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 and may
not be as favorable to investors’ interests as those of other
jurisdictions with which investors may be familiar, 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, in court procedures may be materially more complex and the
enforcement of security interests by creditors in Italy can be more
time-consuming than in equivalent situations in jurisdictions with
which foreign creditors may be familiar.
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.
The following is a brief description of certain aspects of
insolvency law in Italy, which does not include special provisions
applying to banks, insurance and other companies authorized to carry
out certain reserved activities nor it provides a comprehensive
description of insolvency laws application where public companies
are involved.
Certain provisions of Italian law have been amended or have entered
into force only recently and, therefore, may be subject to further
implementation and/or interpretations and have not been tested to
date in the Italian courts.
In this respect, the most recent reform has been approved by the
Italian Government on June 23, 2015 through a law-decree containing
urgent reforms applicable, inter alia, to Italian bankruptcy law
(the “Decree”).
The Decree entered into force on June 2015 (the date of its
publication in the Gazzetta Ufficiale) and has been converted into
law by the Law No. 132/2015 (“Law 132”). Law 132 entered into force
on August 21, 2015 (the date after its publication in the Gazzetta
Ufficiale).
The two primary aims of Royal Decree No. 267 of March 16, 1942 (the
main Italian bankruptcy legislation), as reformed and currently in
force (the “Italian Bankruptcy Law”) are to liquidate the debtor’s
assets and protect the goodwill of the going concern (if any) for
the satisfaction of creditors’ claim as well as, in case of the
“Prodi-bis” procedure or “Marzano” procedure, to maintain
employment.
These competing aims have often been balanced by the sale of
businesses as going concerns and ensuring that employees are
transferred along with the businesses being sold.
However, the Italian Bankruptcy Law has been recently amended with a
view to promoting rescue procedures rather than liquidation,
focusing on the continuity and survival of financially distressed
businesses and enhancing pre-bankruptcy restructuring options.
Under the Italian Bankruptcy Law, bankruptcy must be declared by a
court, based on the insolvency (insolvenza) of a company upon a
petition filed by the company itself, the public prosecutor and/or
one or more creditors. Insolvency occurs when a debtor is no longer
able to regularly meet its obligations as they come due. This must
be a permanent rather than a temporary status of insolvency in order
for a court to hold that a company is insolvent.
The following debt restructuring and bankruptcy alternatives are
available under Italian law for companies in a state of crisis and
for insolvent companies.
Restructuring generally takes place through a formal judicial
process because it is more favorable for the debtor and because
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.
Out-of-court debt restructuring agreements are based on
restructuring plans (piani di risanamento attestati) prepared by
companies in order to restructure their indebtedness and to ensure
the recovery of their financial condition. An independent expert
appointed directly by the debtor must verify the feasibility of the
restructuring plan and the truthfulness of the business data
provided by the company. There is no need to obtain court approval
to appoint the expert. The terms and conditions of these plans are
freely negotiable. Unlike in-court pre-bankruptcy agreement
proceedings and debt restructuring agreements, out-of-court
reorganization plans do not offer the debtor any protection against
enforcement proceedings and/or precautionary actions of third-party
creditors. The Italian Bankruptcy Law provides that, should these
plans fail and the debtor be declared bankrupt, the payments and/or
acts carried out for the implementation of the reorganization plan,
subject to certain conditions (a) are not subject to claw-back
action; and (b) are exempted from the potential application of
certain criminal sanctions. Neither ratification by the court nor
publication in the Companies’ Register are needed (although
publication in the Companies’ Register is possible upon a debtor’s
request and would allow to certain tax benefits).
The debtor may negotiate with creditors holding at least 60% of the
total amount of claims or debt restructuring agreements, subject to
court’s approval. An independent expert appointed by the debtor must
assess the truthfulness of the business and accounting data provided
by the company and declare and that the agreement is feasible and
that it ensures that the non-participating creditors can be fully
satisfied within the following terms: (a) 120 days from the date of
approval of the agreement by the court, in the case of debts which
are due and payable to the non-participating creditors as of the
date of the approval (omologazione) of the debt restructuring
agreement by the court; and (b) 120 days from the date on which the
relevant debts fall due, in case of debts which are not yet due and
payable as of the date of the approval (omologazione) of the debt
restructuring agreement by the court. Only a debtor who is insolvent
or in a situation of “financial distress” (i.e., facing financial
crisis which does not yet amount to insolvency) can initiate this
process and request the court’s approval (omologazione) of the debt
restructuring agreement entered into with its creditors.
The agreement is published in the companies’ register and is
effective as of the day of its publication. Starting from the date
of such publication and for 60 days thereafter, creditors cannot
start or continue any conservative or enforcement actions against
the assets of the debtor in relation to pre-existing receivables.
The Italian Bankruptcy Law does not expressly provide for any
indications concerning the contents of the debt restructuring
agreement. The plan can therefore provide, among others, either for
the prosecution of the business by the debtor or by a third party,
or the sale of the business to a third party, and may contain
refinancing agreements, moratoria, write-offs and/or postponements
of claims. The debt restructuring agreement may also contain a
proposed tax settlement for the partial or deferred payment of
certain taxes.
The 60-days moratorium can also be requested by
the debtor while negotiations with creditors are pending (i.e.,
prior to the above-mentioned publication of the agreement), subject
to certain conditions. In such case the court, having verified the
completeness of the documentation filed by the debtor, sets the date
for a hearing within 30 days of the filing of the request. At such
hearing, the court assesses whether the conditions for anticipating
the moratorium are in place and, in such case, orders that no
conservative or enforcement action may be started or continued, nor
can security interests (unless agreed) be acquired over the assets
of the debtor, and sets a deadline (not exceeding 60 days) within
which a debt restructuring agreement and the assessment by the
expert must be deposited. The court’s order may be challenged within
15 days of its publication. Within the same time frame, an
application for the concordato preventivo (as described below) may
be filed, without prejudice to the effect of the moratorium.
Creditors and other interested parties may oppose the agreement
within 30 days from the publication of the agreement in the
companies’ register. After having settled the oppositions (if any)
the court will validate the agreement by issuing a decree, which can
be appealed within 15 days of its publication.
The Decree
83/2015, as amended by Law 132/2015 modified the basis for
calculation of the 60% of the outstanding debtor’s debt threshold
required for courts’ sanctioning of debt restructuring agreements
(accordi di ristrutturazione dei debiti), easing the requirements
with respect to financial creditors.
Pursuant to the new
Article 182-septies of the Italian Bankruptcy Law, introduced by the
Decree 83/2015, as amended by Law 132/2015, debtors whose financial
indebtedness is at least 50% of their total indebtedness are
entitled to enter into debt restructuring agreements obtaining the
approval of financial creditors representing at least 75% of the
aggregate financial claims of the relevant category and ask the
court to declare such agreement binding on the dissenting financial
creditors belonging to the same category (so called “cram down”),
subject to certain conditions being met, including that treatment of
dissenting creditors is not worse than under any other available
alternative. If the abovementioned conditions are met, then the
remaining 25% of non-participating financial creditors belonging to
the same class of creditors are crammed down; however, crammed down
creditors can challenge the deal and refuse to be forced into it, on
the basis of the lack of homogeneity of the classes of creditors.
Similarly, a standstill agreement (convenzione di moratoria) entered
into between a debtor and financial creditors representing 75% of
that debtor’s aggregate financial indebtedness would also bind the
non-participating financial creditors, provided that an independent
expert certifies the homogeneity of the classes and subject to
certain conditions being met. The purpose is to prevent banks with
modest credits from block restructuring operations involving more
exposed bank creditors, resulting in the failure of the overall
restructuring and the opening of a procedure. Financial creditors
who did not participate in the agreement may challenge it within 30
days of receipt of the application.
Such debt restructuring
agreements and standstill agreements will not affect the rights of
non-financial creditors (e.g., trade creditors) who cannot be
crammed down and must be paid within 120 days if not participating
to a scheme.
Pursuant to Article 182-quater of the Italian
Bankruptcy Law, financing granted to the debtor pursuant to the
approved debt restructuring agreement (or a court-supervised
Pre-Bankruptcy Composition with Creditors) enjoy priority status in
cases of subsequent bankruptcy (such status also applies to
financing granted by shareholders, but only up to 80 percent of such
financing). Financing granted “in view of” (i.e., before)
presentation of a petition for a debt restructuring agreement or a
court-supervised Pre-Bankruptcy Composition with Creditors may be
granted such priority status provided that it is envisaged by the
relevant plan or agreement and that such priority is expressly
provided for by the court at the time of approval of the plan or
sanctioning (omologazione) of the agreement. Moreover, pursuant to
the new Article 182-quinquies of the Italian Bankruptcy Law, the
Court, pending the sanctioning (omologazione) of the debt
restructuring agreement pursuant to Article 182-bis, Paragraph 1, of
the Italian Bankruptcy Law or after the filing of the moratorium
application pursuant to Article 182-bis, Paragraph 6, of the Italian
Bankruptcy Law or a petition pursuant to Article 161, Paragraph 6,
of the Italian Bankruptcy Law (in relation to the court supervised
pre-bankruptcy arrangement with creditors procedure described below)
may authorize the debtor, if so expressly requested: (i) to incur in
new super senior indebtedness and to secure such indebtedness with
in rem security (garanzie reali), provided that the expert appointed
by the debtor declares that the new financing aims at providing a
better satisfaction of the rights of the creditors, and (ii) to pay
pre-existing debts deriving from the supply of services or goods, to
the extent already payable and due, provided that the expert
declares that such payment is essential for the keeping of the
company’s activities and to ensure the best satisfaction for all
creditors. In addition, according to the provisions of the Decree
83/2015, as amended by Law 132/2015, the aforementioned
authorization may be given also before the filing of the additional
documentation required pursuant to Article 161, Paragraph 6 of the
Italian Bankruptcy Law.
The provision of Article 182-quinques
of the Italian Bankruptcy Law applies to both debt restructuring
agreement and to the court-supervised pre-bankruptcy compositions
with creditors (concordato preventivo) outlined below.
Furthermore, according to the Article 1 of the Decree 83/2015,
as amended by Law 132/2015, pending the sanctioning (omologazione)
of the debt restructuring agreement pursuant to Article 182-bis,
Paragraph 1 of the Italian Bankruptcy Law or after the filing of the
moratorium application pursuant to Article 182-bis, Paragraph 6 of
the Italian Bankruptcy Law also in absence of the plan pursuant to
Article 161, Paragraph 2, letter (e) of the Italian Bankruptcy Law,
the court may also authorize the debtor to incur in new super senior
(so called prededucibile) indebtedness, aimed at supporting urgent
financial needs related to the company’s business. The company,
while filing such request of authorization, is required to specify
(i) the purpose of the financing; (ii) that it is unable to
otherwise obtain the required funds and (iii) that the absence of
such financing will entail an imminent and irreparable prejudice to
the company.
A company which is insolvent or in a situation of crisis (i.e.,
financial distress which does not yet amount to insolvency) has the
option to make a composition proposal to its creditors, under court
supervision, in order to compose its overall indebtedness and/or
reorganize its business, thereby avoiding a declaration of
insolvency and the initiation of bankruptcy proceedings. Such
composition proposal can be made by a commercial enterprise which
exceeds any of the following thresholds: (i) has had assets (attivo
patrimoniale) in an aggregate amount exceeding €0.3 million for each
of the three preceding fiscal years, (ii) gross revenue (ricavi
lordi) in an aggregate amount exceeding €0.2 million for each of the
three preceding fiscal years, and (iii) has total indebtedness in
excess of €0.5 million. Only the debtor company can initially file a
petition with the court for a concordato preventivo (together with,
among others, a restructuring plan and an independent expert report
assessing the feasibility of the composition proposal and the
truthfulness of the business and accounting data provided by the
company). The petition for concordato preventivo is then published
by the debtor in the company’s register. From the date of such
publication to the date on which the court sanctions the concordato
preventivo, all enforcement and interim relief actions by the
creditors (whose debt became due before the sanctioning of the
concordato preventivo by the court) are stayed. During this time,
all enforcement, precautionary actions and interim measures sought
by the creditors, whose title arose beforehand, are stayed.
Preexisting creditors cannot obtain security interests (unless
authorized by the court) and mortgages registered within the 90 days
preceding the date on which the petition for the concordato
preventivo is published in the company’s register are ineffective
against such pre-existing creditors.
The composition proposal filed in connection with the petition
may provide for: (i) the restructuring and payment of debts and the
satisfaction of creditors’ claims (provided that, in any case, it
will ensure payment of at least 20% of the unsecured receivables,
except for the case of composition with creditors with continuity of
the going concern (concordato con continuità aziendale) pursuant to
Article 186-bis of the Italian Bankruptcy Law, including through
extraordinary transactions, such as the granting to creditors and to
their subsidiaries or affiliated companies of shares, bonds
(including bonds convertible into shares), or other financial
instruments and debt securities); (ii) the transfer to a receiver
(assuntore) of the operations of the debtor company making the
composition proposal; (iii) the division of creditors into classes;
and (iv) different treatment of creditors belonging to different
classes.
The composition proposal may also contain a proposed
tax settlement for the partial or deferred payment of certain taxes.
The filing of the petition for the concordato preventivo may
be preceded by the filing of a preliminary petition for a concordato
preventivo (so called concordato in bianco, pursuant to Article 161,
paragraph 6, of the Italian Bankruptcy Law, as amended by Law Decree
No. 69/2013 as converted into Law No. 98/2013 (“Law Decree
69/2013”)). The debtor company may file such petition along with:
(i) its financial statements from the latest three financial years;
and (ii) the list of creditors with the reference to the amount of
their respective receivables, reserving the right to submit the
underlying plan, the proposal and all relevant documentation within
a period assigned by the court between 60 and 120 days from the date
of the filing of the preliminary petition, subject to only one
possible further extension of up to 60 days, where there are
reasonable grounds for such extension. In advance of such deadline,
the debtor may also file a petition for the approval of a debt
restructuring agreement (pursuant to Article 182-bis of the Italian
Bankruptcy Law). If the court accepts such preliminary petition, it
may: (i) appoint a judicial commissioner (commissario giudiziale) to
overview the company, who, in the event that the debtor has carried
out one of the activities under Article 173 of the Italian
Bankruptcy Law (e.g., concealment of part of assets, omission to
report one or more claims, declaration of nonexistent liabilities or
commission of other fraudulent acts), will report it to the court,
which, upon further verification, may reject the petition at court
for a concordato preventivo; and (ii) set forth reporting and
information duties of the company during the abovementioned period.
The debtor company may not file such pre-application where it
had already done so in the previous two years without the admission
to the concordato preventivo having followed. The decree setting the
term for the presentation of the documentation contains also the
periodical information requirements (also relating to the financial
management of the company and to the activities carried out for the
purposes of the filing of the application and the restructuring
plan) that the company has to fulfill, at least on a monthly basis,
until the lapse of the term established by the court. The debtor
company will file, on a monthly basis, the company’s financial
position, which is published, the following day, in the company’s
register. Noncompliance with these requirements results in the
application for the composition with creditors being declared
inadmissible and, upon request of the creditors or the public
prosecutor and provided that the relevant requirements are verified,
in the adjudication of the distressed company into bankruptcy. If
the activities carried out by the debtor company appear to be
clearly inappropriate to the preparation of the application and the
restructuring plan, the court may, ex officio, after hearing the
debtor and—if appointed—the judicial commissioner, reduce the time
for the filing of additional documents.
Following the filing
of the preliminary petition and until the decree of admission to the
composition with creditors, the distressed company may: (i) carry
out acts pertaining to its ordinary activity; and (ii) seek the
court’s authorization to carry out acts pertaining to its
non-recurring activity, to the extent they are urgent.
Claims
arising from acts lawfully carried out by the distressed company and
new super senior indebtedness authorized by the court, pending the
sanctioning (omologazione) of the debt restructuring agreement
pursuant to Article 182-bis, Paragraph 1 of the Italian Bankruptcy
Law or after the filing of the moratorium application pursuant to
Article 182-bis, Paragraph 6 of the Italian Bankruptcy Law also in
absence of the plan pursuant to Article 161, Paragraph 2, letter (e)
of the Italian Bankruptcy Law, aimed at supporting urgent financial
needs related to the company’s business as recently introduced by
Article 1 of the Decree 83/2015, as amended by Law 132/2015, are
treated as super-senior (so called pre-deducibili) pursuant to
Article 111 of the Italian Bankruptcy Law and the related acts,
payments and security interests granted are exempted from the
claw-back action provided under Article 67 of the Italian Bankruptcy
Law. Law No. 9/2014 specified that the super-seniority of the
claims—which arise out of loans granted with a view to allowing the
filing of the preliminary petition for the composition with
creditors (domanda di pre-concordato)—is granted, pursuant to
Article 111 of the Italian Bankruptcy Law, conditional upon the
proposal, the plan and all other required documents being filed
within the term set by the court and the company being admitted to
the concordato preventivo within the same proceeding opened with the
filing of the preliminary petition.
The composition proposal
may propose that: (i) the debtor’s company’s business continues to
be run by the debtor’s company as a going concern; or (ii) the
business is transferred to one or more companies and any assets
which are no longer necessary to run the business are liquidated
(concordato con continuità aziendale). In these cases, the petition
for the concordato preventivo should fully describe the costs and
revenue that are expected as a consequence of the continuation of
the business as a going concern, as well as the financial resources
and support which will be necessary. The report of the independent
expert will also certify that the continuation of the business is
conducive to the satisfaction of creditors’ claims to a greater
extent than if such composition proposal was not implemented.
Furthermore, the going concernbased arrangements with creditors can
provide for, among others, the winding up of those assets that are
not functional to the business allowed. The composition agreement
may also contain a proposed tax settlement for the partial or
deferred payment of certain taxes.
If the court determines
that the composition proposal is admissible, it appoints a judge
(giudice delegato) to supervise the procedure, appoints one or more
judicial officers (commissari giudiziali) and calls a creditors’
meeting. During the implementation of the proposal, the company
generally continues to be managed by its board of directors, but is
supervised by the appointed judicial officers and judge (who will
authorize all transactions that exceed the ordinary course of
business).
The concordato preventivo is voted on at a
creditors’ meeting and must be approved with the favorable vote of
(a) the creditors representing the majority of the receivables
admitted to vote and, also in the event that the plan provides for
more classes of creditors, and (b) the majority of the classes. The
Composition with Creditors is approved only if the required
majorities of creditors expressly voted in favor of the proposal.
Law 132/2015 abrogated the implied consent rule under which those
creditors who, being entitled to vote, did not do so and those who
did not express their dissent within 20 days of the closure of the
minutes of the creditors’ meeting are deemed as consenting to the
composition with creditors. Under the current regime, creditors who
did not exercise their voting rights in the creditors’ meeting can
do so (even via email) within 20 days of the closure of the minutes
of the creditors’ meeting and, after such term, creditors who have
did not exercise their voting right will be deemed not to approve
the concordato preventivo proposal. Secured creditors are not
entitled to vote on the proposal of concordato preventivo unless and
to the extent they waive their security, or the concordato
preventivo provides that they will not receive full satisfaction of
the fair market value of their secured assets (such value being
assessed by an independent expert), in which case they can vote only
in respect of the part of their debt affected by the proposal. The
court may also approve the concordato preventivo (notwithstanding
the circumstance that one or more classes objected to it) if: (i)
the majority of classes has approved it; and (ii) the court deems
that the interests of the dissenting creditors would be adequately
safeguarded through it compared to other solutions. If an objection
to the implementation of the concordato preventivo is filed by 20%
of the creditors or, in case there are different classes of
creditors, by a creditor belonging to a dissenting class, entitled
to vote, the court may nevertheless sanction the concordato
preventivo if it deems that the relevant creditors’ claims are
likely to be satisfied to a greater extent as a result of the
concordato preventivo than would otherwise be the case.
The
Decree 83/2015, as amended by Law 132/2015, introduced the
possibility for creditors (except for individuals or entities
controlled, controlling or under common control of the debtor)
holding at least 10% of the aggregate claims against a debtor to
present an alternative plan to the debtor’s plan in a pre-bankruptcy
agreement proceedings (concordato preventivo) subject to certain
conditions being met, including, in particular, that the proposal of
the debtor do not ensure recovery of at least (i) 40% of the
unsecured claims (crediti chirografari) in case of pre-bankruptcy
agreement proposal with liquidation purpose (concordato
liquidatorio), or (ii) 30% of the unsecured claims (crediti
chirografari) in case of pre-bankruptcy agreement proposals based on
the continuation of the going concern (concordato con continuità
aziendale).
In addition, in order to strengthen the position
of the unsecured creditors, Law 132/2015 sets forth that a
pre-bankruptcy agreement proposal with liquidation purpose
(concordato liquidatorio) (i.e., a pre-bankruptcy agreement proposal
aiming at transferring all the assets to the creditors and having
such assets sold in their interest by the judicial commissioner)
must ensure that the unsecured creditors are paid in a percentage of
at least 20% of their claims. This provision does not apply to
pre-bankruptcy agreement proposals based on the continuation of the
going concern (concordato con continuità aziendale). To the extent
the alternative plan is approved by the creditors and ratified
(omologato), the court may grant special powers to the judicial
commissioner to implement the plan if the debtor does not cooperate,
including by taking all corporate actions required.
In
addition, Article 163-bis of the Italian Bankruptcy Law, introduced
by the Decree 83/2015, as amended by Law 132/2015, provides that, if
a plan in pre-bankruptcy composition with creditors (concordato
preventivo), pursuant to Article 161, Paragraph 2, letter (e) of the
Italian Bankruptcy Law, includes an offer for the sale of the
debtor’s assets or of a going concern of the debtor to an identified
third party, the judicial commissioner may request to the court the
opening a competitive bidding process to the extent that it would be
in the best interest of the creditors. After the approval by the
creditors’ meeting, the court (having settled possible objections
raised by the dissenting creditors, if any) confirms the concordato
preventivo proposal by issuing a confirmation order.
If the
creditors’ meeting does not approve the concordato preventivo, the
court may, upon request of the public prosecutor or a creditor, and
having decided that the appropriate conditions apply, declare the
company bankrupt.
A request to declare a debtor bankrupt and to commence bankruptcy
proceedings (fallimento) for the judicial liquidation of its assets
can be filed by the debtor, any of its creditors and, in certain
cases, the public prosecutor when a debtor is insolvent. Insolvency,
as defined under Italian Bankruptcy Law, occurs when a debtor is no
longer able to regularly meet its obligations with ordinary means as
they come due. Bankruptcy is declared by the competent bankruptcy
court. The Italian Bankruptcy Law is applicable only to commercial
enterprises (imprenditori commerciali) if any of the following
thresholds are met: the company (i) has had assets (attivo
patrimoniale) in an aggregate amount exceeding €0.3 million for each
of the three preceding fiscal years; (ii) has had gross revenue
(ricavi lordi) in an aggregate amount exceeding €0.2 million for
each of the three preceding fiscal years; and (iii) has total
indebtedness in excess of €0.5 million.
Upon the commencement of bankruptcy proceedings, amongst other
things:
• subject to certain exceptions, all actions of
creditors, actions are stayed and creditors must file claims within
a defined period;
• under certain circumstances secured
creditors may execute against the secured property as soon as their
claims are admitted as preferred claims. Secured claims are paid out
of the proceeds of the secured assets, together with interest and
expenses. Any outstanding balance will be considered unsecured and
rank pari passu with all of the bankrupt’s other unsecured debt.
Secured creditors may sell the secured asset only with the court
authorization. After hearing the bankruptcy receiver (curatore
fallimentare) and the creditors’ committee, the court decides
whether to authorize the sale, and sets forth the relevant timing in
his or her decision;
• the administration of the debtor and
the management of its assets are transferred to the bankruptcy
receiver (curatore fallimentare); and
• any act (including
payments) made by the debtor after the commencement of the
proceedings, other than those made through the receiver, become
ineffective.
• Although the general rule is that the
bankruptcy receiver is allowed to terminate contracts where some or
all of the obligations have not been performed, certain contracts
are subject to specific rules expressly provided for by Italian
Bankruptcy Law.
Bankruptcy proceedings are carried out and
supervised by a court-appointed bankruptcy receiver, a deputy judge
(giudice delegato) and a creditors’ committee. The bankruptcy
receiver is not a representative of the creditors, and is
responsible for the liquidation of the assets of the debtor to 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. In this
respect, Law 132/2015 amended the relevant provision of the Italian
Bankruptcy Law which sets forth the requirements applicable to the
liquidation procedure and as a consequence the timing for the
liquidation of a debtor is shortened. Italian Bankruptcy Law
provides for priority of payment to certain preferential creditors,
including employees, the Italian treasury, and judicial and social
authorities. Such priority of payment is provided under mandatory
provisions of law (as a consequence it is untested and it is
unlikely that priority of payments such as those commonly provided
in intercreditor contractual arrangements would be recognized by an
Italian bankruptcy estate to the extent they are inconsistent with
the priorities provided by law). Unsecured creditors are satisfied
after payment of preferential and secure creditors, out of available
funds and assets (if any) as below indicated.
Bankruptcy proceedings can terminate prior to liquidation through a
bankruptcy composition proposal with creditors. The relevant
petition can be filed by one or more creditors, third parties or the
receiver starting from the declaration of bankruptcy, whereas the
debtor or its subsidiaries are admitted to file such a proposal only
after one year following such declaration but before the lapse of
two years from the decree giving effectiveness to the bankruptcy’s
estate. The petition may provide for the division of creditors into
classes (thereby proposing different treatments among the classes),
and the satisfaction of creditors’ claims in any manner. The
petition may provide that secured claims are paid only in part. The
concordato fallimentare proposal must be approved by the creditors’
committee and the creditors holding the majority (by value) of
claims (and, if classes are formed, by a majority (by value) of the
claims in a majority of the classes). Final court confirmation is
also required.
The statutory priority assigned to creditors under the Italian
Bankruptcy Law may be different from the priorities in the United
States, the United Kingdom and certain other EU jurisdictions. Under
Italian law, the highest priority claims (after the costs of the
proceedings are paid) are the claims of preferential creditors,
including the claims of the Italian tax authorities and social
security administrators, and claims for employee wages. The
remaining priorities of claims are, in order of priority, those
related to secured creditors (creditori privilegiati; a preference
in payment in most circumstances, but not exclusively, provided for
by law), mortgages (creditori ipotecari), pledges (creditori
prignoratizi) and, lastly, unsecured creditors (crediti
chirografari). Under Italian law, the proceeds from the sale of the
bankrupt’s estate are distributed according to legal rules of
priority. Neither the debtor nor the court can deviate from these
priority rules by proposing their own priorities of claims or by
subordinating one claim to another based on equitable subordination
principles. The law creates a hierarchy of claims that must be
adhered to when distributing the proceeds derived from the sale of
the entire bankrupt’s estate or part thereof, or from a single
asset.
Similar to other jurisdictions, there are so-called “clawback” or
avoidance provisions under Italian law that may give rise, inter
alia, to the revocation of payments or to the granting of security
interests made by the debtor prior to the declaration of bankruptcy.
The key avoidance provisions address 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 receiver in
bankruptcy compared to the rules applicable in other jurisdictions.
In bankruptcy proceedings, the Italian Bankruptcy Law provides
for a claw-back period of up to one year (six months in certain
circumstances) and a two-year ineffectiveness period for certain
other transactions.
The Italian Bankruptcy Law distinguishes
between acts or transactions which are ineffective by operation of
law and acts or transactions which are voidable at the request of
the bankruptcy receiver/court commissioner.
(a) Acts
ineffective by operation of law. (i) Under Article 64 of the Italian
Bankruptcy Law, subject to certain limited exception, all
transactions entered into for no consideration 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 the Italian Bankruptcy Law, payments of receivables
falling due on the day of the insolvency declaration or thereafter
are deemed ineffective vis-à-vis creditors, if made by the bankrupt
entity within the two-year period prior to the insolvency
declaration.
(b) Acts that may be avoided at the bankruptcy
receiver’s request.
(i) The following acts and transactions,
may be avoided and declared ineffective, unless the non-insolvent
party proves that it had no actual or constructive knowledge of the
debtor’s insolvency at the time the transaction was entered into:
• onerous transactions entered into in the year before the
insolvency declaration, when the value of the debt or the
obligations undertaken by the bankrupt entity exceeds 25% of the
value of the consideration received by and/or promised to the
debtor;
• payments of debts, due and payable, which were not
made by the debtor in cash or by other customary means of payment in
the year prior to the insolvency declaration; • pledges and
mortgages granted by the bankrupt entity in the year prior to the
insolvency declaration in order to secure pre-existing debts which
not yet due at the time the new security was granted ; and
•
pledges and mortgages granted by the bankrupt entity in the six
months prior to the insolvency declaration in order to secure
pre-existing debts which had already fallen due at the time the new
security was granted.
(ii) The following acts and
transactions, if made during the vulnerability period or such other
period specified below, may be avoided and declared ineffective if
the bankruptcy receiver proves that the non-insolvent party knew
that the bankrupt entity was insolvent:
• payments of debts
that are immediately due and payable and any onerous transactions
entered into or made within six months prior to the insolvency
declaration; and
• granting of security interest for debts
incurred in the six months prior to the insolvency declaration.
(iii) The following transactions are exempt from claw-back
actions:
• payments for goods or services made in the ordinary
course of business according to market practice;
• a
remittance on a bank account; provided that it does not materially
and permanently reduce the bankrupt entity’s debt towards the bank;
• the sale, including an agreement for sale registered
pursuant to Article 2645-bis of Italian Royal Decree No. 262 of
March 16, 1942 (the “Italian Civil Code”), currently in force, made
for a fair value and concerning a residential property that is
intended as the main residence of the purchaser or the purchaser’s
family (within three degrees of kinship) or a non-residential
property that is intended as the main seat of the enterprise of the
purchaser; provided that, as at the date of the insolvency
declaration, the activity is actually exercised therein or the
investments for the commencement of such activity have been carried
out therein;
• transactions entered into, payments made and
guarantees granted by the debtor pursuant to a plan (piano
attestato) under Article 67 of the Italian Bankruptcy Law;
• a
transaction entered into, payment made or guarantee granted in the
context of “concordato preventivo” under Article 161 of the Italian
Bankruptcy Law or an “accordo di ristrutturazione del debito” under
Article 182-bis of the Italian Bankruptcy Law;
• remuneration
payments to the bankrupt entity’s employees and consultants
concerning work carried out by them; and
• payments of a debt
that is immediately due, payable and made on the due date, with
respect to services necessary for access to concordato preventivo
procedures.
In addition, in certain cases, the bankruptcy
receiver can request that certain transactions of the bankrupt
entity be declared ineffective within the ordinary claw-back period
of five years (revocatoria ordinaria) provided for by the Italian
Civil Code. Under Article 2901 of the Italian Civil Code, a creditor
may demand that transactions whereby the bankrupt entity disposed of
its assets prejudicially to such creditor’s rights be declared
ineffective with respect to such creditor, provided that the
bankrupt entity was aware of such prejudice (or, if the transaction
was entered into prior to the date on which the claim was
originated, that such transaction was fraudulently entered into by
the bankruptcy entity for the purpose of prejudicing the bankrupt
entity) and that, in the case of a transaction entered into for
consideration with a third person, the third person was aware of
such prejudice (and, if the transaction was entered into prior to
the date on which the claim was originated, such third person
participated in the fraudulent design).
Law 132/2015 also
introduced new Article 2929-bis to the Italian Civil Code, providing
for a “simplified” clawback action for the creditor with respect to
certain types of transactions put in place by the debtor with the
aim to subtract (registered) assets from the attachment by its
creditors. In particular, the creditor can now start enforcement
proceedings over the relevant assets without previously obtaining a
Court decision clawing back/ nullifying the relevant (fraudulent)
transaction, to the extent that such transaction had been carried
out without consideration (e.g., gratuitous transfers, or creation
of shield instruments such as trusts or the so called fondo
patrimoniale—“family trust”). In case of gratuitous transfers, the
enforcement action can also be carried out by the creditor against
the third party purchaser.
The extraordinary administration procedure is available under
Italian law for large industrial and commercial enterprises; this
procedure is commonly referred to as the “Prodi-bis procedure.” To
be eligible, companies must be insolvent although able to
demonstrate serious recovery prospects, have employed at least 200
employees in the previous year preceding the commencement of the
procedure, and have debts equal to at least two-thirds of its assets
as shown in its financial statements and two-thirds of its income
deriving from sales and services during its last financial year. The
procedure may be commenced by petition of the creditors, the debtor,
a court or the public prosecutor. The same rules set forth for
bankruptcy proceedings with respect to existing contracts and
creditors’ claims largely apply to an extraordinary administration
proceeding. Extraordinary administration procedures involve two main
phases— an administrative phase and a judicial phase.
In the administrative phase, the court determines whether the
company meets the admission criteria and whether it is insolvent. It
then issues a decision to that effect and appoints up to three
judicial receivers (commissario giudiziale) to investigate whether
there are serious prospects for recovery via a business sale or
reorganization. The judicial receiver submit(s) a report to the
court (within 30 days) together with an opinion from the Italian
Productive Activities Minister (the “Ministry”). The court has 30
days to decide whether to admit the company to the procedure or
place it into bankruptcy.
If the company is admitted to the
extraordinary administration procedure, the judicial phase begins
and the extraordinary commissioner(s) appointed by the Ministry
prepare a restructuring plan. The plan can provide either for the
sale of the business as a going concern within one year (unless
extended by the Ministry) (the “Disposal Plan”) or a reorganization
leading to the company’s economic and financial recovery within two
years (unless extended by the Ministry) (the “Recovery Plan”). It
may also include a composition with creditors (concordato). The plan
must be approved by the Ministry. The procedure ends upon successful
completion of either a Disposal Plan or a Recovery Plan; however’
should either plan fail, the company will be declared bankrupt.
Introduced in 2003 pursuant to Law Decree No. 347 of 23 December
2003, as converted into Law No. 39 of 2004 and subsequently amended,
this procedure is also known as the “Marzano procedure.” It is
complementary to the Prodi-bis procedure and, except as otherwise
provided, the same provisions apply.
The Marzano procedure is intended to work faster than the
Prodi-bis procedure. For example, although a company must be
insolvent, the application to the Ministry can be made before the
court commences the administrative phase.
The Marzano
procedure only applies to large insolvent companies which, on a
consolidated basis, have at least 500 employees in the year before
the procedure is commenced and at least €300 million of debt. The
decision whether to open a Marzano procedure is taken by the
Ministry following the debtor’s request (who must also file an
application for the declaration of insolvency).
The Ministry
assesses whether the relevant requirements are met and then appoints
the extraordinary commissioner(s) who will manage the company. The
court also decides on the company’s insolvency.
The
extraordinary commissioner(s) has/have 180 days (or 270 days if the
Ministry so agrees) to submit a Disposal Plan or Recovery Plan. The
restructuring through the Disposal Plan or the Recovery Plan must be
completed within, respectively, one year (extendable to two years)
and two years.
If no Disposal or Recovery Plan is approved by
the Ministry, the court will declare the company bankrupt and open
bankruptcy proceedings.
A compulsory administrative winding-up (liquidazione coatta
amministrativa) is only available for public interest entities such
as state-controlled companies, insurance companies, credit
institutions and other financial institutions, none of which can be
wound up pursuant to bankruptcy proceedings. It is irrelevant
whether these companies belong to the public or the private sector.
A compulsory administrative winding-up is special insolvency
proceedings in that the entity is liquidated not by the bankruptcy
court but by the relevant administrative authority that oversees the
industry in which the entity is active. The procedure may be
triggered not only by the insolvency of the relevant entity, but
also by other grounds expressly provided for by the relevant legal
provisions (e.g., in respect of Italian banks, serious
irregularities concerning the management of the bank or serious
violations of the applicable legal, administrative or statutory
provisions).
The effect of this procedure is that the entity loses control
over its assets and a liquidator (commissario liquidatore) is
appointed to wind up the company. The liquidator’s actions are
monitored by a steering committee (comitato di sorveglianza). The
powers assigned to the designated judge and the bankruptcy court
under the other insolvency proceedings are assumed by the relevant
administrative authority under this procedure. The effect of the
forced administrative winding-up on creditors is largely the same as
under bankruptcy proceedings and includes, for example, a ban on
enforcement measures. The same rules set forth for bankruptcy
proceedings with respect to existing contracts and creditors’ claims
largely apply to a compulsory administrative winding-up.
The Decree 83/2015, as amended by Law 132/2015, introduced the
possibility for debtors to also obtain authorization to receive
urgent interim financing and to continue to use existing trade
receivables credit lines (linee di credito autoliquidanti) necessary
for their business needs before a court’s approval of a
Pre-Bankruptcy Composition with Creditors (concordato preventivo) or
the entry into a debt restructuring agreement (accordo di
ristrutturazione dei debiti) with priority status (prededucibilità)
in case of subsequent bankruptcy without the expert certification
and through an accelerated review process by the relevant court,
upon, among others, the relevant debtor’s declaration that interim
finance is urgently needed and the debtor’s inability to access such
finance would cause imminent and irreparable damage. The court must
decide on the request within 10 days of the filing of the
application after consultation with the judicial commissioner and,
if deemed necessary, the principal creditors.
Before the entry into force of the Decree 83/2015, debtors
could be granted financing with priority status (prededucibilità)
before a court’s approval of a Pre-Bankruptcy Composition with
Creditors (concordato preventivo) or the entry into a debt
restructuring agreement (accordo di ristrutturazione dei debiti) if:
(i) an expert certified that such financing is functional to the
overall restructuring process; or (ii) such financing is provided
for by the plan or the agreement, provided in each case that the
court approved such priority status.
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
ineffective within the Italian Civil Code ordinary claw-back period
of five years (“revocatoria ordinaria”).
Under Italian law, in
the event that the relevant Guarantor enters into insolvency
proceedings, the security interests created under the documents
entered into to secure the Collateral and the Guarantees could be
subject to potential challenges by an insolvency administrator or by
other creditors of such Guarantor under the rules of avoidance or
claw-back of Italian Bankruptcy Law and the relevant law on the
non-insolvency avoidance or claw-back of transactions by the debtor
made during a certain legally specified period (the “suspect
period”). The avoidance may relate to (i) transactions made by the
debtor within a suspect period of one year prior to the declaration
of the insolvency at below market value (i.e., to the extent the
asset or obligation given or undertaken exceeds by one quarter the
value of the consideration received by the debtor), or involving
unusual means of payment (e.g., payment in kind) or new security
granted with respect to pre-existing debts not yet due at the time
the security is entered into after the creation of the secured
obligations, unless the non-insolvent creditor proves that it had no
knowledge of the debtor’s insolvency at the time the transaction was
entered into, (ii) security granted within six months prior to the
declaration of insolvency with respect to pre-existing debts due and
payable, unless the non-insolvent creditor proves that it had no
knowledge of the debtor’s insolvency at the time the transaction was
entered into, and (iii) payments of due and payable obligations,
transactions at arm’s length or security taken simultaneously to the
creation of the secured obligations during the suspect period of six
months prior to the declaration of the insolvency, if the bankruptcy
receiver proves that the creditor was aware of the insolvency of the
debtor. The transactions potentially subject to avoidance also
include those contemplated by a Guarantor’s Guarantee or the
granting of security interests under the Security Documents by a
Guarantor. If they are challenged successfully, the rights granted
under the Italian Guarantees or in connection with security
interests under the relevant Security Documents may become
unenforceable and any amounts received must be refunded to the
insolvent estate. To the extent that the grant of any security
interest is voided, holders of the Notes could lose the benefit of
the security interest and may not be able to recover any amounts
under the related Security Documents.
It should be noted that:
(i) under Article 64 of the Italian Bankruptcy Law, subject to
certain limited exceptions, all transactions carried out by the
insolvent debtor for no consideration are ineffective vis-à-vis
creditors if entered into by the debtor in the two-year period prior
to the insolvency declaration, and (ii) under Article 65 of the
Italian Bankruptcy Law, 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, as noted above, the
E.U. Insolvency Regulation contains conflicts of law rules which
replace the various national rules of private international law in
relation to insolvency proceedings within the European Union.
Recouvrement des creances en Italie.
Inkasso, Forderungsmanagement und Insolvenzrecht in
Italien.