CMS Expert Guide to restructuring and insolvency law

A global overview

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

The primary legislation governing insolvency and court-sponsored financial restructuring proceedings in Slovenia is the Financial Operations, Insolvency Proceedings, and Compulsory Dissolution Act (Zakon o finančnem poslovanju, postopkih zaradi insolventnosti in prisilnem prenehanju, hereinafter “ZFPPIPP”).

There is no special law or regulation governing out-of-court restructuring of financial obligations. There are only informal guidelines. 

After the start of the financial crisis in 2008 there was a period involving a number of financial restructurings in Slovenia. Based on that experience and know-how:

  • in 2011 the Managers’ Association of Slovenia adopted Principles on Restructuring of Corporate Debt 
  • in 2014 the Bank Association, in cooperation with the Bank of Slovenia and the Ministry of Finance, prepared Slovenian Principles of the Financial Restructuring of Corporate Debt. 

Out-of-court financial restructuring agreements are purely a result of negotiations and agreement between the parties. 

The Italian Bankruptcy Act and the European Regulation on Insolvency Proceedings (2015/848) are the primary pieces of legislation governing insolvency proceedings in Italy. Starting from September 1st, 2021, the new Corporate Crisis Code (Legislative Decree January 12th, 2019, n. 14) is due to enter into force and regulate several aspects of insolvency matters.
The Extraordinary Administration for Major Undertakings Act of 1999 [Nuova disciplina dell'Amministrazione Straordinaria delle Grandi Imprese in Stato di Insolvenza], also known as the New Prodi Law [Nuova Legge Prodi], which provides a government-supported reorganisation plan for insolvent enterprises exceeding a certain size, is also of relevance.

2. How are insolvency proceedings or restructuring proceedings initiated?

All insolvency proceedings and court-sponsored financial restructuring proceedings are initiated based on a request to the court which can be filed by: 

Compulsory settlement 

  • an insolvent debtor
  • a personally liable shareholder, or 
  • creditors in certain cases.   

Simplified compulsory settlement

  • an insolvent debtor, or 
  • a personally liable shareholder.  

Bankruptcy 

  • an insolvent debtor 
  • a personally liable shareholder
  • creditors in certain cases, or 
  • Public Guarantee, Maintenance and Disability Fund of the Republic of Slovenia, in certain cases.

Court-sponsored financial restructuring proceeding

  • a debtor.  

Out-of-court financial restructuring 

  • can be proposed by any of the involved parties. 

The initiation of insolvency proceedings assumes the filing of a petition by the insolvent debtor. With respect to bankruptcy, this can also be submitted by the relevant creditors or by the public prosecutor under certain circumstances (i.e. the state of insolvency is ascertained during the course of a criminal trial). 

The insolvency petition must be based on the existence of a reason for instituting the proceedings that may vary from the specific proceedings being considered (the legal reasons for insolvency are highlighted in point 3 below). Otherwise the court will not initiate proceedings. 

Restructuring proceedings in Italy are constituted by debt restructuring arrangements (“accordi di ristrutturazione del debito”) pursuant to Art. 182bis or Art. 67 of the Italian Bankruptcy Act and can be agreed only by the debtor and its creditors. The intervention of the judge takes place only at the subsequent stage and only in the Art. 182bis procedure, where the court is required to proceed with homologation of the arrangement. 

A bankruptcy proceeding is initiated against insolvent debtors. Under ZFPPIPP the company is considered insolvent if the following reasons exist:

  •  long-term illiquidity (trajnejša nelikvidnost), i.e. the company is not able to pay its payment obligations that are due in a longer period of time, and/or
  • the company is over-indebted (dolgoročna plačilna nesposobnost).

ZFPPIPP defines certain assumptions for a company to be considered insolvent which help to establish or prove that a company is insolvent. Certain assumptions are considered true unless proven otherwise, and certain assumptions cannot be contested.

Assumptions that can be contested

Long-term illiquidity 

  • if a company is late with payment for more than 2 months and with more than 20% of all of its payment obligations, as shown in its last published balance sheet/annual report, or
  • if the monies on a company’s bank account do not suffice for payment of its obligations under the writ of execution or debenture note (izvršnica) in an uninterrupted period of 60 days, or interrupted period of more than 60 days within a period of 90 days, and such situation exists on the day prior to filing for bankruptcy, or
  • if the company has no bank account with Slovenian providers of payment services and has not paid its payment obligations under the writ of execution in a period of 60 days from when such decision became final.

Over-indebtedness 

  • if the value of the company’s assets is lower than the total amount of its obligations
  • if the loss of the current business year with losses brought forward reached half of the registered capital and such loss cannot be paid out of the profit brought forward or the provisions.   

Assumptions that cannot be contested

ZFPPIPP defines certain assumptions for a company to be considered insolvent which are considered true and cannot be contested:

Long-term illiquidity 

  • the company is late with payment of employees’ salaries in the amount of a minimum salary for more than 2 months, or
  • the company is late with payment of taxes and contributions that need to be paid in respect to employees’ salaries, and such situation exists on the day prior to filing for bankruptcy.

Pursuant to the intervention measures of the Slovenian state amid the COVID-19 pandemic, an additional assumption for long-term illiquidity has been introduced that applies until 30 September 2020: 

  • the company is late with payment of salaries and contributions to employees for more than 1 month from the time the company received compensation from the state for salaries and contributions of employees, based on the intervention measures amid the COVID-19 pandemic.

The following reasons for instituting insolvency proceedings exist under Italian law: 

  1. State of crisis, which is the requirement for initiating an arrangement with creditors (in Italian, “concordato preventivo”). Before the issuing of Legislative Decree January 12th, 2019, n. 14, there was no regulatory definition of a state of crisis. Now, Art. 2 of the new Corporate Crisis Code provides the relevant definition: “the state of economic and financial difficulty which makes the debtor’s insolvency probable, and which for companies is demonstrated by the inadequacy of the prospective cash flows to regularly meet the planned obligations”. Certain indicators of the state of crisis are provided under Art. 13 of the new Corporate Crisis Code, such as budgetary, income and financial imbalances, related to the specific characteristics of the company, which can be detected through specific indices. For these purposes, the indicators that measure the sustainability of debt burdens with the cash flows that the company is able to generate and the adequacy of its own resources compared to those of third parties are considered significant indices. Repeated and significant delays in payments are also indicators of crisis.
  2. State of insolvency, which is the requirement for starting bankruptcy proceedings. Art. 5 of the Italian Bankruptcy Act provides that the state of insolvency is manifested by defaults or other external events which demonstrate that the debtor is no longer capable of regularly fulfilling its obligations when due. This definition is confirmed in the new Corporate Crisis Code. However, the term bankruptcy has been replaced with “judicial liquidation” (in Italian: “liquidazione giudiziale”). According to certain court precedents, “indications of insolvency” can be found even prior to, and regardless of, payment defaults, if it is foreseeable that the debtor will no longer be in a position to regularly pay its debts. Insolvency may also be found to exist upon just one event of default, if the event demonstrates that the debtor is in distress.
  3. Over-indebtedness, which, according to the new Corporate Crisis Code, is the state of crisis or insolvency of consumers, professionals, minor entrepreneurs, agricultural entrepreneurs, innovative start-ups and any other debtor which is not subject to judicial liquidation (i.e. bankruptcy), or forced administrative liquidation or other insolvency proceedings provided for by the Civil Code or by other regulations governing the state of crisis or insolvency. In the event of over-indebtedness, legal persons not subject to bankruptcy can resort to three procedures: i) a debt restructuring plan (Art. 67-73), reserved for consumers; the “concordato minore” (Art. 74-83), addressed to professionals, minor entrepreneurs, agricultural entrepreneurs and innovative start-ups; and the controlled liquidation of the debtor (“liquidazione controllata del debitore”) (Art. 268-277).

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

For a company that is insolvent the following insolvency proceedings are available in Slovenia: 

  • compulsory settlement proceeding
  • simplified compulsory settlement proceeding
  • bankruptcy proceeding.   

Prior to insolvency there are two options of restructuring proceedings: a court-sponsored financial restructuring and an out-of-court financial restructuring.

Insolvency proceedings

Compulsory settlement (postopek prisilne poravnave)

  • a compulsory settlement proceeding is a proceeding available to already insolvent companies; it can be proposed even if the bankruptcy proceeding has already been initiated. Once bankruptcy proceeding starts, there are no longer any restructuring options 
  • the proceeding is usually proposed by a debtor, though in certain cases it may be proposed by creditors holding more than 20% of the value of all claims against the debtor
  • compulsory settlement generally affects all unsecured claims. The company, however, has the possibility to propose:
    • restructuring of secured claims as well
    • restructuring of claims of financial creditors only
  • the proceeding is led by an insolvency administrator, appointed by a court, who also oversees the business operations of the debtor during the proceeding 
  • a proposal for a compulsory settlement proceeding must be substantiated with a combination of one or more of the restructuring measures necessary for a successful restructuring; these measures may include: 
    • financial restructuring measures: principal haircut, maturity extension, and/or interest rate reduction
    • corporate restructuring measures (usually ancillary in nature): a simplified capital reduction, a capital injection with cash inflow or by way of a D/E swap, a downstream spin-off
    • operational restructuring measures: divesting non-core assets, operational turnaround, etc.
  • compulsory settlement requires a vote of 60% of all affected claims. 

Simplified compulsory settlement (poenostavljena prisilna poravnava)

  • a simplified compulsory settlement is intended for micro-sized companies and self-entrepreneurs who meet the criteria of micro- or small-sized companies. Some rules of compulsory settlement are simplified to ensure efficient restructuring of small entities. For example, in this proceeding, no administrator is appointed, creditors do not register their claims, there is no creditors’ committee and there is only limited involvement of the court
  • simplified compulsory settlement requires more than a 50% vote of all creditors. 

Bankruptcy (stečajni postopek)

  • a bankruptcy proceeding is initiated to enable a court-sponsored dissolution of an insolvent debtor with the best possible recovery terms for the creditors. After the opening of a bankruptcy proceeding, creditors’ claims can only be exercised within this proceeding. There is no possibility of the restructuring of a debtor within a bankruptcy proceeding.

Restructuring proceedings

Court-sponsored financial restructuring (postopek preventivnega prestrukturiranja)

  • a court-sponsored financial restructuring proceeding is available to debtors who are not insolvent but are likely to become insolvent within 1 year. If financial creditors holding at least 30% of the value of all financial claims support the initiation of the proceeding this condition is presumed to be fulfilled 
  • a statutory stand-still/execution holiday prevails for the entire class of financial creditors during the time period of the proceeding
  • the proceeding is led by the debtor
  • the proceeding is intended for the restructuring of financial claims (secured and unsecured) only; claims of other creditors (e.g. suppliers) are not affected unless they expressly consent to be part of the restructuring agreement
  • the restructuring agreement may contain various restructuring measures, but only the following will achieve the “cram-down” effect on dissenting creditors: 
    • principal haircut and/or maturity extension of unsecured financial claims
    • interest rate reduction and/or maturity extension of secured financial claims (to a maximum of 5 years) 
  • other restructuring measures (e.g. D/E swap, principal reduction of secured claims, maturity extension of secured claims beyond 5 years, haircut and/or maturity extension of claims held by other non-financial creditors) require explicit the consent of affected creditors
  • the restructuring agreement must be approved by financial creditors holding at least 75% of the value of all financial claims (with a separate majority of 75% of all secured financial creditors if the restructuring agreement affects secured financial claims). 

Out-of-court financial restructuring 

  • an out-of-court financial restructuring agreement is purely a result of negotiations and agreement between the parties. All parties need to consent to the terms of restructuring agreement.

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.

5. Are there several types of creditors and what is the effect of a difference?

Under ZFPPIPP the types of creditors are: 

  • preferential (secured) creditors (prednostni upniki) – hold a right to separate satisfaction (prednostna pravica do poplačila). They are paid before the ordinary creditors (unsecured) from the proceeds of the debtor’s assets on which they have their security, depending on their rank
  • creditors with exclusion rights (izločitvena pravica) – have an ownership right on a debtor’s asset and therefore have the right to exclude this asset from a bankruptcy estate
  • ordinary creditors – are paid after preferential creditors, in the same rank and in the same share, depending on the value of the general bankruptcy estate in a bankruptcy proceeding. In a compulsory settlement proceeding, simplified compulsory settlement proceeding and a court-sponsored financial restructuring proceeding these creditors may, by law, be more affected than the preferential creditors (e.g. haircut on principal can be proposed only for unsecured claims)   
  • subordinated creditors (podrejeni upniki) – are subordinated to preferential and ordinary creditors.

ZFPPIPP also differentiates between financial and non-financial creditors. For example:

  • court-sponsored financial restructuring is only meant for the restructuring of claims of financial creditors 
  • a compulsory settlement proceeding can only be initiated with the intent to restructure financial claims. 

Italian law distinguishes between unsecured credits, secured credits and super-secured credits (“crediti prededucibili”). 

Unsecured creditors are those who have no preference or security and will therefore be paid only if and to the extent any proceeds of the estate remain after all other claims have been satisfied. Unsecured creditors rank pari passu among themselves in the estate, in proportion to the size of their claims.

Secured creditors benefit from a specific ranking that may consist of: i) voluntary liens (i.e. mortgages, pledges, etc.) and (ii) liens established by laws (in Italian “privilegi”) consisting of causes of pre-emption granted by law to the creditor in consideration of the particular nature of the credit. 

Super-secured credits are those originating from the initiation of insolvency proceedings or those strictly related to it. Thus, such credits arise as a result of, or following, adjudication in bankruptcy, and are considered claims against the estate administration. Examples of such claims are: bankruptcy receiver’s fees and costs; the costs for sale of the assets; the rent for the debtor’s offices after adjudication; employees’ salaries and social security payments relating to the period after adjudication; attorney’s and other advisors’ fees, etc.

As a direct effect of the above distinction, super-secured credits have priority over secured credits. In the same way, creditors benefiting from secured credits will be satisfied before those holding unsecured credits. However, note that the secured creditor will participate, like any other unsecured creditor, in the balance of the estate if the value of the secured good(s) is insufficient to satisfy the whole debt. 

Finally, please be aware that the Italian Civil Code and the Italian Bankruptcy Act provide for further distinction and ranks for secured credits and super-secured credits. 

6. 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?

When a company becomes insolvent, the management of the company must, among other actions: 

  • submit a report on financial restructuring measures to the supervisory board within 1 month of the company becoming insolvent. (If there is no supervisory board, the obligation is the same with the exception of not submitting the report to the supervisory board.) Such report must clarify the company’s financial position, analyse the causes of insolvency and provide the management’s opinion as to whether a financial restructuring is more likely than not to succeed, and if so, provide a financial restructuring plan
  • file for bankruptcy within 3 business days if the management is of the view that:
    • the probability of successful financial restructuring is less than 50% (the deadline starts when the term of 1 month, outlined in the previous item, expires), or 
    • the shareholders do not approve the capital injection (the deadline starts when the shareholders’ meeting is concluded), or
    • when approved, all the shares have not been registered and paid in time (the deadline starts when the term for registration and payment of shares expires)
  • file for a compulsory settlement proceeding within 3 months of the company becoming insolvent if the probability of a successful restructuring is more than 50%.  

Pursuant to the intervention measures of the Slovenian state amid the COVID-19 pandemic, management does not need to file for insolvency proceedings until 31 August 2020 if a company has become insolvent due to the COVID-19 pandemic.

Management, however, will have a duty to file for insolvency within the regular deadline if there are no prospects for a company to resolve its insolvency. If a bankruptcy proceeding is proposed earlier by a creditor, management will have 4 months (instead of the usual 2 months) for a financial restructuring to prevent bankruptcy.

Generally, under the Slovenian Companies Act and ZFPPIPP, members of the management board and supervisory board have a duty to act in the benefit of the company with the diligence of a conscientious and fair-minded businessperson. They are jointly and severally liable to the company for any damage caused pursuant to the rules of the Companies Act and ZFPPIPP, unless they can prove they acted with due care and in line with the business and financial rules and rules of management.

A claim for damages against the management board and supervisory board members can be exercised by creditors in the case that the company cannot pay their claims, and by a bankruptcy administrator for the benefit of creditors in a bankruptcy proceeding.

Pursuant to ZFPPIPP, the management and supervisory board can also be sanctioned with a fine ranging from EUR 2,000-10,000 if they do not follow the steps required by ZFPPIPP when the company becomes insolvent.
In a pre-insolvency situation the management is, pursuant to the rules of the Slovenian Companies Act and ZFPPIPP, required to initiate a restructuring proceeding in due time and/or implement other restructuring measures to ensure the company’s solvency.

With respect to bankruptcy, the insolvent debtor is under an obligation to file the relevant petition when it is unable to pay its debts when they fall due. 

In this regard, Article 217 of the Italian Bankruptcy Act states that a debtor (including the debtor’s legal representative) who delays the filing of a petition for bankruptcy commits the crime of simple bankruptcy (“bancarotta semplice”), where such delay has worsened the debtor’s distress; this may also be true where the filing of the petition has been put off because of implementation of an out-of-court voluntary composition plan, in case bankruptcy should follow. 

Under the same provision, any delay by the directors of a debtor in requesting the debtor’s admission to bankruptcy may also be construed as mismanagement (“mala gestio”), i.e. violation by the directors of their duties. They would therefore be liable for damages suffered by the company’s creditors and shareholders.

As highlighted in point 7 below, with the entry into force of the new Corporate Crisis Code directors have far stricter responsibilities with regard to identifying and preventing the financial or debt crisis of the company. This means that, although the starting of restructuring/insolvency proceedings is not mandatory, it is highly recommended for the responsible bodies to start such procedures once the relevant indices of distress are ascertained.

7. What are the main duties of the representative bodies in connection with restructuring / insolvency proceedings?

Once a company becomes insolvent, the management has, in addition to those described under point 6 above (among others), the following duties:

  • equal treatment of creditors
  • to take on no new obligations or make payments on behalf of the company, except for those that are necessary for regular business operations.

Once the state of financial crisis is ascertained, the directors must convene the shareholders so that the latter can adopt the necessary measures. However, under the new Corporate Crisis Code (Legislative Decree January 12th, 2019, n. 14), the directors have far stricter responsibilities. 

To this end, directors must: i) establish an organisational, administrative and accounting structure appropriate to the nature and size of the company, which is also aimed at (but not limited to) the timely detection of the company’s state of crisis and the loss of business continuity; ii) promptly adopt and implement one of the remedies envisaged by current regulations for overcoming the state of crisis and recovering business continuity.

Note that in the case of a reorganisation plan (Article 67, Bankruptcy Act) and a restructuring plan (Article 182bis, Bankruptcy Act), no civil or criminal liabilities apply to directors or officers for all payments made in accordance with the plan’s execution.

  • in a bankruptcy proceeding, representation of the company is transferred to the bankruptcy administrator
  • in a compulsory settlement proceeding, simplified compulsory settlement proceeding, court-sponsored financial restructuring or out-of-court financial restructuring, the company is still run by the existing management, supervised by its supervisory board
    • in a compulsory settlement proceeding, an administrator is appointed but has only a limited supervisory role. 

In case of bankruptcy, an insolvency administrator (receiver) is regularly appointed in the court order providing for the opening of insolvency proceedings. From that moment on, the debtor’s right to administer and dispose of assets belonging to the insolvency estate is transferred to the insolvency administrator. If the debtor disposes of assets after the opening of insolvency proceedings, such disposals are invalid. The representative bodies are therefore normally not involved in the insolvency proceedings. However, they have the duties of disclosure and cooperation in order to assist the insolvency administrator with the fulfilment of his duties. 

In case of “concordato preventivo”, the court appoints a Judicial Commissioner to oversee the management of the company and if the plan sets out the liquidation of the assets, a Judicial Liquidator.

The situation is different in debt restructuring agreements pursuant to Art. 182bis of the Italian Bankruptcy Act (such proceedings will also be governed by Art. 57 of the Legislative Decree n. 14/2019). In such cases, execution of the agreement, based on a specific recovery plan that must be accepted by the court, must be carried out by the debtor (through its representative bodies), which has to punctually fulfil the obligations arising from the agreement.  

9. What are the main duties of shareholders in connection with restructuring / insolvency proceedings?

Personally liable shareholders have a right to file for compulsory settlement proceedings and bankruptcy proceedings. 

After insolvency occurs, authorisations of the shareholders’ meeting are limited to recall and appointment of members of the management and supervisory board and the passing of certain decisions necessary for successful restructuring (e.g. if a restructuring plan anticipates a capital injection, etc.).

In a bankruptcy proceeding, shareholders must provide the insolvency administrator with explanations of the bankruptcy debtor’s transactions and other facts and circumstances relevant to the bankruptcy proceeding and for preparing financial statements.

Shareholders are under no direct obligation to comply with the duty to file for insolvency petitions. 

Once the state of crisis has been ascertained by the directors, it is their specific duty to convene the shareholders to make them aware of the crisis. In such cases, however, shareholders have no obligation to provide additional funding to enable the company to survive (or to decrease overall debt). In fact, capital increases constitute a discretional choice that may be taken by shareholders. However, if the legal structure of the company does not provide for limited liability, the shareholders will be liable for losses. The shareholders, once convened by the directors, can also resolve the dissolution of the company.

10. Are the shareholders of a company involved in restructuring / insolvency proceedings?

For certain restructuring measures, the shareholders’ involvement is needed (for example, if there are any demands of creditors to shareholders such us capital injection or converting shareholder loans to equity; or any decision of shareholders is required for implementing  restructuring measures, or when shareholder loans are also being restructured). 

In a bankruptcy proceeding, the shareholders’ involvement is limited to their duty to provide the bankruptcy administrator with certain information relevant to the proceeding.

In general, shareholders have no right to make decisions on the assets belonging to the insolvency estate because the debtor’s assets are economically reassigned to the creditors. The shareholders can cooperate with the management of the debtor, especially in the event of debt restructuring.

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

A solvent liquidation may be an alternative to an insolvency proceeding, but only if an insolvent company can become solvent (by way of capital injection, for example) first. Solvent liquidation can only be initiated if the company is solvent.

Voluntary or solvent liquidation is a corporate unwinding process governed by compulsory provisions of law and aimed at satisfying the company’s creditors by liquidating the company’s assets and paying any remaining assets or proceeds over to the shareholders. Therefore, during this process the company still exists and operates. For this same reason, the company can also be declared bankrupt. Usually a company chooses voluntary liquidation when the requirements for filing a petition for composition with creditors are not met or when it is incapable of reaching an agreement with its creditors and thus utilising the debt restructuring arrangements provided for by Art. 182bis of the Italian Bankruptcy Act.

Please be aware that Italian law also provides for involuntary liquidation, which occurs: (i) when the term of existence of the company expires; (ii) upon achievement of the corporate purpose, or when its achievement becomes impossible; (iii) if shareholders’ decisions cannot be taken because of deadlock; (iv) when the company’s capital is reduced below the statutory minimum and not increased again; (v) in case of redemption of all shares; and (vi) for any other reasons set out in the by-laws.

Yes, preventive (court-sponsored) restructuring is regulated in Chapter 2.3 of ZFPPIPP.

The Italian Bankruptcy Act does not mandate a specific format for the debt restructuring arrangement (which is the Italian form of preventive restructuring). Thus, 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.

However, regardless of any legal frameworks, debt restructuring arrangements are subject to homologation (confirmation) by the court. 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. Specifically, the judge can reject the agreement entered into with creditors, not on the basis of its worth, but due to the likelihood that it will prejudice the interests of non-adhering creditors. Therefore, any framework of restructuring arrangement should consider the interests if not of all creditors, of the great majority of them, in order to be accepted by the court.

13. What is the average success rate after completed restructuring / insolvency proceedings?

According to publicly available data, the following success rates apply:

Compulsory settlement proceeding

  • ordinary claims: approximately 30-40% with payment deferral of 4-6 years 
  • claims with rights to separate satisfaction: 100% with payment deferral of 4-6 years.

Simplified compulsory settlement proceeding 

  • ordinary claims: approximately 30-50% with payment deferral of 4-5 years
  • claims with rights to separate satisfaction: 100% with payment deferral of 4-5 years.

Bankruptcy proceeding

  • ordinary claims: below 10%
  • claims with rights to separate satisfaction: approximately 20%.  

For court-sponsored restructuring there is no publicly available data since master financial restructuring agreements are commercially confidential.

This information is not easy to provide as statistics on this matter are not generally available.

Maja-Zgajnar-CMS-AT
Maja Zgajnar
Partner
Ljubljana
Picture of Irena Sik
Irena Šik Bukovnik
Attorney-at-Law for banking & finance
Ljubljana
Maja-Sipek-CMS-SVN
Maja Šipek
Associate
Ljubljana
Mauro Battistella
Mauro Battistella
Partner
Milan