Lawmakers introduce further measures in order to stimulate new loans after the pre-filing for concordato preventivo or for a debt restructuring agreement, when it is urgent to prevent an unrecoverable prejudice to the business

The context

It is a fact that the various legislative measures aimed at easing the way for new  loans  functional  to turnaround workouts (Art. 182-quater in 2010 and Art. 182-quinquies in 2012) did not yield, in practice, the desired effects. This is due both to a limited availability on the part of banks to lend to financially distressed businesses, and to an uneasy attitude on the part of Courts to grant the necessary authorizations.

In particular, it is well known that Judges have not been keen on considering requests in the phase following a so-called “pre-filing” for concordato preventivo, for the reason that, in the absence of a reorganization plan, it would be very hard for Courts to assess whether the new loans can allow a better return to creditors (which is a specific requirement under Art. 182-quinquies IBL).

It is on this very aspect that the latest amendments to Art. 182-quinquies IBL seem to concentrate, first of all where law decree No. 83/2015 specified at second para. that the Court can authorize the debtor to borrow new monies even before the concordato plan and proposal are filed, with the  relevant  documentation provided by Art. 161 IBL. One can be doubtful that this alone will actually be sufficient to encourage Courts to be more workable, but the “message” by lawmakers is clear.

The new “urgent” interim loans

The most relevant new provisions, however, are those for new loans which can be authorized by the Court as a matter of urgency pursuant to the new fourth para. of Art. 182-quinquies IBL. These new loans can be authorized in the phase following a “pre-filing” for concordato (but also after a “pre-filing” for a debt restructuring agreement pursuant to Art. 182-bis, sixth para., IBL) only if “functional to urgent  needs regarding the conduct of the business activity”.

The urgency of having financial resources available is the key aspect and this is further indicated by the rule according to which the request for authorization shall specify for what purpose the loans will be used, the reasons why the debtor cannot obtain financing otherwise and, most important,  the  reasons  why  “in the absence of these loans, unrecoverable and imminent prejudice would result to the business”: the wording is clearly taken from Art. 700 of the Italian Civil Procedure Code and, presumably, this is intended to ease the granting of authorizations by the Court, because the context and conditions for interim urgency relief are widely shared and well known in day-to-day case law.

A further reference to urgency can be found in the rule according to which loans shall refer to financial needs of the period up to the expiration of the term set by the Court for the debtor to file its own concordato plan and proposal, i.e. in a very short term (60-120 days ahead).

An important new rule is that according to which the request for authorization of urgent loans needs not be filed together with a statement by an expert certifying that the conditions required by the new rule are met: in this respect, the Court can seek information on the plan and the proposal being prepared and can hear the Judicial Commissioner (if appointed) and also the main creditors. This latter provision seems an important sign of the regard to be paid to the opinion of creditors, who may indeed be already involved in negotiations aimed  at  reaching  a  debt  restructuring  agreement,  and  therefore  already  informed  of  the  situation  of  the debtor, or else to be simply aware of the pre-filing for concordato.

The new rule, due to urgency, requires that the Court decides with a decree within a very short term, i.e. 10 days from the filing of the request for authorization: this rule is aimed at recalling the Courts’ attention to the importance that the decision be issued promptly, in the interest of all parties concerned with the turnaround effort.

Finally, the tird para. of Art. 182-quinquies IBL now clarifies that the guarantees,  which  the  Court  can authorize the debtor to grant, include also assignments of receivables, and is not limited to pledges  and mortgages.

Existing revolving facilities

One last rule – which will have an impact in general on the whole of the situations governed by Art. 182- quinquies IBL – is the one providing that “the request [for authorization] can regard also the continued availability of existing revolving facilities”. Indeed, until now, case law seemed to indicate that this was not considered as a “new loan” and therefore needed not be authorized by the Court  pursuant  to  Art.  182- quinquies IBL.

The fact that, from now on, these facilities will not continue to be  available  in  the  ordinary  course  of business, might create additional difficulties to financially distressed businesses, unless the Courts will adopt appropriate standards in applying the new rule.

Exemption from criminal liabilities

Finally, it must be pointed out that the choice to insert at Art. 182-quinquies IBL the new rules for new urgent interim loans, implies that the exemption from certain bankruptcy criminal liabilities pursuant to Art. 217-bis IBL will also be applicable. This is an issue very sensitive for lenders, who showed their appreciation for the new rules in this respect.

Entry into force

The law converting law decree No. 83/2015, clarified at Art. 23, first para. that amendments to Art. 182- quinquies IBL apply also to concordato proceedings whose filing was made before the law decree entered into force, i.e. before 27 June 2015.