Insolvency Laws and Proceeding

In general, Italian creditors’ rights and insolvency laws are considered to be more favorable to debtors and to the trustee in bankruptcy than the regimes of

certain other jurisdictions, such as the United States. In Italy, the courts play a central role in the insolvency process and out-of-court restructurings are

infrequent. Moreover, the enforcement of security interests by creditors in Italy can be time consuming.

The two primary aims of the Italian bankruptcy legislation, as reformed and currently in force (the “Italian Bankruptcy Law”) are to maintain employment

and to liquidate the debtor’s assets for the satisfaction of creditors. These competing aims often have been balanced by the sale of businesses as going

concerns and ensuring that employees are transferred along with the businesses being sold.

Under the Italian Bankruptcy Law, based on the insolvency (“insolvenza”) of a company, bankruptcy must be determined and declared by a court.

Insolvency occurs when a debtor is no longer able to regularly meet its obligations as they fall due. This must be a permanent, and not a temporary, status.

The following restructuring and bankruptcy alternatives are available under Italian Bankruptcy Law for companies facing financial difficulties:

•      Restructuring outside of a judicial process (“concordato stragiudiziale”). Restructuring generally takes place through a formal judicial process

because it is more favorable for the debtor and informal arrangements put in place as a result of an out of court restructuring are vulnerable to

being reviewed by a court in the event of a subsequent insolvency, and possibly challenged as voidable transactions. However, in cases where a

company is solvent, but facing financial difficulties, it may be possible to enter into an out of court arrangement with its creditors, which may

safeguard the existence of the company.

•      Agreements to restructure indebtedness (“accordi di ristrutturazione dei debiti”). Out of court arrangements for the restructuring of debts

entered into with those creditors that represent at least 60% of the credit can be validated by the court, so long as an expert assessed that the

agreement is feasible. Only the debtor can request the court’s validation. Following the court’s validation the arrangement with creditors is

published with the register of companies and for sixty days as from the publication of the arrangement all actions by creditors already existing as

of such date are stayed.

•      Court‑supervised pre-bankruptcy composition with creditors (“concordato preventivo”). Prior to, or upon the declaration of insolvency, a

company, in a state of crisis or insolvency, has the option to seek an arrangement with its creditors, under court supervision, in order to avoid a

declaration of bankruptcy and the initiation of liquidation proceedings. Such arrangement with creditors can be sought by a company which exceeds

certain thresholds (i.e., assets in an aggregate amount exceeding € 0.3 million in the latest three fiscal years, gross revenues in an aggregate

amount exceeding € 0.2 million in the latest three fiscal years and total indebtedness in excess of € 0.5 million). Only the debtor can request a

concordato preventivo, which requires the approval of the company’s shareholders. The court must approve the arrangement. During the

concordato preventivo, all actions by creditors are stayed. The composition agreement may provide for: (i) the restructuring of debts and the

satisfaction of creditors in any manner, even through extraordinary transactions including the granting to creditors and their controlled company of

shares, or bonds (also convertible into shares), or other financial instruments and securities; (ii) the assumption of the activities of the

companies involved in the proposal; (iii) the division of creditors into classes; and (iv) different treatments for creditors belonging to different

classes. The composition agreement may also contain a proposed tax settlement for the partial or deferred payment of certain taxes. The

concordato preventivo is approved by a majority vote of the creditors entitled to vote. Where there are different classes of creditors, the

concordato preventivo is approved if the majority of classes approves it by a majority vote, within each class, of the creditors entitled to vote. If

the arrangements provide for the full payment of secured creditors, these latter cannot vote. During the implementation of the arrangement, the

company is managed by the debtor but under the surveillance of an official appointed by the court, and under the supervision of the court. If the

concordato preventivo fails, the company will be declared bankrupt by the court.

•      Extraordinary administration for large companies (“amministrazione straordinaria delle grandi imprese in crisi”).  There are special

administration proceedings available under Italian law for large industrial and commercial enterprises. The purpose of the administration is to save

and rehabilitate a company in financial distress due to its significant technical, commercial, productive and employment value. Extraordinary

administration is available for a debtor with at least 200 employees and indebtedness equal to at least two-thirds of its total assets and two-thirds

of its revenues from sales and provision of services for the last fiscal year.

•      Extraordinary administration for insolvent large companies (“modifica alla disciplina della ristrutturazione delle grandi imprese in stato di

insolvenza”).  There is a restructuring proceeding available under Italian law for large industrial and commercial enterprises. The purpose of this

extraordinary administration is to continue the company’s operations by means of restructuring its debts and selling assets which are not strategic

or which do not fall within the core business of the company. This extraordinary administration is available for a debtor with at least 500 employees

and indebtedness (including guarantees) in an aggregate amount of not less than € 300 million. The company must also have actual prospects of

recovery through a financial and economic restructuring of the business under a restructuring that cannot last longer than two years which two

years may be extended by a further two-year period, under certain circumstances.

•      Bankruptcy proceeding (“fallimento”).  A request to declare a debtor bankrupt and to commence a bankruptcy proceeding for the liquidation

of a debtor can be made by the debtor, a creditor, a court or public prosecutor. The request must be approved by an insolvency court. The Italian

Bankruptcy Law is applicable only if certain thresholds are met (i.e., assets in an aggregate amount exceeding € 0.3 million in the latest three fiscal

years, gross revenues in an aggregate amount exceeding €0.2 million in the latest three fiscal years and total indebtedness in excess of

€0.5 million). Upon the commencement of a bankruptcy proceeding:

•      subject to certain exceptions, all actions of creditors are stayed and creditors must file claims within a defined period;

•      the administration of the debtor and the management of its assets pass from the debtor to the receiver; and

•      any action by the debtor after a declaration of bankruptcy with respect to a creditor is ineffective.

The bankruptcy proceeding is carried out and supervised by a court‑ appointed receiver, a deputy judge and a creditors’ committee. The receiver is not a

representative of the creditors, and is responsible for the liquidation of the assets of the debtor for the satisfaction of creditors. The proceeds from the

liquidation are distributed in accordance with statutory priority. The liquidation of a debtor can take a considerable amount of time, particularly in cases

where the debtor’s assets include real property. The Italian Bankruptcy Law provides for priority to the payment of certain preferential creditors, including

employees and the Italian treasury.

•      Post-bankruptcy composition with creditors (“concordato fallimentare”).  A bankruptcy proceeding can be terminated prior to liquidation by a

debtor filing a petition to the insolvency court for a post-bankruptcy composition with creditors. The petition can be filed also by one or more

creditors, a third party, or the receiver. In the petition, the debtor must indicate the percentage of the unsecured claims that will be paid and the

timing of the repayment. The petition may provide for the division of creditors into classes, and the restructuring of debts and the satisfaction of

creditors in any manner. The petition may provide the possibility that the secured credits are paid only in part.

Statutory priorities. The statutory priority assigned to creditors under the Italian Bankruptcy Law may be different than priorities in the United States, the

United Kingdom and certain other European Union jurisdictions. In Italy, the highest priority claims (after the costs of the proceedings are paid) are the

claims of preferential creditors, which include the claims of the Italian Tax Authority and social security administrators and claims for employee wages.


Avoidance powers in insolvency. Similar to other jurisdictions, there are so-called “claw-back” or avoidance provisions under Italian law that may give rise

to the revocation of payments or grants of security interests made by the debtor prior to the declaration of bankruptcy. The key avoidance provisions

include transactions made below market value, preferential transactions and transactions made with a view to defraud creditors. Claw-back rules under

Italian law are normally considered to be particularly favorable to the trustee in bankruptcy in comparison to the rules applicable in the United States and

the United Kingdom.

In a bankruptcy proceeding, the Italian Bankruptcy Law provides for a claw-back period of up to one year (six-months in certain circumstances). In

addition, in certain cases, the bankruptcy receiver can request that certain transactions of the debtor are declared voided within the Italian civil code

ordinary claw-back period of five years (“revocatoria ordinaria”).

In any case, it should be noted that: (i) under article 64 of Royal Decree no. 267/1942, all transactions for no consideration or at an undervalue, depending

on certain circumstances, are ineffective vis-à-vis creditors if entered into by the bankrupt entity in the two-year period prior to the insolvency declaration,

and (ii) under article 65 of Royal Decree no. 267/1942, payments of receivables falling due on the day of the insolvency declaration or thereafter are

ineffective vis-à-vis creditors, if made by the bankrupt entity in the two-year period prior to insolvency.

In addition, it should be noted that the EU Council Regulation no. 1346/2000 of May 29, 2000 contains conflicts of law rules which replace the various

national rules of private international law in relation to insolvency proceedings within the European Union.