Italy: Restructuring & Insolvency

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This country-specific Q&A provides an overview of the legal framework and key issues surrounding restructuring and insolvency in Italy.

This Q&A is part of the global guide to Restructuring & Insolvency.

For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/restructuring-insolvency/

  1. What forms of security can be granted over immovable and movable property? What formalities are required and what is the impact if such formalities are not complied with?

    The most common forms of security are: mortgages over real estate assets or registered movable assets (e.g. aircrafts, vessels); pledges over movable assets (e.g. shares of joint stock companies, quotas of limited liability companies, bank account balances, receivables, claims, intellectual property rights, financial instruments, animals, crops and timber); assignments of receivables by way of security (e.g. VAT or trade receivables) and special liens on certain movable assets (e.g. a special lien can be created over certain unregistered movable assets of a borrower's business, including existing and future equipment, machinery, inventory, proceeds of sale of the assets, provided that (i) grantor is the borrower under a medium-long term loan or is the issuer of a note or other financial instruments and (ii) lender is a bank or financial institution authorised to carry out lending activities in Italy or the noteholders are qualified investors).

    To be validly created, perfected and enforceable, mortgages must be executed before an Italian notary public and registered with the competent land register.

    Each type of pledge has its own set of rules on creation, perfection, registration and enforcement, depending on the type of asset it covers.

    A pledge is perfected by delivering the asset to the creditor (or a custodian) or, for certain assets, effectively notifying, filing or registering it.

    However, Law Decree 59/2016 has introduced a form of non-possessory pledge over a vast array of movable assets of a business (including future assets) that does not require delivery of possession of the collateral to the secured creditor thus allowing the debtor to continue to use and/or dispose of the pledged assets (provided that the proceeds from such use and/or disposal shall automatically be subject to the pledge). This pledge can secure either existing or future claims towards a business registered in the Enterprise Register, provided that the security document must specify the maximum amount secured under it. This new security must be registered with a new online register held by the Italian Tax Revenue Office and is enforceable from the date of registration.

    Some pledges (like those over intellectual property or quotas in a limited liability company) must be executed before an Italian notary public and their perfection requires the registration of the pledge with the relevant public register.

    Other pledges do not require the execution before a notary public but it is important to prove that the pledge has been created in writing on a date certain at law in order to enforce the pledge against third parties and obtain priority in insolvency proceedings.

  2. What practical issues do secured creditors face in enforcing their security (e.g. timing issues, requirement for court involvement)?

    Traditionally, the Italian legal system has not offered secured creditors the opportunity to enforce their security in a timely manner owing to both the requirement for court involvement in most cases (e.g. in the enforcement of mortgages and pledges over IP rights) and the excessive length of the court-administered enforcement procedures.

    New measures for speeding up credit enforcement were enacted in 2015-2016, thus bringing the Italian framework closer to international best practices. To this extent it is worth mentioning:

    • for loans granted to enterprises, it is now possible to include the “Marcian Pact” forfeiture clause in loan agreements thus enabling the secured creditor, should the debtor commit a material breach, to obtain ownership of the real estate collateral through an out-of-court procedure, provided that should the estimated value of the collateral be higher than the amount of the outstanding loan, the secured creditor shall pay the exceeding amount to the debtor. This novelty has the potential of reducing the time of recovery to a period counted in months, instead of years;
    • the non-possessory pledge can be enforced through a variety of methods that do not require a court-supervised enforcement procedure;
    • the mandatory use of digital tools in sales transactions, the increased chances to directly assign the assets to creditors, the prohibition for the debtor to challenge an enforcement after court’s authorization for the sale or the assignment of the collateral being given.
  3. What is the test for insolvency? Is there any obligation on directors or officers of the debtor to open insolvency procedures upon the debtor becoming distressed or insolvent? Are there any consequences for failure to do so?

    The existence of a non-reversible state of insolvency (i.e. a debtor’s inability to regularly fulfill its obligations as they fall due) is a requirement for insolvency proceedings.

    When a company is in the vicinity of insolvency with no reasonable chances to continue as a going concern, its directors are under the obligations to: (i) take appropriate actions to monitor the financial situation and minimize potential losses to creditors, (ii) file for insolvency proceedings if no other solution is viable, or (iii) attempt a good faith effort to rescue the business or achieve an out-of-court composition with the creditors (or with some of them) using, as much as possible, the new instruments recently introduced by the Italian Bankruptcy Law (IBL) (see answer to Question 7). Should these obligations fail to be timely fulfilled and the distressed company be declared bankrupt, the directors of the companies subsequently found to be or to have become insolvent are liable for such losses as may be suffered by creditors as a result of the unnecessary delay in the commencement of insolvency proceedings, without the possibility of relying on the honest business judgment defense.

    Additionally, should the debtor delay the filing of a petition for bankruptcy, its directors may incur criminal liability where such delay has worsened the debtor’s distress. The criminal consequences for directors are more severe if the debtor has undertaken seriously incautious transactions with the purpose of delaying the declaration of bankruptcy or made preferential payments and/or created securities in favour of a particular creditor to the detriment of the others.

  4. What insolvency procedures are available in the jurisdiction? Does management continue to operate the business and / or is the debtor subject to supervision? What roles do the court and other stakeholders play? How long does the process usually take to complete?

    Bankruptcy (fallimento) is the ordinary judicial procedure aimed at liquidating the insolvent debtor's assets and distributing the proceeds pari passu among the creditors in proportion to their respective claims. The application of the equal treatment rule has limited exceptions recognised in law that benefit secured and preferential creditors with statutory priority.

    A bankruptcy adjudication means that the debtor is deprived of the power to manage and dispose of its assets and a trustee is appointed to administrate the estate. The trustee acts under the supervision of an insolvency judge and the creditors' committee, whose authorisation is required to carry out certain transactions outside the ordinary course of business.

    Since bankruptcy proceedings generally take a very long time (being 7/8 years the average duration), a provision has been recently enacted declaring that liquidation of the debtor's assets must be finalised within two years from the bankruptcy declaration.

    Certain kinds of enterprises (banks, insurance companies, co-operatives, public entities) are subject to different insolvency proceedings called compulsory administrative liquidation (liquidazione coatta amministrativa).

  5. How do creditors and other stakeholders rank on an insolvency of a debtor? Do any stakeholders enjoy particular priority (e.g. employees, pension liabilities)? Could the claims of any class of creditor be subordinated (e.g. equitable subordination)?

    In bankruptcy proceedings, creditors and shareholders' claims are ranked as follows:

    Administrative priority claims (crediti prededucibili): administrative priority claims rank ahead of all other creditors, provided that secured creditors keep the right of preferential satisfaction over the proceeds of sale of their collateral. Administrative priority is, for example, given to claims (i) for fees owed to insolvency practitioners or (ii) that have arisen either from certain pre- or post-commencement DIP financing or following the adjudication in bankruptcy;

    Secured claims (crediti privilegiati): creditors with a mortgage, pledge or statutory priority claims (like employees or tax and social security authorities) are secured creditors. Among secured creditors, claims secured by a pledge rank ahead of claims with statutory priority over specific movable assets. Claims with statutory priority over specific real estate assets rank ahead of claims secured by a mortgage. Creditors with statutory priority are paid in the order expressly set out by law according to the nature of their claim. Nothing can be distributed to a lower class unless full satisfaction is obtained by the members of the higher class;

    Unsecured claims (crediti chirografari): this category includes claims without security incurred before the debtor's bankruptcy;

    Subordinated claims (crediti postergati): repayment of a loan made by a quotaholder to a limited liability company is subordinated to the claims of any other ordinary creditor in the distribution of bankruptcy assets, when, at the time the financing was granted, there was an abnormal disproportion between the borrower's indebtedness and net equity or the borrower's financial situation required an equity contribution rather than a loan. The same equitable subordination rules apply to certain intra-group down-stream and cross-stream loans;

    Shareholders' contributions: shareholders' contributions can be reimbursed only when all the creditors of the company have been paid in full.

  6. Can a debtor’s pre-insolvency transactions be challenged? If so, by whom, when and on what grounds? What is the effect of a successful challenge and how are the rights of third parties impacted?

    Certain transactions can be set aside if the debtor is declared bankrupt and they were carried out during a specific period before the bankruptcy adjudication or before publication of the petition to be admitted to the In-court Settlement procedure (suspect period). These include:

    • gratuitous acts or payment of debts not yet due and payable when bankruptcy is declared if carried out in the two-year period before the bankruptcy adjudication. These will be ineffective with regard to creditors by operation of law;
    • acts that will be set aside on simple demand by the trustee, unless the third party defendant can prove he entered into the transaction without any knowledge of the debtor's insolvency, including: onerous transactions whose terms and conditions are significantly disadvantageous for the bankrupt debtor, if carried out in the year before the bankruptcy declaration; payment of debts using non-customary means made in the year before the bankruptcy declaration; pledges and mortgages created by contract, if established a year before the bankruptcy adjudication as security for outstanding debts not yet due and payable; and pledges and mortgages, whether created by contract or imposed by court order, if established six months before bankruptcy as security for due and payable debts that have remained unpaid;
    • acts, transactions or payments that will be set aside if the trustee proves that the third party defendant knew or could not have ignored the debtor's insolvency at the time the act was performed, including: payments and other non-gratuitous acts of disposition made by the bankrupt debtor in the six months before the bankruptcy adjudication; and security interests, if the contemporaneous creation of the debt and grant of security occurred in the six months before the bankruptcy adjudication.

    Certain transactions are expressly exempted from being set aside, including payments for goods and services in the normal course of business on standard terms and payment of employees' wages.

    If, during the suspect period, a debtor's property was transferred at an undervalue to a purchaser who then transferred it to a sub-purchaser, the setting aside of the first transaction will affect the sub-purchaser's right: (i) by operation of law where the transfer was gratuitous, or if the sale to the sub-purchaser was not registered in the competent Land Register before registration of the claw-back action by the trustee or (ii) only if the trustee proves the sub-purchaser's bad faith, where the sale to the sub-purchaser was registered in the competent Land Register before registration of the claw-back action by the trustee.

  7. What restructuring and rescue procedures are available in the jurisdiction, what are the entry requirements and how is a restructuring plan approved and implemented? Does management continue to operate the business and/or is the debtor subject to supervision? What roles do the court and other stakeholders play?

    A. Three restructuring and rescue instruments are available to businesses that are in "crisis status" (i.e. insolvency or at least a debtor's financial distress, including a temporary illiquidity or inability to pay its debts). Payments made, security interests granted, new finance given, and transaction carried out pursuant to any of these three instruments are exempted from avoidance actions and are shielded from the risk of civil liabilities and criminal charges in case of subsequent insolvency proceeding of the debtor.

    I. Certified rescue plan (piano attestato di risanamento)
    The debtor may propose and implement an entirely out-of-court restructuring or reorganization plan to ensure repayment of outstanding debt and its own financial re-balancing to secure the continuity of business as a going concern. The feasibility of the restructuring plan must be certified by an independent expert who must be a chartered auditor appointed by the debtor.

    II. Debt restructuring agreement (accordo di ristrutturazione dei debiti)
    The debtor may reach an out-of-court debt restructuring agreement (DRA) with its creditors representing at least 60% of the total indebtedness. The non-consenting creditors must be paid in full. The feasibility of the restructuring plan underlying the agreement must be certified by an independent expert.

    The DRA must then be validated by court decree. The DRA must also be filed with the Enterprises Register and published.

    Should the DRA involve debtors with obligations to banks or financial intermediaries amounting to no less than 50% of the debtor's aggregate indebtedness, the DRA can create one or more categories of bank or financial intermediary creditors with common economic interests. In this case, the terms of the restructuring agreement will be binding on all creditors in a class if (i) creditors holding at least 75% of the amount of claims in the class approve the restructuring proposal and (ii) all creditors in the class have been duly and timely notified of the pending restructuring and have had an opportunity to participate in the negotiations.

    During the procedure, the debtor can carry on business as normal without being subject to supervision and creditors are prevented from starting or continuing precautionary or enforcement actions against the debtor.

    The validation decree closes the procedure. After validation, the debtor must implement the DRA with no further intervention by the court and can carry on business as normal in accordance with the provisions of the DRA.

    III. In-court settlement with creditors (concordato preventivo) (In-court Settlement)
    The concordato preventivo is a typical in-court debtor-in-possession procedure, subject to supervision by the court—which for such purposes appoints a commissioner supervising the debtor—and ending with court confirmation of the arrangement with creditors.

    The key features are: (i) the plan proposed by the debtor is binding upon dissenting creditors if approved by the required majority (i.e. absolute majority (50 per cent +1) of the total outstanding claims admitted to vote, provided that if there is a plurality of classes, the same majority shall be reached in the majority of classes) and confirmed by the court; (ii) the debtor may put forward an offer of In-court Settlement providing for less than 100 per cent payment to secured creditors (provided that secured creditors must be offered not less than what they would presumably get from the sale at auction of the collateral, and the proposed treatment of the various classes of creditors under the debtor’s proposal cannot disregard the legally established order of priorities among such classes); (iii) the contents of the settlement proposal are flexible and may vary from case to case, including either debt restructuring through "haircuts" and/or rescheduling and/or debt-to-equity swap mechanisms or assignment of the debtor's assets to third-parties or creditors; (iv) upon application for commencement (that may be filed even without submitting the plan) the debtor obtains an automatic stay of individual actions; (v) when an opposition to the plan is filed either by a creditor belonging to a dissenting class or, in the absence of classes, by dissenting creditors representing 20% of claims with voting rights and the suitability of the plan is challenged, the court can validate the plan only after comparing it to other available alternatives and verifying that the proposal is more convenient for the creditor than alternative options; (vi) after court confirmation, the plan is implemented by the debtor under the commissioner's supervision and upon fulfilment of its obligations under the plan, the debtor is discharged from all the prepetition debts that have remained unpaid.

    In the past, In-court Settlement was seen as a liquidation procedure, but recent legal amendments have made it more of a reorganisation procedure. It is now possible to arrange for business activity to continue on a standalone basis or by selling (or contributing) the going concern to third parties.

    In this scenario, known as "In-court Settlement with business continuity", (i) certain measures apply to make it easy for business to continue, including providing a one-year moratorium on paying secured creditors and paying certain pre-petition debts towards critical suppliers/vendors subject to court's prior authorisation and (ii) no statutory minimum level of satisfaction for unsecured creditors is required (whereas if the settlement provides for liquidation of the company's assets, it must ensure a payment of at least 20% for unsecured creditors).

    Recent reforms have enacted creditors’ chances to have a pro-active role in the context of In-court Settlement. Creditors holding in aggregate at least 10% of the unsecured claims against the debtor can propose a competing restructuring plan (unless the debtor's plan provides that unsecured creditors will be paid at least 40% of the face value of their claims in a liquidation scenario, or 30% in a settlement with business continuity, as certified by an expert). Competing plans can also provide for a capital increase in the debtor company against consideration, excluding or limiting any applicable pre-emption rights in favour of the existing shareholders.

    B. There are also two extraordinary administration procedures reserved for large insolvent enterprises exceeding a certain size (amministrazione straordinaria).

    These two procedures are an administrative procedure coupled with judicial supervision of certain aspects and their main goal is to regulate insolvency and minimise its social consequences (typically, protection of the stability of employment) by preserving the integrity of any viable business branches or sectors of the enterprise.

    Two different administration procedures are available:

    • A procedure for "ordinary cases", being businesses with at least 200 employees (in the last one year) and indebtedness exceeding two-thirds of both the total assets and the total turnover. The procedure is commenced by court order with subsequent heavy involvement from the government.
    • A procedure for "extraordinary cases" (used by, for example, Parmalat, Alitalia case and Ilva), for enterprises with more than 500 employees (in the previous year) and whose indebtedness exceeds EUR300 million. The procedure is started directly by the competent Ministry of Economic Development on application from the debtor with no preventive scrutiny by the court.

    The rescue plan drafted by the extraordinary commissioner appointed by the Ministry can provide either the transfer of the business (or business branches) as a going concern (or even of a bundle of assets and contracts for debtors in the essential public utility services or running a plant of strategic national interest) within one year or the economic and financial restructuring of the debtor based on a stand-alone reorganisation plan lasting not more than two years.

  8. Can a debtor in restructuring proceedings obtain new financing and are any special priorities afforded to such financing (if available)?

    Recent reforms grant the possibility to obtain new financing as long as the borrower opts to attempt reorganisation through an In-court Settlement or a DRA.

    Firstly, bridge finance granted in view of applying for In-court Settlement procedure or confirmation of a DRA will have administrative priority claim status if the following conditions are met:

    • the bridge loan cannot be used to pay existing debts or anticipate performance of the reorganisation plan.
    • the new finance must be expressly contemplated in the reorganisation plan.
    • its priority is sanctioned in the court order opening the In-court Settlement or confirming the DRA.

    To incentivise intra-group bridge financing, administrative priority is afforded (up to 80% of the amount of the financing) to downstream and cross-stream intra-group financing that meets the requirements.

    Second, during the interim period between filing the In-court Settlement or DRA and final court confirmation, the debtor can seek authorisation to receive new financing (which will benefit from administrative priority) to fund ongoing operations and the restructuring process. Authorization is given if an expert certifies that the financing is appropriate and will likely enable all creditors to have a better chance of being satisfied than without it. The court can also authorise the creation of security interests as collateral for the new finance.

    Third, the debtor is entitled to ask the court (after filing an In-court Settlement but before submitting the plan, or during DRA negotiations) to authorize interim rescue financing on an expedited basis (providing a lender with an administrative priority claim) if it is needed urgently to carry on the company's business. The debtor must provide evidence that (i) there are no viable financing alternatives and (ii) failure to obtain the loan will result in imminent irreparable prejudice to the debtor.

    Last, administrative priority is given to any new exit financing given under (or in performance of) a court-confirmed In-court Settlement or DRA.

  9. How are existing contracts treated in restructuring and insolvency processes? Are the parties obliged to continue to perform their obligations? Will termination, retention of title and set-off provisions in these contracts remain enforceable? Is there any an ability for either party to disclaim the contract?

    In case of In-court Settlement, the debtor can seek the court authorization to terminate or suspend existing contracts. In case of termination/suspension, the other party is entitled to compensation for damages but the relevant claim is treated as an unsecured pre-petition claim. However, such rules do not apply to certain contracts, including property lease contracts and employment contracts.

    In case of In-court Settlement with business continuity, counterparties are not allowed to terminate outstanding contracts and clauses whereby the sole opening of an insolvency proceeding (or the failure to pay pre-commencement claims) causes termination of the agreement are per se ineffective and unenforceable.

    In case of bankruptcy, the general rule is that when bankruptcy is declared the performance of the executory contracts is suspended until such time as the trustee declares that he is assuming the contract (having been authorized to do so by the creditors’ committee) or rejecting it. Contractual clauses whereby bankruptcy constitutes a ground for termination are ineffective and unenforceable.

    If the trustee opts for assuming the contract, termination, retention of title and set-off provisions set forth therein remain enforceable (provided that debts arisen before commencement of the bankruptcy procedure cannot be set-off against debts arisen after commencement thereof).

    However, the above general rule does not apply either to such contracts as are deemed terminated by operation of law as a result of the commencement of the procedure (e.g. the mandate when the agent becomes bankrupt) or to such other contracts as shall continue to be performed (e.g. employment contracts and real property lease contracts or business branch lease contracts, provided that the trustee may terminate the agreement subject to certain limitations).

  10. What conditions apply to the sale of assets/the entire business in a restructuring or insolvency process? Does the purchaser acquire the assets “free and clear” of claims and liabilities? Can security be released without creditor consent? Is credit bidding permitted?

    Different procedures, that are subject to the supervision of the court, apply to the sale of the debtor’s immovable and movable assets in restructuring and insolvency proceedings provided that sales must be carried out by the trustee through competitive procedures and based on experts’ appraisals.

    The purchaser acquires the assets “free and clear” of claims and liabilities. Securities cannot be released without creditor consent and credit bidding is not allowed.

    In the context of In-court Settlement, it has been a common practice that debtors file pre-packaged plans providing for the sale of the debtor’s business or assets to a third party investor based on a binding agreements entered into by the debtor and the investor prior to the filing. However, this practice has been recently affected by a new provision of law whereby if the plan includes a proposed sale of the debtor’s business or assets, a court-approved bidding and auction process must be carried out to seek competing offers.

    In case of transfer of the business as a going concern in a restructuring or insolvency process, unless the parties have agreed otherwise and with limited exceptions, the purchaser does not incur liability for the obligations of the purchased business incurred prior to the transfer.

    In the framework of the consultations that must be carried out among the debtor, the purchaser and the employees’ representatives, the parties can agree on a partial-only transfer of the employees to the purchaser and on certain amendments to the transferred employees’ agreement.

    In case of transfer of business in the context of the extraordinary administration of large insolvent enterprises, the commissioner, the purchaser and the employees’ representatives may agree on a partial-only transfer of the employees to the purchaser. However, the protection of the employees is higher as the purchaser must be chosen not only based on the price offered but also on the guarantee given with respect to the stability of the employment. Moreover, the purchaser shall maintain the employment level established at the time of the acquisition for at least two years.

  11. What duties and liabilities should directors and officers be mindful of when managing a distressed debtor? What are the consequences of breach of duty?

    See answer to Question 3.

  12. Is there any scope for other parties (e.g. director, partner, parent entity, lender) to incur liability for the debts of an insolvent debtor?

    Directors, shareholders and parent entities of a joint stock company or a limited liability company cannot be held liable for the insolvent debtor's debts (with limited exceptions). Their liability arises only for damage caused to the company or to third parties (including creditors) owing to breach of fiduciary duties or wrongful conduct.

    Only members of partnerships can be held liable for the debts incurred by the insolvent partnership. They are also declared bankrupt if the partnership is declared bankrupt.

    A parent entity (that exercises a systematic and continuous influence and co-ordination on the overall management of another company) can be held liable to minority shareholders (if any) and creditors of the influenced company whenever its influence causes a breach of the principles of fair and correct management of the influenced company, resulting in: (i) a decrease in the value of its shares or (ii) a prejudice to the company's equity to the detriment of creditors. Liability is not triggered if the directing entity can prove that overall any damage to the influenced company has been offset by other benefits arising from opportunities or other particular courses of action taken by the directing entity.

    Lenders are exposed to the risk of tort liability for fraudulent or imprudent extension of credit to an insolvent debtor when the lender knew, or ought to have known, that the debtor was insolvent or was likely to become insolvent. When lenders are found to be liable, the extent of the liability covers the losses suffered by individual creditors owing to the delay in the commencement of insolvency proceedings and damages suffered by new creditors who have relied on the debtor’s apparent creditworthiness as the basis for extending credit.

  13. Do restructuring or insolvency proceedings have the effect of releasing directors and other stakeholders from liability for previous actions and decisions?

    The recent legislative compression of avoidance actions appears to have contributed to producing a collateral effect — namely, the considerable proliferation of suits aimed at seeking liability for breach of duties in insolvency proceedings. The categories of defendants in suits of this sort have become larger: in addition to directors and statutory auditors, mention must be made of parent companies in group contexts, external auditing firms, shadow (de facto) directors and, last but not least, lenders having substantially managed the debtor in difficulty or having imprudently extended credit to the debtor in difficulty.

    Restructuring proceedings have not the effect of releasing directors and other stakeholders from liability for previous actions and decisions.

  14. Will a local court recognise concurrent foreign restructuring or insolvency proceedings over a local debtor? What is the process and test for achieving such recognition?

    Italy recognises any judgment opening insolvency proceedings handed down in other EU Member States (section 16, Council Regulation 1346/2000 on insolvency proceedings (Insolvency Regulation)). This also applies to court approved settlements, preservation measures and judgment deriving directly from insolvency proceedings and closely linked with them.

    If the Insolvency Regulation does not apply and there is no bilateral convention with the country of the debtor's COMI, recognition of foreign judgments applies when the following conditions are met:

    • the judge that issued the decision had jurisdiction;
    • the defendant knew of the proceeding and could take part in it and defend himself;
    • the decision is definitive and not contrary to another judgement issued by the Italian courts;
    • no proceeding on the same matter is pending before the Italian courts;
    • the judgment's provisions are not contrary to public policy.

    A court order is required only in case (i) an objection is raised that the above requirements for recognition are not met or (ii) an enforcement procedure is required based on the foreign judgment or order.

  15. Can debtors incorporated elsewhere enter into restructuring or insolvency proceedings in the jurisdiction?

    Under the Insolvency Regulation, where the debtor's COMI is situated within a Member State, the courts of another Member State have jurisdiction to open (secondary) insolvency proceedings against that debtor. The secondary proceedings are restricted to the assets situated in that member state only.

    If the debtor's centre of main interests is outside the EU, section 9 of the IBL applies. In substance, the rule states that the insolvent debtor can be adjudicated in bankruptcy in Italy even if bankruptcy proceedings have already been opened abroad (typically in the country where the debtor has its main seat). However, according to the Italian courts, there must be a relevant connecting factor to warrant the exercise of bankruptcy jurisdiction in Italy.

    When the parent company has its COMI and its registered offices in Italy and Italy is deemed to be sufficiently restructuring-friendly by comparison with other jurisdictions potentially available, it is common practice to run to the court of the place of registered offices of the parent company so as to attempt to induce that court to make a finding that the COMI of all, or substantially all, companies of the group is in Italy.

    This use of the COMI in the group context (i) makes it possible to open in Italy a plurality of parallel main proceedings affecting foreign subsidiaries, (ii) brings such subsidiaries within the scope of the Italian rules and, therefore, (iii) certainly facilitates the task of either the governmental commissioners in dealing with the multinational group insolvencies on a joint basis (or at least in a co-ordinated manner) or the planning, implementation and financing of joint group reorganizations through an In-court Settlement.

  16. How are groups of companies treated on the restructuring or insolvency of one of more members of that group? Is there scope for cooperation between office holders?

    The IBL does not contain specific rules relating to the bankruptcy and/or restructuring proceedings of enterprise groups. However, specific tools have been introduced to enhance co-ordination among the extraordinary administration proceedings of insolvent large enterprises that use the group structure. Specifically, the extraordinary administration proceeding of a company of the group may be extended to other insolvent companies of the group (even if, individually, they do not satisfy the size requirements for commencement) as long as (i) such companies have concrete prospects to rescue the business through its continuation as a going concern or (ii) there is a need to ensure a unitary management of the insolvency proceedings within a group. From a formal standpoint such insolvency proceedings are kept separate and the assets and liabilities of each group entity are not consolidated. However, procedural mechanisms are designed to ensure administrative co-operation, including the appointment of the same governmental trustee for all the insolvent companies and the possibility of closing all the proceedings by means of one single composition with creditors procedure (concordato) to be approved by the creditors of all the group companies.

  17. Is it a debtor or creditor friendly jurisdiction?

    The reforms of the IBL of 2005–2012 were mainly aimed at favoring the business continuity of distressed but still viable enterprises as a key element for the success of restructuring plans. Many mechanisms aimed at favoring the debtor have thus been introduced, such as: the absence of any minimum statutory level of satisfaction of creditors, the freezing of counterparties’ rights to terminate executory contracts, the debtor’s entitlement to request the court’s authorization for terminating executory contracts or paying pre-petition debts towards key suppliers, a one-year moratorium for paying secured creditors, the debtor’s entitlement to apply for reorganization at an early stage, even without submitting the restructuring plan, to get the automatic stay of enforcement actions.

    Subsequently, the reforms of the IBL of 2013–2015 have (i) enhanced creditors’ chances to have a pro-active role in restructurings (for instance, by exercising their right to submit competing proposals), thus increasing financing and investment opportunities for domestic and foreign lenders and investors also through the implementation of loan-to-own strategies and (ii) reduced the space for opportunistic and delaying tactics of the debtor.

    The result is a jurisdiction which maintains a debtor-friendly approach, but also takes into serious account the creditors’ interests.

  18. Do sociopolitical factors give additional influence to certain stakeholders in restructurings or insolvencies in the jurisdiction (e.g. pressure around employees or pensions)? What role does the state play in relation to a distressed business (e.g. availability of state support)?

    Protecting employment stability is a policy issue that strongly influences the outcome of extraordinary administrations of large insolvent enterprises.

    The Italian state can guarantee (in whole or in part) debts incurred with financial institutions by large insolvent enterprises in extraordinary administration (see answer to Question 7) to finance ongoing operations and re-open and complete plants, real estate and industrial equipment. The overall amount of state-granted guarantees cannot exceed EUR550 million.

  19. What are the greatest barriers to efficient and effective restructurings and insolvencies in the jurisdiction? Are there any proposals for reform to counter any such barriers?

    The insolvency system is too complex and provides debtors with opportunities for the use of delaying tactics. A comprehensive reform of the IBL - capable of coordinating all proceedings set out therein and bringing forth a suitable balance between the interests of the debtor and those of the creditors – is needed.

    There is also a timing problem in restructuring and insolvency procedures considering that, on the one hand, distress is often addressed (with the commencement of a procedure) when it is too late and, on the other hand, the procedures have an excessive duration.

    Accordingly, a project of comprehensive reform of the IBL (Project Rordorf) has been approved by the Chamber of Deputies and is now subject to the approval of the Senate. Upon approval by the Italian Parliament, the Government will have delegated powers to detail and develop the reform in accordance with the guidelines provided by the Italian Parliament.

    The draft reform provides for:

    • the introduction of mediation and alert procedures to help debtors identify suitable measures to tackle and resolve a crisis promptly, with advice from insolvency practitioners and without court involvement;
    • companies belonging to the same group should be allowed to file a single group petition, without prejudice to the separateness of the assets and liabilities of each company; should the group companies be subject to different proceedings, the relevant competent bodies should constantly cooperate and exchange information;
    • several measures should be enacted in order to the remove the obstacles to the adoption of DRA, such as: (i) cram down in the context of DRA should apply not only to financial intermediaries and banks but also to other creditors and (ii) the 60 percent majority of claims will no longer be required for the execution of the DRA to the extent that no protective measures are requested by the debtor and the non-adhering creditors which are not party to the agreement are immediately paid in full.
    • several changes should be introduced with regard to the In-court Settlement: (i) only petitions providing for the continuation of business should be admissible; (ii) petitions may also be filed by third parties (with some protective provisions for the debtor) and (iii) the different interim financing provisions currently in existence should be simplified.