creditors.

Therefore, the creditor must assess whether it is reasonable to offer support to the company and whether the financial situation can be actually readjusted.

1. How does a lender sell a loan?

NPLs can be sold by assignment.

According to Italian law, the assignment of credit is distinguished into pro-soluto or pro solvendo depending on whether the assignor, as a result of the assignment, is released from the assignee or remains jointly and severally obligated with the debtor-assignee in the event of the latter’s default.

Through the assignment of credit, the creditor party (assignor) can transfer their right (with or without consideration) towards the debtor (assigned) to a third party (assignee).

No formalities are required for an assignment and the debtor need not be notified in order to perfect the assignment. However, notification is required to enforce the assignment because until the debtor is notified, it can still discharge the debt by paying the assignor.

In case of NPLs, the bank can execute a pro-soluto assignment of a mass of loans at a price significantly lower than their total face value.

This transaction has advantages for both the assignor and the assignee: the bank is guaranteed immediate liquidity, while the assignee – while bearing the risk and costs of recovering the credit – will, in the event of successful recovery, earn a greater profit than that paid for the assignment.

Eventually, the bank must give notice of the assignment by registration in the Register of companies and publication in the Official Gazette of the Italian Republic.

The Italian government has also implemented a number of regulations and measures to help banks manage NPLs, such as the introduction of:

• “GACS” (guarantee on bank loans)
• a state guarantee on the senior tranches of NPL securitisations·
• a state-funded bad bank, Atlante, created to buy NPLs from banks in order to support their capital position.

2. If the underlying credit agreement prohibits transfer or assignment (i.e. a change in the lender of record), how else – if at all – can a lender transfer the economic risk and/or benefit in the loan? For instance, are sub-participation agreements allowed under the law of your jurisdiction?

Italian law establishes that a creditor may transfer their credit, even without the debtor’s consent, as long as the credit does not have a strictly personal character or transfer is not prohibited by law. The parties may exclude the assignability of the credit.

The legislature has not yet commented on whether an NPL can be assigned when there is a prior prohibition against assignment. However, in usual practice it is observed that the effect of the assignment is equally realised through the institution of the mandate to collect payment (mandato di riscossione del pagamento) in favour of the assignee.

Limits to the provision of security may also be inferred from art. 166 of the New Bankruptcy Code, which regulates cases of its revocation in the event of a debtor’s insolvency.

It is possible that an entrepreneur, by an application for access to a unitary procedure (the phase preceding the company’s decision on the most appropriate procedure to deal with the crisis) or to a negotiated settlement or restructuring agreements, requests the application of protective measures to avoid the suspension or termination of the credit facilities or to prevent creditors from obtaining guarantees or from exercising enforcement actions. Protective measures are effective from the moment the application is entered in the Commercial Register but must be confirmed by the court in a specific order, establishing their duration within the limits of the law.

In order to protect the financing granted to companies in crisis, art. 99 of the New Bankruptcy Code provides that in the context of restructuring agreements, facilitated agreements, extended effectiveness agreements and composition with creditors, authorisation may be requested to contract financing in any form, predeductible and functional to the continuity and best satisfaction of creditors on the assumption of business continuity, even if only in function of the liquidation of the company. Such functionality must be the subject of specific attestation by an independent professional having some particular skill set forth by the Italian Bankruptcy Code.

3. Regulatory issues: is any form of licence or prior authorisation from any regulatory authority required for the purchase, sale and/or transfer of loans? Does it fall within the definition of providing banking or financial services in the territory of the assignor or the borrower?

A one-off purchase of an NPL does not require a licence but purchasing NPLs as part of a business would qualify as providing a financial service under Italian law.

In the latter case, only debt collection companies/agencies (società/agenzie di recupero crediti) or brokers who are licensed following registration in an appropriate register can carry out this professional activity.

Debt collection companies or agencies fall into the category of entities engaged in financial activities.