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What are the main insolvency procedures applicable to companies in your jurisdiction?
- Pre-insolvency schemes of arrangement:
- Out-of-court debt restructuring plan (“piano attestato di risanamento”) and
- Debt restructuring agreement (“accordo di ristrutturazione dei debiti”)
- Pre-insolvency composition with creditors (“concordato preventivo”)
- Extraordinary administration (“amministrazione straordinaria delle grandi imprese”)
- Bankruptcy (“fallimento”)
Out-of-court debt restructuring plan – A means for a distressed company to obtain new financing without the intervention of the bankruptcy court and the risk of claw back actions. A restructuring plan is prepared by the company and agreed with its creditors. The plan is approved by an expert who considers the reasonableness of the assumptions and the company’s ability to fulfil its payment obligations. Plans generally include an industrial and financial plan, a moratorium, a debt refinancing or rescheduling plan and an analysis of all payments to be made and security granted under the plan.
Debt restructuring agreement – Enables a company to deal with excessive indebtedness while continuing to trade. Provides a moratorium without the need for the court to make a declaration of insolvency.
A debt restructuring agreement is confirmed by the court and binds only those creditors who are party to the agreement. For an agreement to be effective, creditors who are owed 60% in value of the company’s debts must be party to the agreement.
Composition with creditors – Enables a company to deal with excessive indebtedness while continuing to trade. Provides a moratorium without the need for the court to make a declaration of insolvency.
A composition with creditors is scrutinised and approved by the bankruptcy court and is binding on all creditors (including dissenting creditors).
Extraordinary administration – The extraordinary administration proceeding is for 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 extraordinary commissioners who in turn are supervised by the bankruptcy court.
There are two types of extraordinary administration (under legislative decree and under the Marzano law). In both procedures the company is declared insolvent by the bankruptcy court.
A liquidation or restructuring plan is prepared by the commissioner and approved by the Ministry. Only under the Marzano procedure might creditors be requested to approve the plan.
Bankruptcy - Following a declaration of insolvency, the court appoints a supervising judge and a trustee who is entrusted with the management of the business (if any) and realisation of the company’s assets.
On declaration of insolvency an automatic moratorium arises. Creditors present their claims and the trustee draws up a list of creditors. Creditors are paid pro rata to their claims. Secured creditors whose debts are not repaid from the assets on which they are secured are entitled to prove for the shortfall along with unsecured creditors.
Can a company obtain a moratorium whilst it prepares a restructuring plan?
Yes, a company can obtain the protection of a moratorium while preparing a plan in the context of a pre-insolvency composition with creditors. The moratorium will take effect from the date that the composition application is made to the court. The plan must be filed at the court within 120 days of obtaining the moratorium, although this period can be extended for a further 60 days.
To what extent do the directors of the company remain in control of its affairs during any of the above procedures?
In a bankruptcy or extraordinary administration the powers of the directors cease and a trustee or extraordinary commissioner takes control of the company.
In pre-insolvency proceedings the directors remain in control of the company, subject to supervision by the court (and in a composition, supervision by an insolvency practitioner).
Timeline to commence liquidation
How quickly can a creditor generally commence the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?
A minimum of eight weeks.
Do your courts recognise insolvency proceedings commenced in the courts of another jurisdiction?
Yes - insolvency proceedings commenced in the courts of EU member states are recognised under the EC insolvency regulation.
The Italian Court of Appeal will recognise insolvency proceedings commenced in the courts of countries that are not EU member states if:
- the proceedings are not contrary to a decision of the Italian court
- there are no proceedings pending before the Italian courts
- the proceedings are not contrary to Italian public policy
Position of creditors
Forms of security
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”).
Which classes of creditor are given preferential status? Are any classes subordinated?
The following debts have preferential status:
- the expenses of the insolvency procedure
- debts incurred during trading after the commencement of insolvency (if authorised)
- debts having a general right of preference including salaries and professional fees
- social security contributions and taxes
Sums due to shareholders of the company are generally subordinated to the claims of unsecured creditors.
Treatment of foreign creditors
Are foreign creditors treated equally to domestic creditors?
Termination of contract by reason of insolvency
Are contract terms permitting termination of the contract by reason of insolvency valid?
In general the Italian law does not recognise a declaration of insolvency as a culpable default by the company.
Retention of title
Are retention of title clauses effective?
Yes, although if the value of the property subject to the retention (as determined by an independent expert) exceeds the debt owed to the supplier, the surplus must be paid to the company.
Setting aside transactions
Transaction avoidance provisions
What are the main transaction avoidance provisions, and who can challenge transactions?
The bankruptcy trustee can apply to court for the annulment of certain transactions entered into prior to the commencement of the bankruptcy:
- transactions at an undervalue
- transactions involving unusual means of payment
- security granted to secure pre-existing debts
- security granted to secure due and payable debts
The transaction must have taken place in a relevant period (six months to two years before the declaration of insolvency) and the trustee must prove that the counterparty was aware that the company was insolvent at the time of the transaction. There are various defences to avoidance actions.
Position of directors
Risks for directors
What are the risks facing the directors of an insolvent company?
Directors can be held civilly liable to pay damages for breach of their duties to:
- supervise the general conduct of the company’s affairs
- minimise losses
- prevent the company from entering in to prejudicial transactions
- preserving the company’s assets
Directors can be held criminally liable if prior to the commencement of bankruptcy they:
- dissipate the company’s assets to the detriment of its creditors
- prefer certain creditors (“bancarotta fraudolenta”)
- increase the company’s losses by imprudent and incautious actions (“bancarotta semplice”)
- conceal the company’s true financial position of distress or insolvency in order to obtain funding (“ricorso abusive al credito”)
On conviction directors can be imprisoned for up to ten years and are automatically disqualified
from acting as a director.