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Liquidation procedures


What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?

Debtors conducting a business activity (either individuals, partnerships or companies) are subject to bankruptcy liquidation if they exceed any of the following thresholds in at least one of the three previous years:

  • balance-sheet assets above €300,000;
  • turnover above €200,000; or
  • debts above €500,000.

Further, the court may reject a petition if there is no evidence that the debts due and payable amount to at least €30,000.

Debtors not reaching these thresholds are eligible on a voluntary basis to the simplified liquidation procedure governed by Law 3/2012 as small businesses.

Debtors exceeding further dimensional thresholds (at least 200 employees for at least one year and debts amounting to less than two-thirds of both total balance sheet assets and turnover of the last financial period) are eligible for extraordinary administration as large businesses.

Certain business organisations are exempted from bankruptcy liquidation due to the nature of their activity or the entity itself (eg, farmers and related businesses and state-run businesses).


What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?

A debtor conducting a business activity is considered insolvent when it cannot meet its own obligations as they fall due. When a company has ceased to trade and entered into voluntary liquidation, it is considered insolvent if it cannot pay all creditors in full.

In an orderly voluntary liquidation, a liquidator is appointed by the shareholders and, if the company’s assets are not forecasted to be sufficient to pay all creditors in full, the liquidator must file for bankruptcy liquidation or a restructuring procedure.

None of the effects of bankruptcy liquidation occur in a voluntary liquidation: the liquidator remains in full control and there is no court intervention or supervision, as the company is not insolvent.

Bankruptcy liquidation A debtor may be declared bankrupt through its own motion or a petition filed by any creditor or the public prosecutor.

Bankruptcy is the standard insolvency liquidation procedure and is aimed at selling or realising all of the assets of the debtor and paying any creditors.

Extraordinary administration In this proceeding, the receiver is appointed by the government, which has pervasive powers to determine how the procedure actually unfolds.

The main difference from bankruptcy liquidation is that extraordinary administration is specifically aimed at preserving the business, which normally happens through a sale of the business as a going concern. If this is not possible, the court will convert the procedure into bankruptcy liquidation.

The business is run by the receiver until the sale can take place.

Creditors are paid with the proceeds of the sale of the business and other company assets.

Administrative liquidation Administrative liquidation is a special liquidation procedure in which the entity is liquidated under the control of the relevant administrative authority that oversees the industry in which the entity is active (eg, the Bank of Italy for banks and financial institutions and the Insurance Supervisory Authority for insurers).

The procedure may be triggered not only by insolvency, but also on other grounds (eg, serious irregularities or violations of laws or regulations).

Simplified liquidation of small businesses under Law 3/2012 This procedure cannot be triggered by creditors or the public prosecutor. Its main features are similar to bankruptcy liquidation, but there are no avoiding powers of the receiver or rules on pending contracts.

Reorganisation procedures An insolvent company may be liquidated through a reorganisation procedure: both compositions with creditors and debt restructuring agreements can be used for this purpose.

How are liquidation procedures formally approved?

Insolvency liquidation procedures are confirmed by court judgment, except for:

  • administrative liquidations, which are started by the relevant administrative authority; and
  • extraordinary administration procedures under the special provisions of Law 39/2004 (the so-called ‘Marzano Law’), which are started by the government on application by the company.

Judgments can be challenged before the Court of Appeals and, on final appeal, by the Court of Cassation.

What effects do liquidation procedures have on existing contracts?

In bankruptcy, as a rule, administrative liquidation and extraordinary administration procedures contracts remain on hold until the receiver chooses to continue or terminate them, with the authorisation of the creditors’ committee.

Certain contracts are subject to specific rules, whereby some are automatically terminated by operation of law and others continue in force.

If a contract continues within the procedure, the receiver must fully perform the relevant obligations. If the contract is terminated by the receiver, the other party is not entitled to compensation, except in case of leases of property or business units.

What is the typical timeframe for completion of liquidation procedures?

The average duration of a bankruptcy liquidation procedure is around seven years. Recent amendments are aimed at shortening the duration of the procedure, but the effects of this remain to be seen.

In extraordinary administration, the sale of the business must be completed within a year (the term can be delayed for another year).

Role of liquidator

How is the liquidator appointed and what is the extent of his or her powers and responsibilities?

In bankruptcy liquidation, the receiver is in charge of preserving and selling the assets of the debtor and of paying the creditors. The receiver must prepare a liquidation plan. This plan must be approved by the creditors’ committee, as do any acts outside of the ordinary administration and those regarding the termination of pending contracts. The receiver is also a party in the proof of debt phase.

In extraordinary administration, the receiver is appointed by the government and must act according to the plan approved by the latter.

In administrative liquidation, the receiver is appointed by the administrative authority and must act according to the directions of the latter.

Court involvement

What is the extent of the court’s involvement in liquidation procedures?

In bankruptcy liquidation procedures, the court:

  • opens and closes the procedure;
  • appoints and replaces the judge and receiver;
  • decides on objections to acts taken by the judge; and
  • rules on appeals in the proof of debt phase, distribution to creditors phase and on the discharge of the debtor.

The judge in charge of the procedure:

  • appoints the creditors’ committee;
  • resolves any conflicts regarding acts taken by the receiver or the creditors’ committee; and
  • decides on the proof of debt filings.

In extraordinary administration, the court opens and closes the procedure and decides on appeals in the proof of debt phase. The judge decides on the proof of debt filings.

In administrative liquidation procedures, the court:

  • declares the state of insolvency of the debtor (triggering avoiding powers of the receiver);
  • decides on appeals against the list of creditors prepared by the receiver; and
  • rules on appeals against the final balance sheet of the liquidation.

Creditor involvement

What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?

In bankruptcy liquidation, the creditors’ committee:

  • approves the liquidation plan proposed by the receiver;
  • authorises the lease of business and termination of pending contracts; and
  • approves any act taken by the receiver exceeding ordinary administration.

Individual creditors have a limited role within the procedure.

In extraordinary administration and administrative liquidation procedures, the role of the creditors’ committee is limited to consultation.

Director and shareholder involvement

What is the extent of directors’ and shareholders’ involvement in liquidation procedures?

In bankruptcy liquidation, extraordinary administration and administrative liquidation procedures, directors and shareholders of a bankrupt company continue to hold their office, but the effects of their actions are limited to powers of the debtor within the procedure (ie, they can challenge only certain acts taken by the receiver, the creditors’ committee and the judge).

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