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1. Insolvency and restructuring procedures
1.1 – What are the main insolvency and restructuring procedures applicable to companies?
In the Italian legal system, the scenario of insolvency and restructuring procedures has been profoundly reformed by the “Code of Business Crisis and Insolvency” (“Code”). The Code, with the exclusion of limited articles that came into force in 2019, became effective on 15 July 2022 in the text largely amended to transpose the Insolvency Directive (EU Directive 2019/1023).
The Code is without prejudice to the provisions of special laws regarding extraordinary administration and compulsory administrative liquidation.
The main insolvency and restructuring procedures applicable to companies are now:
- the negotiated composition of the crisis (composizione negoziata della crisi)
- the certified recovery plan (piano attestato di risanamento)
- the debt restructuring agreement (accordo di ristrutturazione dei debiti)
- the arrangement with creditors (concordato preventivo)
- the judicial liquidation (liquidazione giudiziale)
- the extraordinary administration (amministrazione straordinaria delle grandi imprese)
- the compulsory administrative liquidation (liquidazione coatta amministrativa)
Negotiated composition of the crisis – This is an instrument aimed at resolving companies’ crisis at an early stage, allowing for reorganisation plans that are less invasive for the company, quicker and more satisfactory for creditors. Access to this instrument is allowed to company in a situation of pre-crisis, crisis or reversible insolvency. It is an alternative tool to traditional extra-judicial negotiations with creditors to overcome the company’s crisis: it is characterised by the absence of a judicial control and the involvement of an ‘expert’ (appointed by the Chamber of Commerce), whose tasks include facilitating negotiations with creditors in order to find a solution to overcome the crisis, assessing the existence of concrete prospects for overcoming the crisis, reporting to the company and its supervisory body the performance of management acts that may jeopardize the negotiations with creditors or the reorganisation of the company.
Certified recovery plan – It is a plan prepared by the company and addressed to its creditors, which must be suitable to allow the company’s indebtedness to be restructured and the company’s economic and financial situation to be rebalanced. It is an instrument for a distressed company to obtain new financing and renegotiate its debt with its creditors without the involvement of the court and the risk of claw back actions in the event of subsequent declaration of insolvency, but the company data and the economic feasibility of the plan must be certified by an independent professional.
Debt restructuring agreement – It is an agreement entered into by the company with a number of creditors that may alternatively represent 60% or 30% of the total claims (respectively standard agreement and facilitated agreement) or 75% of the claims belonging to the same category (extended agreement). The agreement must specify the elements of the economic and financial plan that allow its implementation and the company data and the economic feasibility of the plan must be certified by an independent professional. The first negotiation phase of entering into the agreement is then followed by the judicial phase, in which the court, after deciding on any objections by creditors and any other interested parties, proceeds to approve the restructuring agreement. Except for the extended agreement, the debt restructuring agreement binds only those creditors who are party to the agreement: other creditors must be paid in full.
Arrangement with creditors – This voluntary and judicial insolvency procedure enables a company in a crisis or insolvency status to agree a plan with the majority of its creditors, in order to avoid the judicial liquidation procedure. In particular, the company proposes to its creditors a certain satisfaction (both in terms of amount and timing) of their claims, based on the implementation of a plan that may have either the aim of achieving the company’s recovery while preserving its business continuity (going-concern plan) or that of achieving its complete liquidation (liquidation plan). It is characterised by the presence of two essential elements: (i) the agreement between the majority of the creditors and the company; (ii) the involvement of the bodies of the judicial procedure (i.e. the court, the court-appointed commissioner and, if necessary, one or more liquidators), aimed at guaranteeing the regularity of the composition procedure. If the plan is approved by the required majorities of creditors and confirmed by the court, it is also binding on the dissenting creditors. If the plan is not confirmed, the court may order the opening of judicial liquidation procedure.
Judicial liquidation – This procedure replaced the old bankruptcy procedure and applies to companies in a state of insolvency. Its purpose is the liquidation of the company’s assets and the distribution of the proceeds to creditors. The court orders the open of the procedure (at the request of the company itself, the bodies and authorities with control and supervisory functions over the company, one or more creditors, the public prosecutor) and appoints the supervising judge, the receiver and, if useful, one or more experts to perform specific tasks.
The receiver draws up the statement of liabilities, is entrusted with the management of the business (if any), realizes the company assets and distributes the proceeds to the creditors in accordance with the priority set by the law. Creditors are paid pro rata to their claims.
An automatic moratorium is triggered by the opening of judicial liquidation procedure.
Extraordinary administration – This procedure is only available to the restructuring of companies and groups of companies that have a strategic position in the Italian economy. The procedure is commenced by the Ministry of Industry who appoints the extraordinary commissioner(s) and supervised by the court.
There are two types of extraordinary administration (under the legislative decree 270/1999, Prodi bis law, and under the law 39/2004, Marzano law). In both procedures the debtor is declared insolvent by the court.
A liquidation or restructuring plan is prepared by the commissioner and approved by the Ministry. Only under the Marzano law procedure might creditors be requested to approve the plan.
Compulsory administrative liquidation – It is only available to public entities, insurance companies and banks or other regulated entities that cannot be declared bankrupt. The procedure is commenced by a decision of insolvency of the court while the competent administrative authority appoints the commissioner(s).
The purpose of the procedure is the realization of the company assets and the distribution of the proceeds to the creditors.
1.2 – Can a company obtain a moratorium whilst it prepares a restructuring plan? If so, what is the effect of the moratorium?
A company may request the protection of a moratorium:
- in the context of a negotiated composition of the crisis, by applying for the appointment of the expert;
- in the context of a debt restructuring agreement, even prior to the filing of the application for the court’s approval i.e. during the relevant negotiations with creditors) but, in such a case, the moratorium does not apply to employees’ claims;
- during the preparation of the plan for the arrangement with creditors;
- pending the decision on the opening of judicial liquidation procedure.
The moratorium prevents the company’s creditors from initiating and continuing enforcement proceedings and seeking provisional and precautionary measures.
Moreover, in the first three cases above company’s insolvency and the opening of the judicial liquidation procedure against the company may not be declared unless the moratorium is revoked by the court.
In the context of a negotiated composition of the crisis the moratorium also prevents the creditors from obtaining pre-emption rights unless agreed with the company.
1.3 – How long will it generally take for a creditor to achieve the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
It takes on average a minimum of seven weeks to obtain a judgment opening of judicial liquidation procedure, but the time may vary from court to court.
As to the liquidation of the company assets and the distribution of the proceeds, it must be considered that under the new provisions of the Code the receiver is under the duty to draft a liquidation programme within sixty days from the drawing up of the inventory of the company’s assets and in any event not later than one hundred and fifty days from the judgment declaring the opening of the judicial liquidation. The programme shall indicate the time limit within which the liquidation of the assets shall commence and the time limit for its presumable completion but, in any event:
- the first attempt to sale the assets must take place within eight months from the opening of the proceedings, unless the supervising judge authorises a deferral;
- the time limit for the completion of the liquidation may not exceed five years from the filing of the judgment opening the liquidation procedure. This time limit may be deferred by the supervising judge only in the event of particular complexity or difficulty of the sales.
1.4 – Does your jurisdiction make use of a distressed sale process by which the business/assets of the company can be sold?
As part of the judicial liquidation procedure, the Code sets out the liquidation procedures for the company’s business/assets, the persons entitled to the sale, the documentation necessary for the sale, the circulation of information.
All sales:
- must be preceded by the valuation of the assets by experts appointed by the receiver and by appropriate forms of publicity;
- must be telematic sales, conducted through the dedicated Public Sales Portal of the Ministry of Justice, unless such methods are detrimental to the interests of creditors or to the expeditious conduct of the procedure.
The preferred route is the sale of the entire business: the liquidation of individual assets can be ordered when it is foreseeable that the sale of the entire business, its branches, or assets and legal relations en bloc would not allow for a greater satisfaction of the creditors.
Code’s provisions on sales in judicial liquidation shall also apply to sales effected after the application for arrangement with creditors has been filed and in execution of the relevant plan, mutatis mutandis.
2. Insolvency office-holders and courts
2.1 – Who can act as an insolvency office-holder?
A list is established at the Ministry of Justice of the persons (also constituted in associated or corporate form) who may be appointed:
- by the court to carry out the functions of receiver, judicial commissioner or liquidator;
- by the company as independent professionals,
within the framework of the procedures and instruments governed by the Code.
Accountants, lawyers, law firm, accountants’ firms, persons who have held the office of director or auditor in limited liability companies (provided they have not been declared insolvent) may obtain entry on this list if they prove that they have fulfilled the specific training requirements laid down by the Ministry of Justice and the Code.
This also applies to the appointment of the extraordinary commissioner in the extraordinary administration procedure.
2.2 – Who decides the identity of the insolvency office-holder, and what restrictions apply?
The insolvency office-holder is appointed by the court or by the administrative authority, depending on the procedure.
The following subjects cannot be appointed as insolvency office-holder:
- spouses, parties to a civil partnership, de facto cohabitees, relatives and relatives-in-law up to the fourth degree of kinship of the debtor;
- creditors of the debtor;
- anyone who has contributed to the company’s crisis/insolvency, as well as anyone who has any other conflict of interests.
2.3 – Are insolvency cases heard by specialist judges, or in the general commercial courts?
In general, each civil court has a section composed of judges specialised in handling insolvency proceedings. In smaller courts, insolvency cases are handled by commercial judges.
3. Position of directors
3.1 – To what extent do the directors of the company remain in control of its affairs during any of the procedures described above?
In the event of negotiated composition of the crisis, the directors remain in control of the company’s affairs with the assistance of the expert appointed by the Chamber of Commerce in the negotiation with creditors.
In the event of certified recovery plan and debt restructuring agreement, the directors remain in control of the company’s affairs.
In arrangement with creditors, the directors remain in control of the company’s affairs but the judicial commissioner supervises their activities and certain types of transactions established by law, as well as transactions that are not in the ordinary course of business must be authorised by the supervising judge or the court, as the case may be.
In judicial liquidation, extraordinary administration and compulsory administrative liquidation the directors cease from their office and a receiver or extraordinary commissioner takes control of the company.
3.2 – Are there circumstances in which directors are obliged to file for insolvency proceedings? If so, when do those circumstances arise?
As a general rule, directors are under the duty:
- to take appropriate measures to detect a state of crisis in a timely manner (in particular, to set up an appropriate organisational, administrative and accounting structure);
- to act without delay for the adoption and implementation of one of the instruments provided by the law for overcoming the crisis and restoring business continuity.
3.3 – What are the risks facing the directors of an insolvent company?
Directors are subject not only to civil liability, but also to criminal liability when, inter alia, they have breached the duties mentioned in section 3.2 above, have caused the company’s insolvency, have carried out imprudent operations to delay the opening of the judicial liquidation, have worsened the insolvency by refraining from requesting the opening of the judicial liquidation, have failed to fulfil the obligations assumed in an arrangement with creditors, have failed to provide the supervising judge, the receiver or the creditors’ committee with the information or clarifications necessary for the management of the business.
4. Position of creditors
4.1 – What are the main forms of security over movable and immovable property?
Security over immovable property is taken by a mortgage (ipoteca).
Security over movable property is taken by a pledge (pegno).
In addition, Italian law (in some cases, with the necessary agreement of the parties) grants certain creditors, by reason of the cause of their claims, a lien (over other creditors) on immovable or movable property of the debtor (privilegio). Depending on the nature of the claim, movable assets may be covered by a general lien (which applies to all the debtor’s assets) or a special lien (which applies to specific assets of the debtor). Immovable assets may be covered by a special lien.
4.2 – How does the opening of insolvency proceedings affect the rights of secured creditors?
As mentioned in section 1.2 above, the company requesting access to insolvency proceedings may ask for the protection of a moratorium that prevents the company’s creditors – even the secured ones – from initiating and continuing enforcement proceedings and seeking provisional and precautionary measures. In addition, an automatic moratorium (with the same effects above mentioned) is triggered by the opening of judicial liquidation procedure.
In the context of the debt restructuring agreement and the arrangement with creditors, secured (and unsecured) creditors are bound by the provisions of the agreement which they have agreed on or the plan approved by the court.
In the event of the judicial liquidation procedure, after their priorities have been recorded among the liabilities of the company, pledgees and certain preferred creditors holding a lien over movable assets may sell the relevant assets outside the procedure if so authorized by the supervising judge and in accordance with the rules set forth by the latter. If the proceeds of the sale, after deduction of expenses, exceed the amount of the claim with priority, the creditor shall pay the excess to the receiver. However, the supervising judge may also authorise the receiver to take back pledged or privileged assets, paying the creditor.
4.3 – Where a debt owed to a secured creditor exceeds the value of the security, is the secured creditor entitled to claim for the shortfall?
In the event of an arrangement with creditors, secured creditors may be satisfied even if not in full, provided that the amount is not less than that which would be realised in the event of the liquidation of the assets or rights in respect of which the cause of pre-emption exists, net of the presumed amount of the costs of the proceedings pertaining to the asset or right and of the share of the general expenses, as certified by an independent expert. The remainder of the claim is treated as an unsecured claim.
Specific rules exist for the payment of certain privileged claims in the event of an arrangement with creditors as a going concern.
In the judicial liquidation procedure, where a debt owed to a secured creditor is not wholly repaid from the assets on which it is secured, the secured creditor is entitled to claim for the shortfall along with unsecured creditors.
4.4 – Which classes of creditor are given preferential status? Are any classes subordinated?
The following claims are given a preferential status (and ranked ahead of secured claims):
- professional claims arising in connection with the application for approval of debt restructuring agreements and for the application for protective measures, up to a limit of 75 per cent of the assessed claim and provided that the agreements are approved by the court;
- professional claims arising in connection with the submission of the request for arrangement with creditors and the filing of the relevant proposal and plan, within the limit of 75% of the assessed claim and provided that the proceedings are open;
- claims legally arising, during the judicial liquidation procedure or after the application for access to a crisis or insolvency regulation instrument, for the management of the company’s assets and the continuation of business, the remuneration of the bodies in charge and the professional services required by those bodies or by the company for the successful implementation of the instrument;
- other claims if so provided by law.
Claims in respect of the repayment of loans granted by shareholders to the company are generally subordinated to the claims of unsecured creditors (but see section 7.1).
4.5 – Is there a date by which creditors must make claims in the insolvency proceedings? If so, what are the consequences of failing to claim by that date?
In the judicial liquidation procedure creditors must submit their claims at least thirty days before the hearing set for the examination of the company’s liabilities.
Claims submitted later than thirty days before the hearing but no later than six months from the date the list of liabilities has been approved by the court (twelve months in more complex insolvency proceedings) are treated as late claims: the relevant creditors are entitled to take part only to distributions of proceeds made after the time of the admission of their claim, but they are entitled to withdraw the quota to which they would have been entitled in the previous allocations if they have a pre-emption right or if the delay was due to causes not attributable to them.
After the expiration of the above time limits and in any event until all the divisions of the assets in the judicial liquidation have been exhausted, a belated application shall be admissible only if the applicant proves that the delay was due to a cause not attributable to him and if he submits the application not later than sixty days after the cause preventing its timely filing has ceased to exist.
4.6 – Are contractual rights of set-off and/or netting effective in insolvency?
After the opening of the judicial liquidation, creditors have the right to set-off their receivables with their debts towards the company, even if not yet due before the commencement of the judicial liquidation. However the set-off does not apply to receivables which were purchased after the filing of the application for the opening of the judicial liquidation procedure or in the preceding year.
Contractual rights of set-off can be enacted prior to the filing of the application for the opening of the judicial liquidation but, if executed during the specific suspect period set forth by the law (see section 5 below), the set-off may be declared ineffective.
4.7 – Are contract terms permitting termination of a contract by reason of insolvency (“ipso facto clauses”) effective?
Contractual terms providing for the termination of the contract by reason of:
- the opening of the judicial liquidation procedure;
- the filing of the application for access to the arrangement with creditors as a going concern;
- the filing of the court decree opening the arrangement with creditors procedure,
are ineffective.
4.8 – Are retention of title clauses enforceable and (if applicable) what are the main requirements for enforceability?
Retention of title clauses are enforceable against the receiver to the extent that:
- the contracts – which contain such clauses and expressly identify the goods sold – are executed by way of private deeds having the requisite of a certified date (i.e. executed before a public notary or through exchange of certified electronic mail) prior to the date of the opening of the procedure, or
- the retention of title has been agreed in writing, has been confirmed on the invoices issued by the seller, such invoices have certified dates and have been registered in the accounts of the seller prior to the date of the opening of the procedure.
If the retention of title relates to registered movable assets, the forms of publicity required by law must also have been carried out prior to the opening of the judicial liquidation.
4.9 – Are foreign creditors treated equally to domestic creditors?
Yes, they are.
5. Setting aside transactions
5.1 – What are the main transaction avoidance provisions applicable to the proceedings referred to above?
Deeds executed by the debtor on a gratuitous basis (i.e. without consideration) and payments of outstanding debts performed after the filing of the application for the opening of the judicial liquidation procedure or within the preceding two years are ineffective.
Repayment of shareholders’ loans is ineffective if performed after the filing of the application for the opening of the judicial liquidation procedure or within the preceding year.
In addition to being able to bring an ordinary claw-back action under the Civil Code, the receiver can take legal action to have the following transactions declared ineffective:
- transactions in which the services performed or obligations assumed by the company exceed by more than one quarter what has been given or promised to it;
- transactions involving unusual means of payment;
- voluntary security granted to secure pre-existing debts;
- voluntary and judicial security granted to secure due and payable debts,
provided that such transactions took place in the time limit set forth by the law (i.e. after the filing of the application for the opening of the judicial liquidation procedure or in the preceding year or six months, as the case may be) and unless the other party proves that it was not aware of the company’s insolvency.
Payments of overdue debts, deeds for consideration and deeds of pre-emption for concurrently created debts may also be revoked, if they were entered into by the debtor after the filing of the application for the opening of judicial liquidation procedure or in the preceding six months, provided that the receiver proves that the other party was aware of the company’s insolvency at the time of the transaction.
The Code provides various exemptions to the above general rules.
5.2 – Who is entitled to challenge transactions under these provisions?
The receiver is generally entitled to challenge transactions under the above provisions.
6. Cross-border insolvency
6.1 – Do your courts recognize insolvency proceedings commenced in the courts of other jurisdictions?
Insolvency proceedings commenced in the courts of other EU member states are automatically recognized under the EU insolvency regulation 2015/848.
Judgments acknowledging the insolvency of a debtor company issued by the courts of non-EU member states are recognized under Italian law provided that the following conditions are met:
- the respect of the Italian criteria for determining jurisdiction;
- the respect of the procedural law of the state where the proceeding was commenced and of the fundamental rights of the defense;
- there is no violation of principles of public policy (ordre public);
- no proceedings are pending before an Italian court against the same debtor company and on the same object, which was initiated before the foreign proceedings;
- the judgment does not conflict with any other final judgment pronounced by an Italian court/authority.
6.2 – If so, what assistance can your courts provide, following recognition?
The foreign officeholder may apply the competent Italian court to enforce the foreign insolvency judgment and take possession of the assets of the debtor company located in Italy.
However, some effects provided for by foreign judgments may not be granted by the Italian courts when such judgments are rendered by the courts of non-EU member states. For example, a temporary stay of creditors’ enforcement actions cannot be granted by Italian courts unless the foreign insolvency judgment is provided with universal effects.
6.3 – Is it possible to commence insolvency proceedings in relation to a foreign company?
Art. 26 of the Code provides that:
- an entrepreneur who has the centre of his main interests abroad may be admitted to a crisis and insolvency regulation instrument or insolvency proceedings in Italy even if similar proceedings have been opened abroad, when he has an establishment in Italy;
- the transfer of the centre of main interests abroad does not exclude the existence of Italian jurisdiction if it occurred in the year preceding the filing of the application for access to a crisis and insolvency regulation instrument or insolvency proceedings;
without prejudice to international conventions and European Union legislation. Therefore the EU insolvency regulation applies among Italy and the other EU member states.
7. Other matters
7.1 – Please consider whether there is any other feature of your country’s insolvency regime of which a lender, investor or purchasers of distressed debts or businesses should be aware? For example, are there any mistakes that foreign creditors often make?
Claims arising from loan agreements entered into by the company in the context of an arrangement with creditors (in case of going-concern plan) or a debt restructuring agreement, if the loan agreements have been authorised by the court or otherwise executed in implementation of the plan, are paid with preference also in the event of subsequent judicial liquidation.
7.2 – Are there any other stakeholders or entities (eg governmental or regulatory) which may influence the outcome of any restructuring?
No.
7.3 – Are there currently any proposals for significant reform of your insolvency laws?
As explained above, the Italian scenario of insolvency and restructuring procedures has been profoundly reformed by the Code in 2022. In the following years some of the rules of the Code have been further amended: the last amendment dates back to the end of 2024. No other reform projects are currently planned.
Contacts
Deborah Borghi Partner – Litigation, Arbitration, Insolvency
E: deborahborghi@eversheds-sutherland.it M: +39 347 620 6376
Renato Fiumalbi Co-Head of Litigation, Arbitration, Insolvency
E: renatofiumalbi@eversheds-sutherland.it T: +39 02 8928 7656
Simone Barnaba Co-Head of Litigation, Arbitration, Insolvency
E: simonebarnaba@eversheds-sutherland.it M: +39 333 3012 733
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