Statistical and Empirical Data

Based on the most recent information available (Cerved-Confindustria “Regional Report” – September 2022) data on business closures in 2021 continue to show no tangible effects on bankruptcies, other bankruptcy proceedings and voluntary liquidations of SMEs. On the contrary, in 2021 the year-on-year decline in all types of closures continued, with values that are far from the levels observed before COVID-19 (16% down 2020-21).

The temporary suspension of court operations and the introduction of new regulatory devices ‒ such as the inadmissibility of bankruptc

ies and the extraordinary loan moratorium ‒ first froze and then altered the dynamics of closings, causing containment in both 2020 and 2021.

After the decrease in number of SMEs bankruptcy procedures in 2020 (1,206 procedures compared to 1,763 in 2019), the decline continued in 2021 (1,013 new cases, 16% fewer than in the previous year and 43% below levels pre-COVID-19).

In 2021, the contraction of non-bankruptcy proceedings also continued, in further decline from 2020 (330 cases opened during the year, ie, down 1.8%).

Restructuring Trends

Italy is undergoing a real cultural leap that can be read in the epochal passage from Bankruptcy Law (contained in Royal Decree no 267 of 1942) to a system (ruled by Legislative Decree no 14 of 2019) that places the company and its business continuity at the centre of the insolvency universe.

Incoming Developments

Said trends will be likely impacted by the ambitious reform agenda and investment programme provided by the Italian Recovery and Resilience Plan (PNRR). As a matter of fact, the most important reforms concern public administration and justice systems.

In particular, the reform of civil justice provides, among other things, for:

• a simplification of both first and second instance trial procedures;
• an increase in ADR; and
• a strengthening of enforcement and executive actions.

These reforms will presumably influence the non-performing exposure (NPE) market in Italy, mainly because of a creditor-oriented approach.

Starting from 15 July 2022, Royal Decree No 267 of 16 March 1942 (the “Bankruptcy Law”), after its 80 years of application, has been repealed by Legislative Decree No 14 of 12 January 2019 (the “Crisis and Insolvency Code” or CIC).

CIC regulates situations of “crisis” or “insolvency” (please see 2.5 Requirement for Insolvency for the relevant definitions) of the debtor (whether consumer or professional) or entrepreneur who carries out commercial, craft or agricultural activities (for profit or otherwise), operating as a natural person, legal person or other collective entity, group of enterprises or company public, excluding the State and public entities.

CIC provides for a thorough discipline regarding “instruments for the regulation of crisis and insolvency”, meaning the measures, agreements and procedures aimed at the rehabilitation of the enterprise through the modification of the composition, status or structure of its assets and liabilities or capital, or aimed at the liquidation of assets, or assets which, at the request of the debtor, may be preceded by the negotiated settlement of the crisis (composizione negoziata per la soluzione della crisi di impresa).

Should the state of insolvency not be removed through one of the legal instruments above, then judicial liquidation (liquidazione giudiziale) applies to commercial entrepreneurs who are not a “minor enterprise”, meaning enterprises that fulfil the following requirements:

• assets of total amount not exceeding EUR300,000 in the three fiscal years preceding the date of filing the petition for the opening of the judicial liquidation or from the beginning of the activity if the activity had a shorter duration;
• revenues for a total annual amount not exceeding EUR200,000 in the three fiscal years preceding the date of filing of the petition for the opening of liquidation judicial liquidation or from the beginning of the activity if the activity had a shorter duration; and
• debts, even if not overdue, not exceeding EUR5,000.

The Crisis and Insolvency Code

The most innovative provisions set forth by CIC are:

• an early warning system aimed at facilitating an earlier inception of the distress situation through certain preventive restructuring remedies, entirely represented by the composizione negoziata per la soluzione della crisi di impresa (which was originally introduced in the Italian legal system by L 147/2021);
• a wide set of rules emphasising the going concern through the access to one of the “instruments for the regulation of crisis and insolvency”;
• a unified procedure for access to said instruments, as well as to judicial liquidation;
• rules concerning the insolvency and restructuring of groups of companies; and
• replacing the name “bankruptcy procedure” with “judicial liquidation procedure” (liquidazione giudiziale).

The following procedures should also be mentioned:

• Legislative Decree No 270 of 8 July 1999 (the “Prodi Act”), which provides for extraordinary administration for large insolvent enterprises (amministrazione straordinaria delle grandi imprese in crisi), as subsequently amended and implemented by Law No 39 of 18 February 2004 (the “Marzano Act”), Law No 166 of 27 October 2008 (the “Alitalia Act”) and Law No 13 of 1 February 2016 (the “ILVA Act”); and
• the administrative compulsory liquidation (liquidazione coatta amministrativa) which is the administrative bankruptcy procedure applied in cases expressly provided for by law; it also determines the enterprises subject to the procedure, which may be ordered by the competent authority.

In Italy, all restructuring, reorganisation, insolvency, receivership and similar proceedings are commenced on a “voluntary” basis, since they can only be activated by the debtor.

Only judicial liquidation may be filed by interested third parties, ie, one or more unsatisfied creditors or the public prosecutor.

In order to avoid negative effects of creditors’ passivity in negotiations, reforms enacted in recent years have introduced “involuntary” (meaning compulsory) restructuring, reorganisation, insolvency, receivership and similar proceedings, providing forms of intra- and/or cross-class cram-down.

All such procedures are ruled by the aforementioned laws. Outside such procedures, mere private agreements between debtors and relevant creditors may be negotiated and perfected, but with no effect vis-à-vis third parties and no protection granted by the above-mentioned procedures.

CIC sets out specific obligations of activation by the debtor if certain circumstances occur, in order to address a crisis in a timely manner.

In particular, CIC imposes a proactive attitude on the debtor, such as:

• the obligation of the debtor to take appropriate company measures to promptly detect the crisis in order to take the necessary initiatives to resolve it without delay (Article 3); and
• the obligation of the debtor, during the negotiation and execution of the agreements and procedures for the regulation of the crisis and insolvency, to take timely appropriate measures for the prompt resolution of the procedure, also in order not to affect creditors’ rights (Article 4, paragraph 2).

In accordance with the early warning system, an alert duty is imposed on specific company offices/entities (such as corporate control bodies, auditors or auditing companies) and on specific categories of creditors (such as the Tax Authority and the National Social Insurance Agency), which must immediately report any sign of the crisis to the supervisory body of the company (Article 25-octies to 25-decies).

If it is proved that shareholders that have intentionally decided or authorised the accomplishment of detrimental acts to the company, they are deemed jointly and severally liable with the directors (Article 2476, paragraph 8, Italian Civil Code).

Italian case law has recently ruled on the specific topic concerning abusive use of credit (abusivo ricorso al credito) and related directors’ liability (Supreme Court, judgments No 18610 dated 30 June 2021 and No 24725 dated 14 September 2021). The Supreme Court stated, among other things, that in the event of abusive lending (abusiva concessione di credito), the bank’s liability may be joint and several with that of corporate bodies.

Creditors or parties other than the debtor may only initiate a judicial liquidation.

For sake of completeness, “competing proposals” (proposte concorrenti) and “competing offers” (offerte concorrenti) must be mentioned (respectively, Articles 90 and 91, CIC). In relation to “competing proposals”, a subject who, including as a result of purchases subsequent to the application for arrangement, represents at least 10% of the claims resulting from the balance sheet filed by the debtor, may submit a competing proposal for composition arrangement and the related plan no later than 30 days before of the initial date set for the creditors’ vote; as for “competing offers” it is provided that the court, when the plan of arrangement includes an offer irrevocable by a person already identified and having as its object the transfer in its favour, even before approval, for a consideration in cash or otherwise, of the business or one or more business branches or specific assets, provides that the offer itself be given suitable publicity in order to acquire competing offers.

Article 2, paragraph 1, letters a) and b) of CIC has introduced the following definitions:

• crisis ‒ “the state of the debtor that makes insolvency probable, manifested by the inadequacy of the prospective cash flows to meet its obligations in the next 12 months”; and
• insolvency ‒ “the state of the debtor manifested by defaults or other external facts showing that the debtor is no longer able to meet its obligations on a regular basis”.

Procedures Applicable to Financial Companies

Within the Italian legal system, financial companies, and so companies that can be qualified as credit institutions, financial institutions, investment companies or fund management companies, under either Legislative Decree No 385 of 1 September 1993 (the “Consolidated Banking Law”) or Legislative Decree No 58 of 24 February 1998 (the “Italian Securities and Exchange Act”) are subject to:

• an administrative compulsory liquidation (liquidazione coatta amministrativa) with mainly liquidation purposes; and
• a special management procedure, which is mainly aimed at restructuring.

All these special procedures are initiated, supervised (and, to some extent, managed) by the relevant supervisory authorities (Banca d’Italia – Consob).

Procedures Applicable to Assurance, Insurance and Reinsurance Companies

Assurance, insurance and reinsurance companies, as defined by Legislative Decree No 209 of 7 September 2005 (the “Italian Private Insurance Code”), are subject to the same procedures as mentioned above.

Other

Large insolvent enterprises meeting certain requirements in terms of number of employees and size of debts are subject to extraordinary administration for large insolvent enterprises, in lieu of ordinary liquidation under the bankruptcy procedure.

Pursuant to the Prodi Bis Act, companies with more than 200 employees and an outstanding amount of debt greater than ⅔ of both the company’s total assets and the last fiscal year’s total revenues are subject to a special administration procedure, aimed at reorganisation and managed by a special commissioner (commissario straordinario) appointed by the Ministry of Economic Development.

Pursuant to the Marzano Act, an amended procedure is applicable to companies with more than 500 employees and an outstanding amount of debt greater than EUR300 million.

Such special procedures have been further implemented and modified by the Alitalia Decree.

General Perceptions

In Italy, consensual, non-judicial and other informal restructuring processes are positively viewed by creditors and professionals assisting the parties, and therefore they are preferred over the statutory processes. From 2005 to the present (with the implementation of CIC), the Italian legislature has provided sufficient tools and reliefs to allow for the restructuring of viable businesses; as a consequence, a generally restructuring-friendly legal environment has been created in the last 15 years or more.

Support from Banks

Usually, financial entities like banks – and, increasingly, funds specialised in distressed situations – are supportive of borrower companies that are in a state of financial and economic difficulty, but still worthy of restructuring attempts; this is mainly because of sensible privileges such as priorities for interim and new financing.

Legal Instruments that Influence the Choice of Restructuring Procedures

Starting from 2005, certain legal instruments have been introduced in the Italian legal system encouraging the choice of restructuring procedures. In particular:

• actions, payments and guarantees provided in a plan, approved by the company and aimed at reinstating a balanced financial situation of its account and at restructuring its indebtedness, as well as acts, payments or guarantees made in execution of a judicial composition with creditors or of a restructuring agreement approved by the court and those legally created after the filing of an appeal for the opening of a judicial composition with creditors, are exempted from claw-back actions in case of subsequent bankruptcy (Article 166, paragraph 3, letters d) and e), CIC);
• crimes of “preferential bankruptcy” (bancarotta preferenziale) and “simple bankruptcy” (bancarotta semplice) are not committed for payments and transactions made pursuant to judicial compositions with creditors, restructuring agreements and certified recovery plans (Article 324, CIC); and
• receivables arising from loans in all forms in the framework of a restructuring agreement or a judicial composition with creditors are pre-deductibles (Articles 99 and 101, CIC).

Mandatory Consensual Restructuring Negotiations

Italian laws do not require mandatory consensual restructuring negotiations before the commencement of a statutory process.

However, it is worth recalling that any of the “instruments for the regulation of crisis and insolvency”, may be preceded by the negotiated settlement of the crisis (composizione negoziata per la soluzione della crisi di impresa).

Consensual “Standstills” as Part of an Initial Informal and Consensual Process

In principle, consensual “standstills” and waivers may be used at the very first step of an informal and consensual restructuring process and they are highly recommended mainly because a negotiation phase is necessary for the debtor to choose the right tools to restructure its indebtedness.

However, the use of these tools is made difficult due to the fact that banks and financial creditors require a thorough knowledge of the financial measures underlying the restructuring processes.

With particular reference to the negotiations among debtors and relevant creditors which occur during the composizione negoziata per la soluzione della crisi di impresa, CIC expressly states that all parties thereto have a duty to co-operate loyally and promptly with the entrepreneur and the expert and respect the obligation of confidentiality as to the situation of the entrepreneur, the initiatives taken or planned by them and on the information acquired in the course of negotiations. The same parties shall give feedback to the proposals and requests they receive during the negotiations with a timely and substantiated response (Article 16, paragraph 6, CIC).

Undertakings and Obligations of a Debtor Company

A standstill agreement is usually proposed by the debtor company to its creditors while drafting its comprehensive business and financial restructuring plan.

In return, typical interim obligations on the same company may include:

• to develop the restructuring plan with the assistance of financial and legal professionals;
• to project cash flows showing the expected inflows and outflows in detail during the period creditors are stayed;
• to provide comfort letters issued by an independent expert (attestatore) as to the company’s financial situation;
• to use the facilities granted by the banks in accordance with terms of the standstill agreement;
• to act in order to preserve the business value; and
• to prevent default events from occurring.

Steering Committees

CIC does not provide for any creditors’ committee (comitato dei creditori) under consensual restructuring processes; nonetheless, it is customary to have professionals performing as co-ordinators and representatives of creditors, such as loan agents and financial/legal advisers creditors’ side, if and when appointed at this early stage of the procedures.

Information Provided by the Company

As an immediate consequence of the fact that no sensible creditor would accept a restructuring plan without being properly informed, the debtor company must constantly provide creditors with adequate asset, economic, financial and legal information giving evidence of the going concern.

Specifically, information regarding the business and the relevant plan should:

• be reliable, updated and complete;
• be presented clearly; and
• cover all aspects relevant for creditors and other third parties.

CIC expressly states that the entrepreneur has a duty to represent their situation to the expert, creditors and other stakeholders in a complete and transparent manner (Article 16, paragraph 4).

Legal Situations

Legal situations such as contractual priority, security/lien priority, equity-holder and intercompany priority rights, and the relative positions of competing creditor classes (and equity owners) should be duly represented in the restructuring plan, in the relevant report by the independent expert appointed by the debtor, as well as in the agreements with creditors.

Money is not commonly injected, particularly by banks, into a distressed company before and outside of a statutory or other formal process, except for specific situations, due to super-priority liens or rights established under intercreditor agreements being limited to the parties and not enforceable against third parties when a bankruptcy procedure is commenced.

New money is usually injected by:

• equity owners who may take advantage of the provision set forth in Article 102 of CIC, which establishes a super-priority rank granted to 80% of shareholders’ loans, if these loans are provided in execution of a restructuring agreement; and
• banks and financial institutions, pursuant to Articles 99 and 101 of CIC.

Also during negotiations taking place in the course of the composizione negoziata per la soluzione della crisi di impresa, the debtor may be authorised by the competent court to obtain super-priority ranked financing.

An issue commonly raised outside formal proceedings is the difficulty for debtor companies to receive comprehensive and final responses at a reasonable time, especially from banks, other financial creditors and public creditors.

CIC explicitly imposes certain duties and obligations of conduct on creditors, as already written under 3.2 Consensual Restructuring and Workout Processes. More specifically, banks and financial intermediaries, their agents and assignees of their receivables are required to participate in the negotiations in an active and informed manner. Access to said procedure does not constitute in itself a cause for suspension and revocation of bank facilities granted to the entrepreneur (suspension or revocation of credit facilities may be ordered only if required by prudential regulations, with a notice giving an account of the reasons for the decision made) (Article 16, paragraph 5, CIC).

Restructuring over the Dissent of Creditors

In order to facilitate composition with creditors, CIC provides for certain legal instruments whereby consensual out-of-court restructuring or workout may be accomplished and effectuated over the dissent of minority creditors.

Legal Instruments

Judicial composition with creditors

Except as provided for by the judicial composition with creditors on a going concern basis, the arrangement shall be approved by the creditors representing a majority of the claims eligible to vote. Where there are different classes of creditors, the arrangement is approved if a majority of the claims eligible to vote is reached in the majority of classes.

In a judicial composition with creditors on a going concern basis, if one or more of the classes are dissenting, the court will approve if the following conditions are jointly met:

• the liquidation value is distributed in compliance with the graduation of legitimate pre-emption;
• the value in excess of the liquidation value is distributed in such a way that the claims included in the dissenting classes receive, in aggregate, a treatment at least equal to that of the classes of the same grade and more favourable than that of the classes of a lower degree;
• no creditor receives more than the amount of their claim; and
• the proposal is approved by a majority of the classes, provided that at least one consists of creditors with pre-emptive rights, or, failing that, the proposal is approved by at least one class of creditors who would be at least partially satisfied respecting the graduation of pre-emption rights even on the value exceeding the liquidation value.

If a dissenting creditor objects in relation to the defect of convenience of the proposal, the court shall nonetheless approve the arrangement when, according to the proposal and the plan, the claim is satisfied to an extent not less than the judicial liquidation (Article 112, paragraph 2, CIC).

Restructuring agreement

A cram-down of dissenting minority creditors under a restructuring agreement is possible by creating one or more categories among them for those with similar legal status and economic interests, provided that the following conditions are met:

• all creditors belonging to the relevant category have been informed of the negotiations, have been allowed to participate in such negotiations in good faith and have acquired complete and up-to-date information about the debtor’s asset, economic and financial situation;
• the agreement provides for the continuation of the business activity, directly or indirectly;
• the claims of the creditors belonging to one category that have agreed to a restructuring agreement represent at least 75% of the debtor’s overall indebtedness vis-à-vis the creditors belonging to the same category;
• the creditors of the same non-member category to whom the effects of the agreement are extended are satisfied to an extent not less than the winding-up alternatives; and
• the debtor has notified to the creditors the agreement, the application for approval by the court and the attached documents.

Some of these conditions are not required (for example, even when no continuity of business is provided) when at least 50% of the overall indebtedness of the debtor is represented by debts vis-à-vis banks and financial intermediaries (Article 61 CIC).

A restructuring agreement may also contain a proposed tax settlement for the partial or deferred payment of certain overdue taxes.

The court approves restructuring agreements even in the absence of adherence by the financial administration or the institutions managing forms of mandatory social security or assistance when the adherence is decisive for the achievement of the above-mentioned percentages, and, also based on the findings of the report of the independent professional, the proposed satisfaction of the aforementioned administration or the institutions administering forms of social security or assistance compulsory is convenient compared to the alternative liquidation (Article 63, paragraph 2-bis, CIC).

The Italian legal system provides for various forms of guarantees over specific assets and/or over the whole of the debtor’s property. Collateral includes the following.

• Mortgages (ipoteca immobiliare) – creditors often use a mortgage to secure rights over immovable property. A mortgage is by far the most common form of security taken over immovable property (please note that in Italy mutui fondiari pursuant to Articles 38 et seq of the Consolidated Banking Law – mortgage or land loans – are by far the most common financing instrument to finalise the purchase of a new property by using a residential property as a collateral).
• Mortgages over registered movable goods (ipoteca su beni mobile registrati) – creditors can use a mortgage to secure registered movable property, such as ships and motor vehicles.
• Pledges (pegno) – creditors often use a pledge to secure their rights over movable property.
• Special liens (privilegio speciale) – special liens arise automatically by operation of law over certain claims. Claims over immovable property which benefit from special liens include:
1. claims for expenses incurred in foreclosing an asset;
2. claims for expenses incurred in conserving an asset;
3. tax claims on the asset; and
4. claims for non-performance of a property sale agreement.
• General lien (privilegio generale) – a general lien differs from a special lien because it must apply to all the debtor’s assets and can only apply to movable property. Claims automatically protected by a general lien include employee salary claims, social security claims and certain tax claims.

Pursuant to Italian law, before starting a proceeding of enforcement, creditors must request payment; once a certain time has elapsed, depending on the type of security interest, they can start the enforcement proceeding. With reference to pledges, mortgages and special liens, creditors start the enforcement through a court proceeding.

Law Decree No 59/2016 of 3 May 2016 introduced a new form of credit guarantee, the so-called “non-possessory pledge” (pegno non possessorio), in order to secure receivables in connection with the ordinary conduct of business.

The effective use of such new security has been recently made possible by Law Decree No 114 of 10 August 2021 through a web portal for the registration of non-possessory pledges, in which the formalities submitted must be entered daily.

Moreover, such decree also introduced a new form of corporate financing secured by the transfer to the lending party of a real estate asset and conditioned to the possible breach by the borrower of certain obligations under the relevant facility agreement.

Conversely, a personal guarantee (fideiussione) is a strictly regulated form of guarantee, which remains valid only if the underlying guaranteed obligation is valid. In this case, the guarantor is released if the guaranteed creditor has further financed the relevant debtor although it was aware of its difficult financial conditions.

Moreover, an autonomous first demand guarantee is intended as a tool ensuring payment to the relevant creditor independently of the circumstances affecting the relevant debtor or the underlying guaranteed obligation if the contractual conditions/steps and procedures provided by the relevant agreement are fulfilled.

Once the insolvency procedure is opened, secured creditors are satisfied according to the order laid down by specific rules provided by the law, regardless of any contractual intercreditor covenants.

Under a judicial composition with creditors, the proposal made by the debtor may envisage secured creditors not being satisfied in full, provided that it allows that their claims be met to an extent that is not lower than the proceeds in the event of liquidation (Article 84, paragraph 5, CIC).

A stay of action on a creditor is available under reorganisation and insolvency procedures.

Article 54 of CIC provides for certain limits to enforce secured creditors’ rights and remedies.

Secured creditors must follow certain rules in order to enforce their rights under a bankruptcy procedure. Every claim, even if secured, must be determined according to the strict provisions set forth by CIC.

Under a judicial composition with creditors:

• secured creditors whose claims are proposed to be reimbursed in full are not entitled to vote if they do not waive in whole or in part their pre-emptive right; the portion of the claim not secured shall be treated as an unsecured credit and the waiver shall take effect for the sole purpose of the agreement (Article 102, CIC); and
• the plan may provide a moratorium of up to two years from the approval for the payment of creditors with privilege, pledge or mortgage, unless provision is made for the winding-up of the assets in respect of which the pre-emption exists (Article 86, CIC).

CIC provides for a division of creditors into classes (classi) under a judicial composition with creditors (Article 85), or categories (categorie) under a restructuring agreement (Article 61); in both cases such division depends on legal position and economic interests.

In a bankruptcy procedure, once the company’s assets have been sold, the distribution of the relevant value among creditors follows a specific order:

• super priority pre-deductible credits;
• secured credits subject to pre-emption; and
• other unsecured credits.

This waterfall applies in all insolvency proceedings aimed at winding up the company.

Specific rules apply to the brand new “restructuring plan subject to approval” (piano di ristrutturazione soggetto ad omologazione), whereby the commercial entrepreneur (not “minor”) who is in a state of crisis or insolvency may provide for the satisfaction of the creditors, after dividing them into classes according to legal position and homogeneous economic interests, distributing the value generated by the plan also in derogation of Articles 2740 and 2741 of the Civil Code and the provision governing the graduation of pre-emption, provided that the proposal is approved by unanimity of the classes.

The crisis and insolvency regulation instruments may provide for the formation of a class of shareholders (or of several classes if there are members to whom the bylaws, even following the amendments provided for in the plan, grant different rights). The formation of the classes is mandatory if the plan provides for amendments that directly affect the participation rights of shareholders and, in any case, for listed companies.

Unsecured trade creditors are not generally kept as a whole in a single class or category during a restructuring process; conversely, it is possible to place specific unsecured creditors (eg, all the company’s suppliers) in the same class or category to make it possible for them to build consensus among creditors, abiding by the principle of par condicio creditorum.

The Bankruptcy Law provides certain rights and remedies for unsecured creditors in an insolvency context.

The proposal for a judicial composition with creditors must ensure the payment of at least 20% of the amount of the unsecured receivables (Article 160, paragraph 4, Bankruptcy Law).

Should a judicial composition with creditors have a liquidation purpose, new money must increase the satisfaction of unsecured creditors by at least 10% compared with a judicial liquidation (Article 84, paragraph 4, CIC).

In the judicial composition with creditors on a going-concern basis, creditors are also not predominantly satisfied from the proceeds produced by direct or indirect business continuity; the proposal must provide each creditor with a specifically identified and economically assessable utility, which may also consist of the continuation or renewal of contractual relations with the same debtor or its assignee (Article 84, paragraph 3, CIC).

In the judicial composition with creditors with mere liquidation purposes, the proposal must provide for a contribution of “external resources” (ie, coming from the shareholders for any reason without obligation of repayment or subordination) that increases the available assets by at least 10% and ensures the satisfaction of unsecured creditors (ab origine or as degraded) to an extent of no less than 20% of their total amount. External resources may be distributed by derogating from civil law rules on asset liability (Article 2740, Civil Code) or the concurrence of creditors pre-emption (Article 2741 Civil Code), as long as the 20% requirement is met (Article 84, paragraph 4, CIC).

Should stay of action measures be provided, they also apply to unsecured creditors.

CIC does not provide for any pre-judgment attachments.

However, it has now provided for certain precautionary measures, defined as “precautionary measures issued by the competent court for the protection of the debtor’s assets or business, which appear, according to the circumstances, to be most appropriate for temporarily ensuring the effects of the procedures for the regulation of the crisis or insolvency” (Article 2, paragraph 1, letter q).

Proceeds from the sale of the assets are meant to be used to satisfy priority claims specifically described (Article 6, CIC), such as costs and expenses that the receiver (curatore) and the court incur during insolvency proceedings as well as professional fees and other debts incurred after the debtor files its bankruptcy petition. Moreover:

• receivables arising from loans in all forms provided in performance of a judicial composition with creditors or a restructuring agreement are pre-deductibles for the purposes of the aforementioned Article 6 (pursuant to Article 101, CIC); and
• a debtor who has an application for admission to a judicial composition with creditors or an application for the approval of a restructuring agreement can request the court for the authorisation to obtain financing, which is pre-deductible, if an independent expert certifies that these loans are functional to the best satisfaction of creditors (pursuant to Article 99 of CIC).

Such claims are satisfied with super priority ranking, prior to all debtor company’s existing debts, except for secured creditors, who have priority over cash realised through the sale of the company’s secured assets.

The following are the main provisions concerning statutory processes, procedures and mechanisms for reaching and effectuating a financial restructuring/reorganisation.

Creditor Consents

A judicial composition with creditors is approved when the prerequisites specified under 3.5 Out-of-Court Financial Restructuring are met. Once a judicial composition with creditors is confirmed by the court, it is binding on all creditors prior to its publication in the Register of Companies.

A restructuring agreement is approved when the agreement is concluded with creditors representing at least 60% of claims. The debtor can ask that the effects of the restructuring agreement be extended to creditors that have not agreed to the contents of the agreement, under certain conditions (Article 61, CIC).

Limitations on the Types of Agreements

In a judicial composition with creditors, there are no limitations on the types of agreements between the affected parties, provided that the par condicio creditorum rule is respected; Article 84 of CIC allows the entrepreneur to propose an arrangement that achieves the satisfaction of creditors to an extent not less than that achievable in a judicial liquidation by means of business continuity, the liquidation of the assets, the allocation of the assets to an assumptor or in any other form.

Under a restructuring agreement, there are even fewer limitations on the types of agreements which can be reached between debtor and creditors since no par condicio creditorum rule applies.

Specific rules apply to the brand new “restructuring plan subject to approval” (piano di ristrutturazione soggetto ad omologazione); please see 5.1 Differing Rights and Priorities.

Under the proposed plan of a judicial composition with creditors and/or a restructuring agreement, the company can offer any kind of settlement to its creditors, including postponement of debt, debt write-downs and exchange of debt for equity.

Objectives and Purposes

A judicial composition with creditors is generally aimed at safeguarding the company and protecting the assets in the creditors’ interest. CIC provides that, under a judicial composition with creditors, debtors may achieve the satisfaction of creditors by continuing their business or by liquidating their assets (Article 84).

The purpose of a restructuring agreement is to resolve a company’s state of crisis.

Role of the Court

A judicial composition with creditors is an in-court procedure during which the company is under the supervision of the judicial commissioner(s) (commissario giudiziale). Certain extraordinary transactions require court approval.

A restructuring agreement is negotiated between the parties out of court, even if court confirmation is required in order to provide legal certainty through assessing the viability of the plan.

Timelines and Milestones

A judicial composition with creditors proceeding cannot last for more than 12 months from the date of filing the petition (Article 113, paragraph 2, CIC).

Conversely, there is no time limit for restructuring agreements since their length depends on the negotiations with creditors. The in-court phase usually lasts for two or three months.

Calculation of Claims

The application for admission to a judicial composition with creditors must be submitted together with a list of names of creditors, with an indication of their claims and causes of pre-emption. The judicial commissioner shall then proceed to the verification of the list of creditors and debtors based on accounting entries submitted, making any necessary adjustments (Article 87, CIC).

The application for the approval of a restructuring agreement must be submitted together with the same documentation, including a list of creditors (Article 57, CIC).

Binding of Creditors

Upon confirmation, a judicial composition with creditors is binding on all creditors prior to its publication in the Register of Companies.

Even though Article 57, paragraph 3 of CIC provides for the payment-in-full of non-adhering creditors, Article 63 allows the court to approve a restructuring agreement also without the adherence of the financial administration or of the bodies managing social security forms, under certain conditions.

Challenging Mechanism

Dissenting creditors and interested third parties may challenge a judicial composition with creditors in court on the grounds of its validity.

Moreover, one or more creditors representing at least 10% of the claims resulting from the balance sheet deposited pursuant to Article 90 of CIC, may submit a competing (and different) proposal (please see 2.4 Commencing Involuntary Proceedings).

Within 30 days after publication of a restructuring agreement in the Register of Companies, creditors and any other interested party may file an opposition. The court, in deciding on the opposition, may approve the restructuring agreement.

Final Steps and Conclusion

A judicial composition with creditors is approved when the prerequisites specified under 3.5 Out-of-Court Financial Restructurings are fulfilled.

If a judicial composition with creditors is not approved by creditors, the debtor, if found insolvent, is declared bankrupt and becomes subject to a bankruptcy procedure.

The debtor is allowed to reach out-of-court restructuring agreements, to be approved by not less than 60% of creditors by value of claims (Article 57, CIC), or by not less than 30% of creditors by value of claims, if certain conditions are met (Article 60, CIC). Such agreements, which are only binding for the consenting creditors, are subject to judicial confirmation.

Certified Recovery Plans

Though certified recovery plans (piani di risanamento attestati) are not to be included in insolvency procedures, according to CIC (Article 56), a company may prepare a plan, to be presented to creditors, which is deemed appropriate to allow the recovery of the company’s debt exposure and to ensure the rebalancing of its economic and financial situation.

This plan, together with a relevant certification by an independent expert, must indicate:

• the economic and financial situation of the company;
• the main causes of the state of crisis;
• strategies to be put in place;
• a list of creditors and the amount of their claims, as well as a list of non-adhering creditors;
• injection of new money
• the timing of the actions to be taken; and
• the business plan.

Unilateral acts and contracts put in place in execution of the plan must be evidenced in writing and must be dated with certainty.

Automatic Stay

Upon a debtor’s request, from the date of the publication of the application referred to in Article 40 in the commercial register, creditors may not commence or continue enforcement and precautionary measures on its assets or on the property and rights with which the business activity is exercised. From the same date, prescriptions remain suspended and forfeitures do not occur and the judgment opening the judicial liquidation or determination of the state of insolvency shall not be pronounced.

The debtor may apply to the court, by subsequent application, for additional temporary measures to prevent certain actions of one or several creditors that may jeopardise, from the stage of the negotiations, the successful outcome of the initiatives taken for the regulation of the crisis or insolvency.

The protective measures may be requested by the entrepreneur even during the negotiations and before the filing of the application for approval of the restructuring agreements.

Management and Continuation of Business Activities

During a judicial composition with creditors, the debtor can continue to run its business under the supervision of a court-appointed commissioner (spossessamento attenuato). The court must approve extraordinary transactions, such as the company incurring new debt.

For restructuring agreements (as well as for certified recovery plans), there is no dispossession and therefore the directors of the company are entitled to manage the business.

As to composizione negoziata per la soluzione della crisi di impresa, it is expressly stated that the entrepreneur has a duty to manage the assets and the enterprise without unfairly prejudicing the interests of creditors (Article 16, paragraph 4, CIC).

More specifically, in the course of negotiations, the entrepreneur retains the ordinary and extraordinary management of the enterprise, with the following differences:

• when in a state of crisis, they must manage the enterprise in such a way as to avoid prejudice to the economic and financial sustainability of the business; and
• when, in the course of the negotiated settlement, it turns out that the entrepreneur is insolvent but there are concrete prospects for rehabilitation, the same manages the enterprise in the overriding interest of creditors (Article 21, paragraph 1, CIC).

New Money

Under CIC, financing is generally allowed and the relevant claims have a super priority rank when granted in the forms described under 5.5 Priority Claims in Restructuring and Insolvency Proceedings.

Classes of Creditors

In a judicial composition with creditors, the plan may provide for the division of creditors into classes with differential treatment among creditors belonging to different classes.

The division of creditors into classes is mandatory (Article 85, CIC):

• in case the judicial composition is on a going concern basis;
• for tax or social security claims for which full payment is not expected;
• for creditors holding guarantees provided by third parties;
• for creditors satisfied, even in part, with utilities other than money;
• for creditors proposing competing offers (and parties related to them);
• for creditors with a lien, pledge or mortgage affected by the restructuring (provided that the conditions for exclusion from voting are not met);
• for unsecured creditors that are minor enterprises whose claims originate from relationships for the supply of goods and services.

The treatment established for each class may not alter the order of legitimate causes of pre-emption.

In a restructuring agreement, the debtor may create different classes of creditors with similar legal positions and economic interests (Article 57, CIC).

Organisation and Representation

If the judicial composition with creditors consists of the transfer of assets, the court shall appoint one or several liquidators and a committee of three or five creditors to assist in the liquidation and shall determine the other procedures of the liquidation (Article 114, CIC).

Information Made Available to Creditors

CIC provides that creditors must be fully and clearly informed about the crisis or insolvency management tool chosen by the debtor (please see 3.2 Consensual Restructuring and Workout Processes).

Even though smaller creditors must also be informed about any restructuring agreement, they do not tend to take an active – or at least participatory – role in the negotiation given their limited exposure.

Cram-down mechanisms have also been introduced into the informal consensual processes under CIC to avoid a restructuring agreement's failure or delay, therefore claims of dissenting creditors may be modified without their consent. In relation to this and, particularly, to requirements and limits of such procedures, please bear in mind that:

• it is possible to file a tax arrangement not only together with a judicial composition with creditors, but also with a restructuring agreement, when a winding-up is less convenient; the tax arrangement enables debtors to pay their tax debts partially and periodically (Article 63, CIC); and
• a debtor can also ask to extend the effects of the restructuring agreement to creditors that have not agreed to the contents, divided in one or more categories with similar legal status and economic interests, when conditions described under 3.5 Out-of-Court Financial Restructuring or Workout are met.

Claims against a company undergoing a restructuring procedure may be traded.

In a bankruptcy procedure, should claims be transferred before the distribution, the receiver attributes the quota of the credits to the transferee. That communication includes the documentation demonstrating the transfer and a motion signed by the transferor and the transferee. In this case, the receiver provides for the correction of the list of creditors. The same provisions also apply in case of subrogation of the creditor.

Draft Law No 788, presented on 12 September 2018 (subsequently transfused in the unified text (AS 2098) contained in Fascicolo Iter DDL S_79 Senate-XVIII Leg on “Provisions to favour the definition of bank non-performing loans for families and companies” of 7 August 2022), is aimed “at allowing debtors who are non-performing, but who still have the possibility of getting back into the game, to be able to extinguish their debt at a reasonable price, while still allowing the assignee creditor to earn a fair profit”.

CIC introduces a brand-new set of provisions governing the crisis and the insolvency of corporate groups (Articles 284-292), firstly providing for the definition of “corporate group”, based on the notion of direction and co-ordination (Article 2497, Italian Civil Code).

Companies in a state of crisis or insolvency belonging to the same group, all having the centre of their main interests (COMI) in Italy, can present a single petition for access to a judicial composition with creditors or for the approval of a restructuring agreement. Companies may submit a single plan of all of them or different plans mutually linked.

CIC sets out a number of rules intended to simplify the procedures relating to companies belonging to the same group, such as the appointment of a single judge (giudice delegato) and a single judicial commissioner, as well as the inability to terminate or invalidate a judicial composition with creditors for reasons affecting one or multiple group companies, unless the circumstances on which the termination is based would significantly affect the judicial composition with creditors of other companies.

Italian law provides for certain conditions applied to the company’s use of its assets during a restructuring process.

Generally, during a judicial composition with creditors, the existing management can continue to run the company under the supervision of a court-appointed commissioner. The court must approve extraordinary transactions, such as the company incurring new debt.

For restructuring agreements and certified recovery plans, there is no dispossession and therefore the directors of the company are entitled to manage the business.

Execution of the Sale of Assets

An entity in a state of crisis may propose a judicial composition with creditors based on a plan that may include the restructuring of debts and satisfaction of claims by any means, including disposal of assets, assumption or other extraordinary transactions (Article 84, CIC).

A noteworthy aspect is the introduction of a competitive procedure if the plan submitted by the debtor contains an offer aimed at transferring to a person, even before court approval, the company or one or more branches of the company or specific assets. The same provisions shall also apply when the debtor has entered into an agreement the purpose of which is the non-immediate transfer of a company, a branch of a company or specific assets.

The competitive procedure is intended to search for parties interested in the purchase of the assets.

If a judicial composition is based on the transfer of assets and does not provide otherwise, the court appoints one or more judicial liquidators (liquidatore giudiziale) in the approval decision and a committee of three or five creditors to assist in the liquidation and determine the methods of the liquidation.

Cancellation of Registrations and Transcriptions

The cancellation of the registrations relating to rights of pre-emption, as well as the cancellation of the transcriptions of attachments and seizures and of any constraint, shall be carried out by order of the court, unless otherwise provided for in the approval decree (Article 118, paragraph 7, CIC).

Credit Bidding

Regarding credit bidding, although there are no provisions on this point, on the basis of general principles, offsetting does not seem to be allowed.

In a bankruptcy procedure and judicial composition with creditors, creditors are prohibited from making deals with the debtor to “sell” their votes (mercato di voto) (Article 339, CIC).

Pre-negotiated Transactions

Though during restructuring proceedings it is deemed possible to effectuate sales and similar transactions that have been pre-negotiated prior such proceedings, only acts carried out in execution of a plan certified by an independent expert are exempt from claw-back actions.

Secured creditors may freely dispose of their claims without any limits.

Conversely, judicial mortgages recorded in the 90 days preceding the date of publication of the application in the Register of Companies are ineffective with respect to claims existing before the judicial composition with creditors (Article 46, paragraph 5, CIC).

Priority new money can be obtained by the company under the rules set forth in Articles 99-102 of CIC.

New loans may also be secured by assets of the company.

It is not possible to use a statutory process as a forum for determining the value of claims.

Within a judicial composition with creditors, the plan and the documents submitted by the debtors shall be accompanied by the report of an independent expert, designated by the debtor, attesting the veracity of the business data and feasibility of the plan itself. Restructuring agreements and certified recovery plans are also based on a debtor’s plan, the assumptions and conclusions thereof being certified by said independent expert. Moreover, both judicial compositions with creditors and restructuring agreements require a court approval.

The debtor may request the court to authorise the terminating of pending contracts or suspend them. Such request must be made by submitting a petition for a judicial composition with creditors, or afterwards once the same has been approved by court.

The counterparty is entitled to a compensation equal to the damages resulting from the contract’s non-fulfilment.

Such rules do not apply to certain contracts such as employment contracts and specific rules are provided for others (property lease contracts and finance agreement).

Even if approved, a judicial composition with creditors is binding on all creditors, co-debtors, guarantors of the debtor and other jointly and severally liable debtors remain responsible towards creditors. Further, unless otherwise agreed, it is also effective for unlimited liability partners. Conversely, some specific rules provide for release of non-debtor parties from liabilities.

In particular, Article 59 of CIC (restructuring agreements) states that Article 1239 of the Italian Civil Code (the remission granted to the principal debtor frees the guarantors) applies to creditors that have concluded a restructuring agreement with the debtor.

In the event that the effectiveness of a restructuring agreement is extended to non-adhering creditors, the latter shall not lose their rights against co-obligors, guarantors of the debtor and recourse holders.

Unless otherwise agreed, a restructuring agreement of the company shall be effective vis-à-vis members with unlimited liability, who, if they have provided securities, shall continue to be liable on that other basis.

Creditors have the right to offset the debts they owe the bankrupt company with claims owed to them by that company, even where they have not come due before the bankruptcy decree (Article 155, CIC).

No set off will take place if the creditor acquired the credit by an inter vivos transfer after the bankruptcy decree or within the year before.

A condition for the right of set-off is that debts and claims to be set off against each other must be liquid (and so determined in their amount) and be of the same nature.

CIC provides for certain implications of the company failing to observe the terms of a restructuring agreement.

The non-performance of a restructuring agreement resulting in a significant deviation from assumptions (scostamento significativo) may lead to different consequences, depending on creditors’ positions. Please note that a deviation should be considered significant when the hypothesis included in the agreement as a milestone can no longer be implemented or can be implemented only under conditions that are different from those assumed in the plan.

As for adhering creditors, such non-performance will give rise to the consequences set forth in the agreement entered into with the debtor (eg, the possibility of activating an express termination clause) and will entitle creditors, if the conditions are met, to invoke the ordinary remedies provided for by the Italian Civil Code, such as the acceleration and termination of the contract. In such event, creditors’ original claims are reinstated, usually forcing the debtor into insolvency.

For non-adhering creditors, as no agreement has been perfected with them, they usually file for a bankruptcy procedure.

In order to avoid termination of a restructuring agreement, it is now provided that whenever substantial amendments to the restructuring plan become necessary after the approval by the court, the debtor shall make such amendments as may be appropriate to ensure the execution of the restructuring agreement (Article 58, CIC).

In this case, the independent expert appointed by the debtor must renew the relevant report.

In judicial composition with creditors, each of the creditors may only request the termination of the judicial composition for non-performance for serious non-fulfilment, or annulment when it is discovered that the debtor has exaggerated its liabilities or subtracted a significant part of its assets.

One of the most significant innovations of CIC has been introduced by Article 120 quater, which states the conditions to be met for the approval of the judicial arrangement with creditors where allocations to the benefit of shareholders are provided.

In particular, if the plan provides that the value resulting from the restructuring is also reserved for shareholders, the arrangement, in case of dissent of one or more classes of creditors, may be approved if the treatment proposed to each of the dissenting classes would be at least as favourable as that proposed to the classes of the same rank and more favourable than that proposed to the classes of lower rank, even if those classes would be allocated the total value reserved for the shareholders. If there are no classes of creditors of equal or lower rank than the dissenting class, the arrangement may be approved only when the value allocated to the satisfaction of creditors belonging to the dissenting class is greater than the total value reserved for the shareholders.

Value reserved for shareholders means the actual value, resulting from the approval of the proposal, of their shareholdings and the instruments granting the right to acquire them, less the value they may have contributed for the purposes of restructuring in the form of contributions or non-refundable payments.

General Overview

The bankruptcy procedure (fallimento) with mere liquidation purposes has been replaced by the judicial liquidation (liquidazione giudiziale) with the entry into force of CIC.

The court delegates a judge to supervise the procedure, and it appoints a committee representing the debtor’s creditors and a receiver who oversees the liquidation and distribution of the proceeds to creditors according to the priority of their respective claims. The liquidation is usually carried out piecemeal, but the receiver may sell the whole business (or portions thereof) as a going concern when this in the best interest of creditors.

The law provides for the possibility of reaching a court-supervised composition with creditors (concordato fallimentare) during the proceeding, prompted by creditors or third parties, thereby enabling a faster and generally more profitable closure of the liquidation. The proposal may not be submitted by the debtor, by companies in which they participate or by companies under common control, unless one year from the judgment which declared the opening of the procedure of judicial liquidation has elapsed and within two years from the decree making the state of liabilities enforceable. The proposal of the debtor, companies in which they participate or companies under common control is admissible only if it provides for the contribution of resources that increase the value of the assets by at least 10%.

Commencement

Judicial liquidation may be filed either by the debtor, its creditors or, in rare cases, a public prosecutor.

A compulsory administrative liquidation may be requested by the company, the authority supervising the company or one or more creditors.

Statutory Requirements

CIC regulates situations of “crisis” or “insolvency” (please see 2.5 Requirement for Insolvency for the relevant definitions) of the debtor (whether consumer or professional) or entrepreneur who carries out commercial, craft or agricultural activities (for profit or otherwise), operating as a natural person, legal person or other collective entity, group of enterprises or company public, excluding the State and public entities.

The subjective condition of a compulsory administrative liquidation is identified from time to time by special laws that provide for it in specific categories of companies, all of which have a public connotation, while the objective condition is the state of insolvency of the company.

Calculation of Claims

The company filing for judicial liquidation must do so by depositing, among other things, a list of its creditors and the amount of their claims (Article 39, CIC). Moreover, creditors must file a motion to be placed on the list of creditors at least 30 days before the hearing for the verification of the claims (Article 201, CIC).

Within a compulsory administrative liquidation, the recognition of a creditor’s claim is based on the records and documents of the company. Creditors may submit to the liquidator their observations or motions. The liquidator then compiles a list of claims allowed or rejected.

Timelines and Milestones

The bankruptcy judgment has immediate effect from the day of its docketing.

A relevant deadline is that which is related to the liquidation programme: within 60 days from the compiling of the inventory plan, and no later than 150 days from the bankruptcy judgment, the receiver issues a liquidation programme to submit to the creditors’ committee for its approval. That plan must indicate the deadline to complete the liquidation of the company’s assets, which cannot go beyond five years from the filing of the bankruptcy judgment; in cases of exceptional complexity, this deadline may be deferred to seven years by the delegated judge (Article 213, CIC).

Stay of Actions

Except as otherwise provided by law, from the day the bankruptcy judgment is issued, no individual enforcement or protective action, even for claims that matured during the bankruptcy procedure, may be started or pursued on the assets of the company.

Appointment of Office Holders

The management and directors of the company are not allowed to continue its business. A bankruptcy procedure implies that the company is deprived of the administration and availability of assets existing at the date of the starting of the procedure.

The receiver is responsible for managing the procedure and for administering the assets of the bankrupt company in order to liquidate them and satisfy the claims of creditors. A liquidator is appointed in a compulsory administrative liquidation.

Disclaim of Contracts

If a contract has not yet been carried out or completed by both parties when one of them is declared bankrupt, its execution generally remains suspended until the receiver, with authorisation from the creditors’ committee, decides to take the place of the bankrupt party, assuming all the obligations arising therefrom, or decides to terminate the contract.

Conversely, in a judicial composition with creditors, the debtors may request to be authorised to dissolve the contracts in progress at the time of submission of the application or to suspend them for not more than 60 days, renewable once. In such cases, the contractor is entitled to a compensation equal to the damages resulting from the contract’s non-fulfilment.

However, in case of consensual contract performed by one party, the receiver could not release the contract. In particular, the receiver is not entitled to terminate contracts such as:

• contracts with real effects;
• service contracts when the service has already been provided; and
• contracts already solved by the company prior to a bankruptcy procedure.

Rights of Set-Off

The Bankruptcy Law establishes a right of set-off, provided that the claims are due, quantified and certain (Article 155).

Information Made Available to Creditors

CIC provides that creditors must be fully and clearly informed about the crisis or insolvency management tool chosen by the debtor (Article 3).

Final Steps and Conclusion

The receiver provides for payment of sums assigned to creditors in the distribution plan following the methods set by the delegated judge to preserve evidence that payments were made. Having approved the accounting and paid the receiver’s fee, the delegated judge orders the final distribution according to the rules established above. The bankruptcy procedure closes when one of the following events takes place (Article 233, CIC):

• if, within the timeframe set in the bankruptcy decree, no one requests to be placed on the list of creditors
• when, even before the final distribution of assets, the distribution to creditors satisfies the whole sum of credits contained on the list of creditors or when they have otherwise expired or all the debts and costs to be satisfied in pre-deduction have been paid;
• when the final distribution of assets is complete;
• when it becomes clear during the proceedings that the proceedings will not allow the satisfaction, even in part, of creditors or of pre-deductible claims and costs of the procedure.

Concerning a compulsory administrative liquidation, the amounts derived from the liquidation of the assets are distributed between creditors.

Before the last distribution to creditors, the final budget settlement regarding the management and distribution plan among creditors, accompanied by a report of the monitoring committee (comitato di sorveglianza), must be submitted to the authority which oversees the liquidation, which then authorises the filing with the clerk of the court and the compensation to the liquidator.

Once the deadline for objections has passed without objection, the budget, the revenue and expenditure account and the distribution plan are approved and the liquidator shall distribute the final allocations among creditors.

Execution of the Sale of Assets

The receiver may sell the business in one block to a third party or sell single assets. A sale in block is the preferred solution under CIC because it is assumed that the sale of an ongoing business may better satisfy creditors and be a more efficient method of liquidating the assets.

Sales and other liquidation acts are carried out by the receiver through a competitive procedure.

Cancellation of Pre-emptive Rights

Unless otherwise provided, the purchaser shall not be liable for debts of the transferred businesses arising before the transfer of such businesses (Article 118, paragraph 8, CIC).

For immovable assets and other assets contained in public registries, once the sale is concluded and the full price has been paid, the delegated judge orders the cancellation of the any entry regarding pre-emptive rights, including liens and attachments and any other kind of interest (Article 118, paragraph 7, CIC).

Credit Bidding

Regarding credit bidding, although there are no provisions on this point, on the basis of general principles, such offsetting does not seem to be allowed. In fact, while creditors’ claims are against the bankrupt company, the debts incurred with the purchase of the assets would be against the mass of creditors. Thus, since the bankrupt and the mass of creditors are different entities, offsetting in a similar situation would violate the par condicio creditorum principle.

Pre-negotiated Transactions

On the basis of general principles, it is not possible to effectuate pre-negotiated sales transactions following the commencement of a bankruptcy procedure as no protection from claw-back actions is provided.

In a bankruptcy procedure, the court appoints a committee representing the debtor’s creditors. Its members are chosen from creditors who have either:

• filed a request to be put on the list of creditors;
• previously communicated their availability; or
• indicated other persons who satisfy the requirements.

The creditors’ committee monitors the activities carried out by the receiver, authorises their actions, and expresses its view in those cases established by law and on request of the delegated judge, by a succinct and reasoned opinion (Article 139, CIC).

In a judicial composition agreement with transfer of assets, the court shall appoint a creditors’ committee consisting of three or five members to which, to the extent compatible, provisions on the composition and functioning of the creditors’ committee contained in Articles 138 and 140 of CIC shall apply (Article 114 CIC).

Members of the creditors’ committee are entitled to repayment of costs, in addition to any additional payment awarded.

There is no appointment of steering committees, co-ordinators or informal ad hoc committees of a small group of creditors in certified recovery plans or restructuring agreements.

For procedures opened in an EU member state, Regulation (EU) No 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (“Regulation No 2015/848”) applies, stating that the opening of insolvency proceedings in that member state shall be recognised in all other member states.

Regulation No 2015/848 also enables the main insolvency proceedings to be opened in the member state where the debtor has its COMI. Those proceedings have universal scope and are aimed at encompassing all the debtor’s assets. To protect the diverse interests, Regulation No 2015/848 permits secondary insolvency proceedings to be opened to run in parallel with the main insolvency proceedings. Such secondary proceedings may be opened in the member state where the debtor has an establishment and their effects are limited to the assets located there.

Italian courts have not entered into any protocols or other arrangements with courts in other countries to co-ordinate proceedings.

Insolvency protocols are expressly mentioned in Regulation No 2015/848 and contemplated as a possible means of co-operation.

The CIC has now introduced rules determining which jurisdiction is paramount.

A company with its COMI abroad may be subject to proceedings for the regulation of crisis and insolvency in Italy even if similar proceedings have been opened abroad, when it has an establishment in Italy (Article 26, CIC).

The transfer of the COMI abroad shall not exclude the existence of the Italian jurisdiction if it has taken place in the year preceding the filing of the application for an agreed resolution of the crisis or insolvency or the opening of a judicial liquidation or after the beginning of the procedura di composizione assistita della crisi, if earlier.

It is also clarified that, when opening cross-border insolvency proceedings with the Regulation No 2015/848, the court shall declare whether the proceedings are main, secondary or territorial.

Finally, this provision shall apply without prejudice to international conventions and EU legislation.

Therefore, according to the Italian provisions on international law, as well as the UNCITRAL Model Law on Cross-Border Insolvency, if there is no specific bilateral treaty, Italian courts have jurisdiction to start proceedings whenever such courts verify that the company’s COMI is located in Italy.

Foreign creditors are not treated differently under Italian law.

Insolvency proceedings opened in another EU member state are automatically recognised in Italy. However, the automatic recognition does not apply to out-of-court procedures, since they are not included within the context of Regulation No 848/2015.

In the event that a company is declared bankrupt in a state that is not member of the European Union nor party to a bilateral treaty, the foreign judgment shall be recognised and enforced in Italy only if it is not opposed by an interested party. In this case, the Italian court must examine the legality of the foreign decision in order to decide if it may be recognised, based on whether:

• the foreign proceeding provided for a fair hearing;
• the opposed decision is made final; and
• the opposed judgment is not contrary to public order.

This recognition procedure applies only to insolvency decisions and does not concern restructuring procedures.

Italian law provides for various types of statutory officers who may be appointed in the proceedings at issue.

In a judicial liquidation, the receiver (curatore) administers the assets of the bankruptcy estate and takes all procedural actions under the supervision of the delegated judge and the creditors’ committee.

In a judicial composition with creditors, the court appoints a judicial commissioner (commissario giudiziale), with supervision and control functions. In particular, they oversee the management of the company. Moreover, if the plan provides for the liquidation of the debtor’s assets, a judicial liquidator (liquidatore giudiziale) is appointed.

In a compulsory administrative liquidation, a liquidator (commissario liquidatore) is appointed, as well as a monitoring committee (comitato di sorveglianza) of three or five members skilled in the type of activity exercised by the company.

In an extraordinary administration for large insolvent enterprises, the company is managed by a special commissioner (commissario straordinario) appointed by Ministry of Economic Development.

Law No 147/2021 (transposed into the CIC) introduced the Composizione negoziata per la soluzione della crisi d’impresa, in which an independent expert (esperto indipendente) aimed at assisting the company in crisis shall be appointed. This is closer to a “mediator” or “conciliator” (pursuant to European Commission Recommendation 2014/135/EU and Restructuring Directive 2019/1023/EU) than to the independent professional entrusted with the task of examining the restructuring plan.

The receiver is required to manage a judicial liquidation and, while exercising their functions, they are supervised by the delegated judge and the creditors’ committee. The receiver personally holds their tasks, but may delegate specific activities to other bodies with an authorisation from the creditors’ committee.

The receiver, within 60 days of the judicial liquidation decree, must present the delegated judge with a particularised report of all the causes and elements of the bankruptcy, containing the bankrupt’s explanation as to their diligence in running their affairs, the responsibility of the bankrupt and of other persons, and the extent to which these facts may be of interest in a criminal investigation. The receiver, with the approval of the delegated judge and after consulting the creditors’ committee, may file actions for damages against directors and members of the supervisory bodies, CEOs and liquidators, as well as liability actions against members of a limited liability company.

The judicial commissioner, in the same way as the receiver, is a public official while performing their tasks. During a judicial composition with creditors, they supervise the administration of the company by the debtor and shall establish an inventory of the debtor’s assets and a detailed report on the causes of the collapse, on the conduct of the debtor, on the proposed composition and on the guarantees offered to creditors. The judicial commissioner must so report immediately to the court if it finds that the debtor has concealed or hidden assets, intentionally failed to report one or more claims, asserted the existence of non-existent assets or committed other acts of fraud.

In compulsory administrative liquidation, the liquidator carries out the liquidation of the assets under direction of the supervising authority and the supervision of the monitoring committee. Moreover, they shall exercise the liability actions against directors and members of boards of control of the company in liquidation, with the approval of the supervising authority.

The special commissioner is required to manage the business and to deliver a report on the causes of the insolvency as well as a prospect for the economic recovery, also describing the value of the enterprise.

The independent expert facilitates negotiations between the debtor, creditors and any other interested parties in order to find a solution for overcoming the financial or economic imbalance.

The receiver is nominated in the judicial liquidation decree or, in case of substitution or removal, by order of the court.

Lawyers, accountants, bookkeepers, professional partnerships, groups of professionals whose members satisfy certain requirements or anyone who has been an administrator, director or controller of a corporation may be nominated as receiver.

The court may at any time, on the proposal of the delegated judge or that of the creditors’ committee or sua sponte, remove the receiver by reasoned order, hearing the receiver and the creditors’ committee.

A spouse, family member (within four grades of relation) of the bankrupt party, their creditors and those who contributed to the collapse of the company within the two years prior to the bankruptcy decree, or anyone else with a conflict of interest with the bankruptcy, cannot serve as receiver.

Regarding appointment and removal, the same provisions apply to the judicial commissioner within a judicial composition with creditors as those that apply the receiver in a bankruptcy procedure.

In compulsory administrative liquidation, the liquidator is appointed by the court and, with regard to their removal, the same provisions apply as those that apply to the receiver.

A special commissioner is appointed by Ministry of Economic Development to control the company and to act as the representative of the insolvent estate.

Strict rules are prescribed with regard to the eligibility requirements for the special commissioner and their removal, as well as for the independent expert.

Obligations

CIC amended Article 2086 of the Italian Civil Code by introducing a new paragraph. Directors of all types of business acting as corporations or in a collective form must establish an organisational, administrative and accounting structure appropriate in relation to the nature and size of the company, and react in a timely manner to a business crisis and/or loss of going concern.

Directors must also activate themselves without delay to adopt and implement those instruments provided by the regulations to overcome the state of crisis and restore the going concern, such as the procedura di composizione assistita della crisi or other insolvency instruments.

The obligations provided in new Article 2086 also affect the “business judgment rule” principle, since the breach of such obligations is no longer related to the general principle of the “required diligence” (diligenza esigibile) but is a breach of a specific obligation determined by law.

Responsibility to All Creditors

Directors owe their responsibility to all creditors. Directors of a joint stock company are liable towards creditors of the company “for non-fulfilment of their duties concerning the preservation of the integrity of corporate assets”. Creditors can also bring a liability action when the corporate assets prove insufficient to satisfy their credit (Article 2394, Italian Civil Code). A similar provision is set out in Article 2476, paragraph 6 of the Italian Civil Code, which extends the liability to directors of a limited liability company.

Measure to Determine Insolvency

Under Italian law, there is no objective and predetermined term within which a filing for a bankruptcy procedure must be made and prior to which such filing is not needed, nor is there a standard practice recognised by case law.

For definitions of “crisis” and of “insolvency”, please see 2.5 Requirement for Insolvency.

Practices to Limit Risks of Criminal Offences

There are some steps which are usually taken by directors in the context of Italian turnarounds in order to limit the risk that certain criminal offences may arise, such as:

• convening regular board meetings and taking all actions deemed appropriate in order to clearly analyse the company’s financial and economic situation
• avoiding preferential payments, carrying out transactions that may damage the company and/or third parties (including creditors and subsidiaries) or trading in a way that may worsen the financial situation of the company;
• not making payments to shareholders and related parties and applying cash only towards payment of such expenses of the company that are necessary to keep it as a going concern (for example payroll, suppliers or fundamental investments); and
• continuously controlling the status of the turnaround.

Although it is not common, the restructuring plan may envisage the debtor waiving potential claims against directors, whether they are departing or remaining; in such case, the plan should provide adequate disclosure of the actual or likely evidence of such claims and the rationale for the proposed waiver.

Duties Owed to Owners and Shareholders

Directors must fulfil their duties as set out in law and the corporate charter with the diligence required by the nature of their position and their specific role (Article 2392, Italian Civil Code). Their duties include:

• drawing up financial statements;
• convening a shareholders’ meeting when it is necessary to reduce share capital due to loss or when the share capital is eroded under the legal minimum; and
• comply with decisions taken by shareholders.

Regarding limits established by law, directors are prohibited from acting in conflict of interest, from exceeding their authority and from competing with the company. Moreover, directors may also be liable if they are aware of prejudicial facts and they do not take actions to prevent, eliminate or mitigate damages.

Following the declaration of bankruptcy, directors lose all powers of administration, except for the power:

• to appeal against the declaration of insolvency (according to Italian case law);
• to bring actions against the receiver or the creditors’ committee, under certain conditions; and
• to request court suspension of the sale of a company’s asset.

Criminal Offences and Liability

In the context of the insolvency or financial distress, certain acts performed by the directors may give rise to specific criminal offences such as:

• simple bankruptcy (in the case of negligent delay in filing for the opening of insolvency proceedings);
• preferential bankruptcy (in the event of payments to or creation of security interest in favour of some creditors in order to benefit them over other creditors);
• “fraudulent bankruptcy” (in the case of failure to properly keep the required accounting books or diverting, wasting or concealing funds or assets or making transactions at an undervalue); and
• “illegal recourse to credit” (which occurs when financings are sought from third parties while hiding the company’s insolvency or financial difficulties).

Directors of a joint stock company are liable to:

• the company itself (according to Article 2392 of the Italian Civil Code, the directors are liable to the company for damages arising from the failure to perform their duties, and Article 2393 provides for a liability action initiated by the company against the directors themselves);
• the company’s creditors (pursuant to Article 2394, directors shall be liable to the company’s creditors for any failure to comply with their obligations to preserve the integrity of the company’s assets);
• shareholders or third parties (who may exercise the action provided for in Article 2395 for “damages suffered as a direct result of intentional or negligent acts committed by the directors”).

During a judicial liquidation, compulsory administrative liquidation or extraordinary administration for large insolvent enterprises, actions for liability provided by the Italian Civil Code shall be brought by the receiver, the liquidator and the special commissioner.

Specifically, CIC (Article 255) establishes that the receiver, with the approval of the delegated judge and after consulting the creditors’ committee, may file:

• actions for damages against directors and members of the supervisory bodies, CEOs and liquidators; and
• liability actions against members of a limited liability company.

Article 378 CIC amended Article 2476 of the Italian Civil Code, providing that directors of a limited liability company shall be liable to the company's creditors for any failure to comply with obligations relating to the preservation of the integrity of the company's assets.

Historical transactions that preceded an insolvency process may be annulled under certain conditions.

A claw-back action can be exercised when it is proved that:

• a third party was aware of the debtor’s state of insolvency;
• any transaction for consideration occurred within one year prior to the date of declaration of bankruptcy, when the services provided or the obligations assumed by the company are disproportionate, exceeding 25% of the value of the counterpart's obligation;
• the transaction was used to extinguish due debts that have not been paid through ordinary methods of payment and were made in the year prior to the declaration of bankruptcy;
• pledges or mortgages created within six months prior to the declaration of bankruptcy as collateral for those debts come due; and/or
• transactions were performed for free by the company within the two years prior the declaration of bankruptcy.

Further, according to the CIC, certain transactions can be revoked if performed by a company in financial difficulty after the filing of the application for the opening of a judicial liquidation or within six months or one to two years prior such filing.

Look-back periods established by CIC are six months, one year or two years prior to the insolvency proceedings, depending on the type of transaction carried out by the company (Article 166, CIC).

Claw-back and ineffectiveness actions may be exercised by the receiver within three years from the opening of a bankruptcy procedure and within five years from the execution of the transaction (Article 170, CIC).

Acts, payments and guarantees given on the assets of the debtor as part of a certified recovery plan are not subject to claw-back actions; the exclusion does not operate in cases of wilful misconduct or gross negligence on the part of the independent professional (attestatore) or malice or gross negligence on the part of the debtor, when the creditor was aware of it at the time of time of the performance of the act or payment or at the time of the establishment of the guarantee.

The same actions as above made in execution of a judicial composition with creditors, of a restructuring agreement approved by the court or of a restructuring plan subject to approval and those legally created after the filing of an appeal for the opening of a judicial composition with creditors, are not subject to claw-back actions.

The exclusions also operate with respect to the ordinary revocatory action.