On 15 July 2022, the Bankruptcy Law, after its 80 years of application, was repealed by the Crisis and Insolvency Code (CIC).

The CIC regulates situations of “crisis” or “insolvency” (see 5.1 The Different Types of Liquidation Procedure for the relevant definitions) of a debtor (whether consumer or professional or entrepreneur) that 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 companies with public shareholding carrying out commercial activities.

The provisions of the special laws governing the “extraordinary administration of large insolvent companies” and “compulsory administrative liquidation”, as well as those referring to public entities not carrying out commercial activities (ie, providing a public service of a social nature), remain applicable.

Please note that the CIC was subject to a series of amendments that was completed on 28 September 2024 with Legislative Decree 136/2024 (the so-called “Third Corrective Act”).

The CIC provides a thorough set of rules regarding “instruments for the regulation of crisis and insolvency” (strumenti di regolazione della crisi e dell’insolvenza), meaning the measures, agreements and procedures aimed at the rehabilitation of the enterprise, namely:

• “certified recovery plan” (piano attestato di risanamento);
• “debt restructuring agreement approved by the court” (accordo di ristrutturazione dei debiti omologato);
• “restructuring plan subject to court approval” (piano di ristrutturazione soggetto ad omologazione);
• “judicial composition with creditors”, either with the aim of business continuity or for the purpose of liquidation (concordato preventive in continuità/liquidatorio); and
• “over-indebtedness crisis resolution procedure” (procedura di composizione della crisi da sovraindebitamento), applicable to consumers, professionals and minor entrepreneurs.

All the above-mentioned instruments can be preceded by a “negotiated settlement of the business crisis” (composizione negoziata per la soluzione della crisi di impresa) (CNC), whose main purpose is to facilitate the early emergence from the crisis and the activation of remedies for business continuity.

Should the state of crisis or insolvency not be removed through one of the legal instruments mentioned above, then the debtor shall satisfy creditors by the liquidation of the relevant assets, through:

• a “simplified judicial composition with creditors” (concordato semplificato), but only in the case of an unsuccessful conclusion of the negotiations with creditors carried out by the debtor in the CNC; or
• a “judicial liquidation” (liquidazione giudiziale), which applies to a commercial enterprise that is not a “minor enterprise”.

For the sake of completeness, the “extraordinary administration of large insolvent companies” and the “compulsory administrative liquidation” procedures will be also mentioned.

The CIC and other special laws provide for various types of statutory officers.

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. 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 undertaken by the company.

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

In a CNC, an independent expert (esperto indipendente) aimed at assisting the company in crisis is appointed, who acts as a “mediator” or “conciliator” (pursuant to European Commission Recommendation 2014/135/EU and Restructuring Directive 2019/1023/EU).

In the Italian legal system, the debtor is liable for the performance of obligations with all its present and future assets; limitations of liability are not allowed except in cases established by law.

Creditors, in general, have an equal right to be satisfied on the debtor’s assets (so-called par condicio creditorum), except for those creditors that have legitimate pre-emption rights, such as liens (privilegi), pledges (pegni) and mortgages (ipoteche), whose claims – in the distribution of the value obtained from the forced sale of the debtor’s assets – are preferred (creditori privilegiati) over those of other creditors that do not (creditori chirografari).

Liens are granted by law in consideration of the cause of the claim and may either automatically follow from the law (privilegi legali) or be created upon the choice of the parties to do so (privilegi convenzionali).

A lien is either “general” or “special”. The former is exercised over all movable property of the debtor; the latter over certain movable or immovable property.

There has been a significant increase in the number of provisions granting privileges over the years; according to some surveys, there are more than one hundred pre-emption cases in total in the Italian legal system, a regulatory thicket that has flourished over the years.

The existence of numerous privileges amplifies uncertainty, as it increases the opportunities for conflict between the various classes of creditors, and it is not always easy to determine the order of satisfaction.

The 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 classification/categorisation 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 (Article 6 CIC):

• first, super-priority pre-deductible credits (eg, 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 has filed its bankruptcy petition);
• second, secured credits subject to pre-emption; and
• third, other unsecured claims.

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

Specific rules apply to the “restructuring plan subject to court approval” (piano di ristrutturazione soggetto ad omologazione), whereby a commercial entrepreneur (not “minor”) that 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 homogeneity of economic interests, distributing the value generated by the plan also in derogation of Articles 2740 and 2741 of the Italian 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 which the bylaws, even following the amendments provided for in the plan, grant different rights). The formation of classes is mandatory if the plan provides for amendments that directly affect the participation rights of shareholders and, in any case, for listed companies.

Moreover, it should be noted that:

• receivables arising from loans in performance of a judicial composition with creditors or a restructuring agreement are pre-deductibles (pursuant to Article 101 CIC); and
• a debtor that has applied for admission to a judicial composition with creditors or for the approval of a restructuring agreement can request the court for 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 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;
• 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; and
• general liens (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.

Law Decree No 59/2016 of 3 May 2016, Decree No 114/2021 and, operatively, Revenue Agency resolution No 26/2023 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 above laws also introduced a new form of corporate financing secured by the transfer to the lending party of a real estate asset and conditional upon the borrower not breaching certain obligations under the relevant facility agreement.

Once the insolvency procedure has been opened, secured creditors are satisfied:

• according to the order laid down by specific rules provided by the law (regardless of any contractual intercreditor covenants); and
• following certain rules (in order for creditors to enforce their rights, the priority of every claim, even if secured, must be determined according to the strict provisions set forth by the CIC).

Title III of Book VI of the Italian Civil Code is devoted to asset liability (responsabilità patrimoniale), pre-emption rights (cause di prelazione) and the preservation of asset security (conservazione della garanzia patrimoniale).

It contains a number of particularly important rules aimed at protecting creditors’ right to satisfaction on the debtor’s assets in the event of non-performance and states two fundamental principles governing the matter in Articles 2740 and 2741 (see 2.2 Priority Claims in Restructuring and Insolvency Proceedings).

As already stated, the debtor is liable for the performance of its obligations with all its present and future assets; consequently, a creditor has a significant interest in not seeing the value of that asset diminished.

In particular, the creditor has an interest:

• in preventing the debtor from transferring its assets to others; and
• in the debtor exercising rights and actions to protect its assets.

To protect these interests, the creditor may exercise a revocatory action (actio pauliana or azione revocatoria) and subrogation action (azione surrogatoria) and may, in addition, apply for the attachment of one or more of the debtor’s assets (sequestro conservativo).

By means of the “ordinary” (to be kept distinct from the clawback action in a liquidation procedure) revocatory action, the creditor (by giving evidence of the eventus damni and consilium fraudis) may bring an action for revocation, ie, the creditor may ask the court to declare ineffective against it any acts of disposition of the assets by which the debtor prejudices its rights.

Through the subrogation action, the creditor, in order to ensure that its claims are satisfied or preserved, may exercise those rights and actions (having economic nature) to which the debtor is entitled against third parties and which the debtor neglects to exercise.

The attachment of movable or immovable property is a precautionary measure that the creditor may request from the court when, having commenced or being about to commence proceedings against the debtor to perform an obligation, the creditor has a well-founded fear of losing, during the proceedings on the merits, the security for the claim that the property whose attachment is sought offers.

The process for out-of-court restructuring proceedings differs significantly depending on the type of legal instrument chosen, ie, CNC or certified recovery plan (a debt restructuring agreement is halfway between an out-of-court and an in-court procedure).

As to the parties’ behaviour and their relationships, a cross-application, general principle is stated in Article 4 CIC ruling that in a CNC, as well as during negotiations and proceedings for access to any crisis and insolvency regulation instruments, the debtor and creditors shall behave according to good faith and fairness.

Such principle is further detailed in Article 16.6, where it is stated that all parties involved in negotiations during the CNC have a duty to co-operate loyally and expeditiously with the debtor and the expert and to respect the obligation of confidentiality regarding the entrepreneur, the initiatives taken or planned and any information acquired in the course of the negotiations. The same parties shall give feedback on proposals and requests they receive during the negotiations with a timely and reasoned response.

Formal requirements must be met by the debtor in order for a CNC be commenced and performed. Specifically, a national telematics platform is accessible to entrepreneurs registered in the companies’ register, through the institutional website of each chamber of commerce.On said platform, a detailed checklist is available which contains operational requirements for the drafting of the recovery plan, a practical test for the verification of the reasonable feasibility of reorganisation, and a protocol for conducting the CNC.

The CIC also lays down very detailed rules on the role of the expert, whose task is to facilitate negotiations between the entrepreneur, creditors and any other interested parties, in order to identify a solution to overcome the condition of financial imbalance.

During the CNC, specific rules are provided with reference to banks and financial institutions (including the assignees of their claims).

Article 16.5 CIC rules that such creditors shall participate in the negotiations in an active and informed manner, and that access to the CNC does not in itself constitute cause of suspension and revocation of any bank credit facilities granted to the entrepreneur.

If protective measures are requested by the debtor and confirmed by the court, then creditors may not unilaterally refuse to perform outstanding contracts or cause their termination, nor may they anticipate their expiry or modify them to the detriment of the entrepreneur for the sole reason of non-payment of prior claims.

Without prejudice to Article 4 mentioned above, the CIC devotes much less space to certified recovery plans, ruling on the minimum content that such a plan must have (Article 56.2).

Both the CNC and the certified recovery plan may only be commenced by the debtor.

A CNC can precede any of the other legal instruments for the solution of crisis and insolvency, but is not obligatory.

Auditors shall report to the directors the existence of the prerequisites for the submission of an application for a CNC. A reasonable period of time, not exceeding 30 days, is allowed to directors within which they must report on the initiatives undertaken. During the negotiations, the duty of supervision pursuant to Article 2403 of the Italian Civil Code remains unaffected.

The timely reporting pursuant to the above provision and the supervision of negotiations shall be assessed for the purposes of the liabilitỳ provided for in Article 2407 of the Italian Civil Code.

The content of the restructuring plan can be invoked by the debtor towards any of its creditors, bearing in mind that protective measures cannot be applied against employees.

A debtor that employs a total of more than 15 employees shall inform the trade unions of the relevant determinations made during the course of the negotiations of the CNC and, more generally, during the preparation of a restructuring plan, which affect the employment relationships of a plurality of workers, even if only with regard to the organisation of work or the manner in which services are performed.

Similarly to out-of-court restructuring proceedings, the opening of statutory (more formal) judicial restructuring proceedings differs very considerably depending on the type of legal instrument chosen, ie, debt restructuring agreement, restructuring plan subject to court approval, or judicial composition with creditors (whether on a going-concern basis or with a mere liquidation purpose).

Only the debtor can initiate such procedures, bearing in mind the duties set forth under Article 2086 of the Italian Civil Code (see 7.1 Duties of Directors).

Debt restructuring agreements are accessible to enterprises, and also non-commercial entities, but not minor ones, that find themselves in a crisis or insolvency situation (see 5.1 The Different Types of Liquidation Procedure for the relevant definitions).

A restructuring plan subject to court approval may be commenced by commercial enterprises that are not minor and that find themselves in a crisis or insolvency situation.

Judicial composition with creditors is suitable for commercial enterprises that are not minor and that find themselves in an insolvency situation.

In statutory restructuring procedures, the debtor may propose to any creditor (and, in certain cases, oblige any creditor – see 4.6 The Position of Shareholders in Restructuring, Rehabilitation and Restructuring) to renegotiate the terms and conditions of its claims (limits are provided for employees’ rights – see 3.2 Legal Status).

Shareholders and, more generally, creditors may (and, in certain cases, shall – see 4.6 The Position of Shareholders and Creditors in Restructuring, Rehabilitation and Reorganisation) be divided into classes (classi) – in a restructuring plan subject to court approval and a judicial composition with creditors – or into categories (categorie) – in a debt restructuring agreement – and in any case, according to homogeneous legal positions and economic interests.

A judicial composition with creditors is approved by creditors representing a majority of the claims admitted to the vote; in the event that a single creditor has claims in excess of the majority of the claims admitted to the vote, the arrangement shall be approved if, in addition to the majority referred to above, it obtains a majority by heads of the votes.

If several classes of creditors exist, a majority of the claims admitted to vote must be reached also in the largest number of classes (please note that in case of business continuity all classes must express a favourable vote; specific rules are provided in order to verify whether such prerequisite has been met).

Creditors with a lien, pledge or mortgage, in whose favour full payment is provided, shall not be entitled to vote, unless they waive their right of pre-emption in whole or in part.

As to creditors’ organisation and representation, Article 138 CIC provides that in a judicial liquidation procedure the delegated judge appoints the creditors’ committee, taking into account their willingness to assume the appointment and any other indications given by creditors with their application for admission to the liabilities.

The creditors’ committee consists of three to five members chosen from among the creditors, so as to represent in a balanced manner the quantity and quality of the claims and having regard to the possibility of satisfaction of those claims.

The creditors’ committee supervises the actions of the receiver, authorises its acts and expresses opinions in the cases provided for by law, or at the request of the court or the delegated judge.

Any member of the creditors’ committee may inspect the accounting records and documents of the proceedings and has the right to request information and clarifications from the receiver and the debtor; the same powers may be exercised by any creditor, subject to the authorisation of the delegated judge.

The CIC provides for preventive restructuring measures; in particular, the debtor may apply for protective and precautionary measures (misure protettive e cautelari) in order to ring-fence the relevant assets. Such measures need to be confirmed by the competent court.

Upon court approval, the debtor may obtain new money from banks/financial intermediaries/shareholders enjoying statutory benefits (ie, pre-deductible claims and criminal offence exemptions); such financing may also be secured.

Each legal instrument for crisis and insolvency proceedings provides its own timelines and milestones.

Article 7 CIC rules that applications for access to such instruments shall be dealt with in a single proceeding and each application made shall be joined to the ones already pending; the proceedings shall be conducted in the forms set out in Articles 40 and 41 CIC.

It should be noted that the overall duration of the protective measures may not exceed a period, even if not continuous, of 12 months, including any renewals or extensions.

The ways the procedures can end differ depending upon the type of legal instrument chosen by the debtor.

Whilst for a debt restructuring agreement, the end of the procedure is represented by the signing of one or more agreements between the debtor and adhering creditors, in the procedures for a restructuring plan subject to court approval and for a judicial composition with creditors, creditors express their acceptance of the financial proposal underlying the plan by voting electronically pursuant to Articles 107 et seq CIC (see 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure).

Each of the above-mentioned proceedings requires the involvement of an independent professional (attestatore) who assesses the truthfulness of the accounting data and information and the plan’s feasibility, and requires approval (omologazione) by the competent court.

Article 58 CIC provides that if, after court approval, substantial changes to the plan are necessary, the entrepreneur shall make such appropriate amendments to ensure the implementation of the agreements, requesting the independent professional to renew the above assessment. The amended plan and the new assessment shall be published in the companies’ register, and creditors shall be notified of the publication by registered letter or certified electronic mail.

As already stated (see 3.1 Out-of-Court Restructuring Process), Article 4 CIC rules that during the CNC, as well as during negotiations and proceedings for access to crisis and insolvency regulation instruments, the debtor and creditors shall behave according to good faith and fairness.

In particular, the debtor has a duty to:

• fully, truthfully and transparently disclose its situation, providing all information that is necessary and appropriate with respect to the negotiations entered into;
• take appropriate actions in a timely manner to identify solutions for overcoming the conditions of financial-economic imbalance (as to the CNC) and the prompt solution of the crisis and insolvency (as to the crisis and insolvency regulation instruments), in order not to prejudice the rights of creditors; and
• manage the assets and the business in the overriding interest of creditors.

Depending on the type of crisis and insolvency regulation instrument chosen, the entrepreneur may (or may not) retain the ordinary and extraordinary management of the company.

The CNC allows the widest possible freedom in the management of the enterprise and, specifically:

• in a crisis, the entrepreneur manages the business in such a way as to avoid jeopardising the economic and financial sustainability of the business; and
• when insolvent, but prospects of reorganisation exist, the entrepreneur manages the business in the best interests of creditors.

The responsibilities of the entrepreneur remain unaffected.

On the other hand, a judicial liquidation deprives the debtor of the management of the company and the disposal of its assets.

Halfway between these, in a judicial composition with creditors, from the date of the request for access and until the approval, the debtor retains the administration of its assets and the running of the business under the supervision of the judicial commissioner.

During the procedures, the debtor can borrow money/seek funding from financial entities such as banks – and, increasingly, funds specialised in distressed situations – that are supportive of companies that are in a state of financial and economic difficulty but still worthy of restructuring attempts; this is mainly because sensible privileges (such as super-priority ranking) for interim and new financing have been approved by the competent court.

Article 120-bis CIC states that access to an instrument for the regulation of crisis and insolvency, as well as the content of the proposal and the conditions of the business plan, are decided exclusively by the directors (the decision shall be recorded in minutes drawn up by a notary public and shall be filed and entered in the companies’ register).

The plan may provide for any changes to the debtor’s articles of association, including capital increases and reductions also with limitation or exclusion of subscription rights, and other changes that directly affect the participation rights of the shareholders, as well as mergers, demergers and corporate transformations.

In order to ensure full power to directors, the CIC also rules that from the filing of the resolution in the companies’ register and until approval, the revocation of the directors is ineffective unless there is a just cause.

Shareholders and creditors have limited possibilities to enforce their rights/liens/security in a restructuring context; this limitation is consistent with one of the founding principles of the CIC, namely that priority should be given to solutions aimed at settling the crisis or insolvency by means other than judicial liquidation.

As a matter of fact, protective and precautionary measures (misure protettive e cautelari) may be issued, upon the debtor’s request, by the competent court for the protection of the debtor’s assets or business in order to temporarily ensure the effectiveness of the negotiations and procedures for the regulation of the crisis or insolvency.

As to shareholders, Article 120-bis CIC (see 4.5 The Position of Office Holders in Restructuring, Rehabilitation and Reorganisation) rules that directors are required to inform shareholders of the decision to access an instrument for the regulation of crisis and insolvency and to report periodically on its progress.

Shareholders representing at least 10% of the corporate capital are entitled to submit competing proposals (proposte concorrenti).

Article 120-ter CIC states that the crisis/insolvency regulation proceedings may provide for the formation of a class of shareholders or of several classes if there are shareholders in respect of which the articles of association recognise different rights. The formation of the classes is compulsory if the plan provides for changes that directly affect the participation rights of the shareholders and, in any case, for public/listed companies.

In order to facilitate negotiations and subsequent agreements, not only may protective and precautionary measures be activated, but in certain cases creditors may be coerced.

To this extent, Article 61 CIC (which applies to debt restructuring agreements approved by the court) provides that the effects of the agreement may be extended to non-adhering creditors that belong to the same category, identified taking into account the homogeneity of legal position and economic interests; specific requirements shall be met, namely:

• there must be full disclosure of data and information to all creditors and possibility to participate in negotiations;
• the agreement must be of a non-liquidation nature, providing for the continuation of the business activity (directly or indirectly);
• the claims of adhering creditors belonging to the category represent 75% of all the creditors of the same category; and
• compelled creditors must be satisfied no less than in a judicial liquidation.

The most relevant asset liquidation procedure is the judicial liquidation (liquidazione giudiziale) pursuant to Articles 121 et seq CIC, which has replaced the bankruptcy procedure (fallimento) of the Bankruptcy Act of 1942.

The judicial liquidation procedure provisions apply to commercial entrepreneurs that are not minor entrepreneurs and are in a state of “insolvency” (ie, 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, as distinct from a “crisis”, ie, 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).

An application for the opening of a judicial liquidation proceeding may be filed by the debtor, the entities and administrative authorities that have control and supervisory functions over the debtor, one or more creditors, or the public prosecutor (pubblico ministero).

As already stated (see 1.2 Types of Insolvency), the CIC has introduced a new procedure for the liquidation of debtors’ assets, the “simplified judicial composition with creditors” (concordato semplificato), which is only accessible by commercial and agricultural entrepreneurs in case of an unsuccessful conclusion of the negotiations with creditors carried out by the debtor in the CNC (Articles 25-sexies/septies CIC).

An application for the opening of a “simplified judicial composition with creditors” proceeding may only be filed by the debtor.

As already stated (see 4.4 The Position of the Debtor in Restructuring, Rehabilitation and Reorganisation), the immediate consequence of initiation of the liquidation procedures for the debtor, and its directors, is the deprivation of the management of the company and the disposal of its assets (judicial liquidation also includes assets received by the debtor during the proceeding, less the liabilities incurred for the acquisition and preservation of the assets).

In disputes, including pending ones, relating to the debtor’s assets included in the liquidation, the receiver (curatore) stands in court.

Acts performed by the debtor and payments made by it or received after the opening of the judicial liquidation are ineffective vis-à-vis creditors.

Article 128 CIC states that the receiver has administration of the assets included in the judicial liquidation and shall carry out all operations of the proceedings under the supervision of the delegated judge and the creditors’ committee, within the scope of the functions assigned to him/her.

The main task of the different office holders/actors is to liquidate the assets and distribute the value to creditors.

Nonetheless, it should be noted that the opening of judicial liquidation does not lead to the cessation of business activity when the following conditions are met:

• in the decision declaring the judicial liquidation, the court authorises the receiver to continue the business (in some cases, limited to specific branches), provided that such continuation is not detrimental to creditors; and
• subsequently, on the proposal of the receiver, the delegated judge upon a favourable opinion of the creditors’ committee authorises the continuation of the undertaking, which may also be limited to specific branches of the undertaking, within a fixed duration.

During the business continuation period, a creditors’ committee shall be convened by the receiver at least every three months, to be informed of the progress of the management and to pronounce on the advisability of continuing the business.

Even before the filing of the liquidation plan, on the proposal of the receiver, the delegated judge, subject to the favourable opinion of the creditors’ committee, may authorise the leasing of the business to third parties (even when limited to specific branches), when it appears useful for the purpose of a more profitable sale of the company or parts thereof.

Acts, payments made and guarantees granted on assets of the debtor in execution of the certified recovery plan, debt restructuring agreement approved by the court, restructuring plan subject to court approval or judicial composition with creditors, and referred to in the underlying plan, are not subject to bankruptcy clawback action.

Article 233 CIC rules that the judicial liquidation proceeding shall be closed:

• if, within the time limit laid down in the court decision, no application for admission of claims has been filed;
• where, even before the final distribution of assets is made, the distributions to creditors reach the full amount of the admitted claims (or otherwise discharged) and all debts and expenses to be satisfied in pre-deduction are paid;
• when the final distribution of the assets is completed; or
• when it is established that its continuation does not make it possible to satisfy, even in part, creditors’ pre-deductible claims and the costs of the proceedings.

Shareholders and creditors have limited possibilities to enforce their rights/liens/security in a liquidation procedure.

Article 155 CIC rules that creditors may set off their debts towards the debtor in a judicial liquidation against their claims against the same debtor even if those debts have not fallen due before the opening of the insolvency proceedings.

Set-off shall not take place if a creditor has acquired a claim by an act after the filing of the claim for the opening of the judicial liquidation or during the preceding year.

Article 178 CIC states that in a conditional sale (vendita con riserva di proprietà), in case judicial liquidation of the buyer is opened, if the price is to be paid in time or in instalments, the liquidator may:

• take over the contract with the authorisation of the creditors’ committee (the seller may demand security unless the liquidator immediately pays the price); or
• terminate the contract.

In the latter case, the seller shall return the price instalments already collected, but has the right to fair compensation for the use of the asset (debt arising from the return of the instalments paid and claims deriving from the compensation may be set off).

Conversely, the opening of judicial liquidation against the seller is not a cause for termination of the contract.

For procedures opened in an EU Member State, Regulation (EU) No 2015/848 applies, which states 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 centre of main interests (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 a Member State where the debtor has an establishment, and their effects are limited to the assets located there.

With the aim of supporting the convergence of targeted elements of Member States’ insolvency rules and creating common standards across all Member States, thus facilitating cross-border investment, the Proposal for a Directive of the European Parliament and of the Council harmonising certain aspects of insolvency law (COM(2022) 702 final) identifies insolvency law as a key component towards achieving a true Capital Markets Union.

Article 11 CIC provides that, without prejudice to international conventions and the EU legislation, Italian jurisdiction shall exist where the debtor has in Italy its COMI. Italian jurisdiction shall also exist for actions arising directly from the proceedings.

The main criteria used to determine whether Italian law applies to restructuring and insolvency related matters is the place where the debtor manages its interests in a manner habitual and recognisable to third parties.

The recognition and enforcement in Italy of decisions in insolvency proceedings are facilitated and accelerated under Regulation No 2015/848. The mutual trust and loyal co-operation that permeate the relationship between judicial bodies means that proceedings opened in a Member State and judgments therefrom benefit in Italy from treatment, on the one hand, equivalent to domestic proceedings and, on the other, respectful of the nature and effects attributable to the proceedings under the home jurisdiction. The decision, as a judicial act, and the substantive and procedural effects it produces, exploit a “freedom of movement” that is at times unconditional.

As to non-EU countries, the 1997 UNCITRAL Model Law values assistance and co-operation between the different states and favours ways and methods to ensure efficiency in all procedures rather than settling for unilateral instances of territoriality or universality.

It is worthwhile to mention that the Guide to Enactment and Interpretation of the UNCITRAL Model Law on Cross-Border Insolvency states that jurisprudence interpreting Regulation No 2015/848 may also be relevant to interpretation of the Model Law.

In cross-border cases, Italian courts (especially the most important ones) usually promote judicial co-operation and co-ordination with foreign courts and protocols between office holders in the jurisdictions involved.

Insolvency protocols and other arrangements with courts in other countries to co-ordinate proceedings are expressly mentioned in Regulation No 2015/848 as a possible means of co-operation.

Foreign creditors are not dealt with in a different way in proceedings in the Italian jurisdiction.

Generally speaking, duties of directors are laid down by the Italian Civil Code; they shall perform the duties imposed on them by law and by the articles of association with the diligence required by the nature of their office and their specific powers. Directors of a joint stock company are liable to:

• the company itself for damages arising from the failure to perform their duties;
• the company’s creditors for any failure to comply with their obligations to preserve the integrity of the company’s assets; and
• shareholders or third parties for damages suffered as a direct result of intentional or negligent acts committed by the directors.

As to directors of a limited liability company, Article 378 CIC amended Article 2476 of the Italian Civil Code, providing that they 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.

It should be noted that the CIC amended Article 2086 of the Italian Civil Code by introducing a new paragraph specifying that directors of all types of businesses 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.

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

Directors shall be jointly and severally liable to the company for any damage arising from the failure to comply with their duties, unless they relate to the powers of the executive committee or to functions specifically assigned to one or more directors.

In any event, directors shall be jointly and severally liable if, being aware of damaging facts, they did not do what they could to eliminate or mitigate their damaging consequences.

Liability for the acts or omissions of directors does not extend to a director who, free from fault, caused his/her dissent to be recorded without delay in the book of meetings and resolutions of the board, giving immediate written notice thereof to the chair of the board of auditors.

As pointed out, directors owe their responsibility not only to the relevant shareholders and stakeholders in general, but, incrementally in distressed situations, to all creditors.

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, payment of suppliers or fundamental investments); and
• continuously controlling the status of the turnaround.

During a judicial liquidation, a compulsory administrative liquidation or an 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.

Chief officers, such as general managers/directors (direttori generali), are held liable in the performance of their duties for conduct typically attributable to directors.

Penalties laid down in Article 322 CIC (ie, fraudulent bankruptcy) shall apply not only to directors, but also to general managers (and auditors and liquidators as well) of companies in judicial liquidation, who have committed any of the acts envisaged in said Article (ie, misappropriation, concealment, destruction or dissipation in whole or in part of the debtor’s assets or, with the aim of detriment to creditors, disclosure or recognition of non-existent liabilities; misappropriation, destruction or falsification, in whole or in part, with the aim of procuring for oneself or others an unjustified profit or of causing damage to creditors, of books or other accounting records; or payments or simulation of titles of pre-emption made before or during the judicial liquidation proceedings, for the purpose of favouring, to the detriment of creditors, any one of those creditors).

Directors and chief officers, such as general managers/directors (direttori generali), are held liable in the event of an abusive use of credit (abusivo ricorso al credito), ie, when they resort or continue to have recourse to credit by concealing the state of insolvency.

Article 166 CIC rules that the following are annulled, unless the other party proves that it did not know of the insolvency of the debtor:

• acts for valuable consideration (a titolo oneroso) in which the services performed or obligations undertaken by the debtor exceed by more than one-quarter what has been given or promised to it, if performed after the filing of the application for the judicial liquidation or in the preceding year;
• acts extinguishing pecuniary debts due and payable not effected by money or other ordinary means of payment, if performed after the filing of the application for the judicial liquidation or in the preceding year;
• pledges, antichreses and voluntary mortgages created after the application for the judicial liquidation or in the preceding year for pre-existing debts that have not expired yet; and
• pledges, antichreses and judicial or voluntary mortgages created after the opening of the judicial liquidation or in the preceding six months for overdue debts.

If the receiver proves that the other party knew of the debtor’s insolvency, payments of liquid and due debts, deeds for consideration and those constituting a right of pre-emption for debts, including those of third parties, simultaneously created, shall also be annulled if performed by the debtor after the filing of the application for the judicial liquidation or in the preceding six months.

Pursuant to Article 170 CIC, claw-back and ineffectiveness actions:

• may not be brought by the receiver three years after the opening of the judicial liquidation (termine di decadenza); and
• shall in any case be time-barred five years after the act is performed (termine di prescrizione).

When the opening of the judicial liquidation follows the application to an insolvency proceeding, the time limits referred to in Article 166 CIC commence from the date of publication of the request for access to such proceedings.

As to who is entitled, in a liquidation procedure, to initiate claims to set aside or annul transactions/transfers, the Court of Cassation (decision of 5 March 2015, No 4524) confirmed that a creditor that challenges the statement of liabilities (stato passivo) may exercise all actions aimed at excluding or subordinating admitted claims, including a revocatory action, since it is the bearer not only of its own interests but also of the interests of all other creditors.

The principle is consistent with the system since, once the statement of liabilities has been declared enforceable, the inertia of the receiver, who has failed to assert the ineffectiveness of the act giving rise to the claim or the guarantee attached thereto, would end up prejudicing the reasons of the other, innocent creditors.

The principle is also in line with the case-law orientation expressed by the Sezioni Unite of the Supreme Court in decision no 29420/2008, which underlines how the failure of the liquidator to exercise actions for the protection of creditors legitimises the individual creditor to pursue them.

Outside liquidation procedures, creditors may file for actio pauliana (see 2.4 Unsecured Creditors and 8.1 Circumstances for Setting Aside a Transaction or Transfer).

Article 171.2 CIC rules that a person who, as a result of the revocation, has returned what he/she had received, is admitted to the statement of liabilities for his/her eventual claim.