The entry into force of the Crisis and Insolvency Code

After a postponement of almost two years from the originally scheduled date (August 15, 2020) for its entry into force - mainly caused by the crisis caused by the pandemic emergency - on July 15, 2022, the Code of Corporate Crisis and Insolvency (or "CCII") set forth in Legislative Decree 14/2019, as most recently amended by Legislative Decree No. 83 of June 17, 2022, containing a final set of changes and important innovations, finally entered into force.

Legislative Decree No. 83/2022 was also an opportunity to transpose in Italy EU Directive 2019/1023 (the so-called "Insolvency Directive") in order to allow for an alignment of the CCII with the changes introduced when implementing this EU Directive aimed at introducing, within the European Union, a core of common rules and principles on business crisis, suitable to make the different national systems more homogeneous and to contribute to the reinforcement of the common European space from the point of view of the economic resilience of the common market.

The rules contained in the CCII will apply only to proceedings filed after its entry into force, while for those already pending or, in any case, resulting from procedure already pending as at July 15, 2022, the previous regulations will remain applicable.

The main innovations of the CCII are the following:

• further reinforces the need to adopt appropriate organizational procedures and tools of the company with the purpose of timely intercepting the state of crisis (which the CCII defines as "the state of the debtor that makes insolvency likely and is manifested by the inadequacy of prospective cash flows to meet obligations in the next 12 months");
• with the new Article 3 CCII, requires the entrepreneur to take functional measures to detect the state of crisis in a timely manner through appropriate organizational, administrative and accounting procedures in accordance with Article 2086 of the Italian Civil Code, so as to take the necessary steps without delay to deal with it;
• reinforce internal control systems, orienting them to the reception of economic-financial difficulties before they result in a full-fledged state of insolvency, and decline the minimum content of crisis indicators: (i) the existence of payroll debts, overdue by at least thirty days amounting to more than half of the total monthly payroll amount; (ii) the existence of payables to suppliers that are at least ninety days past due, the amount of which exceeds the amount of payables that are not past due; (iii) the existence of exposures towards banks and other financial intermediaries, which have been past due for more than sixty days or have exceeded, for at least sixty days, the limit of credit facilities obtained in any form provided at least they represent a total of five percent of the exposures; (iv) the existence of one or more debt exposures, provided for in Article 25 novies, paragraph 1;
• provides specific reporting requirements on so-called public creditors (Agenzia delle Entrate, INPS and INAIL) and banks when there are certain " warning indicators" or changes in credit facilities;
• the role of financial intermediaries, who are now required by law to actively participate in negotiations "in an active and informed manner", is clarified;
• incorporates the discipline of negotiated settlement, i.e., the new procedure aimed at the early disclosure of the crisis, which had already been introduced by Decree-Law No. 118 of August 24, 2021, and entered into force in advance of the CCII. The Legislative Decree No. 83/2022 included the discipline in Title II of the Code, replacing the assisted settlement and alert instruments that provided for reporting to the OCRI (Organismo di gestione delle crisi di impresa);
• introduces a new definition of "crisis and insolvency regulation instruments" in which it includes, in addition to the traditionally known ones, the moratorium agreement, the restructuring plan subject to approval (i.e., an instrument to be considered halfway between restructuring agreements and composition with creditors), reorganization plans, debt restructuring agreements, and composition with creditors;
• provides a new discipline regarding protective measures during the pendency of a crisis regulation instrument, whose duration may not exceed 12 months in any case;
• replaces the term "bankruptcy" with the term "judicial liquidation," while retaining the already well-known features of bankruptcy proceedings;
• with particular reference to composition with creditors, among the main new innovations, it introduces, if it is a business continuity plan, the express admission also of the indirect form through assignment to a third party and the possibility of derogation from the absolute priority rule, in favour of the more flexible relative priority rule; in case of liquidation composition with creditors, which is not generally encouraged, it provides for the need for an external contribution to the extent of 10 percent of the available assets; in Articles 25 sexies and 25 septies it provides for simplified composition with creditors, which can only be accessed at the conclusion of the negotiated settlement procedure;
• provides for a unified procedure in which all applications for access to judicial liquidation or crisis and insolvency regulation instruments are brought together, where the latter are dealt with on a priority basis as long as their convenience to creditors is expressly indicated;
• regulates the crisis or insolvency of the "group", meaning a set of companies subject to management and coordination by the same entity.

In short, the Corporate Crisis and Insolvency Code that has just come into force represents an instrument through which the Italian Legislator intended to transpose crisis as a physiological phenomenon in the life of a business. The main idea of the new Code is to prevent insolvency and to allow early diagnosis of the state of difficulty of enterprises through the introduction of a series of safeguards, in order to prevent the delay in perceiving the signs of crisis in an enterprise from leading to an irreversible state of crisis.