In brief: liquidation and reorganisation processes in Italy

Types of liquidation and reorganisation processes

Voluntary liquidations

What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

As a general rule, Italian companies are subject to voluntary liquidation upon a decision of the shareholders’ meeting.

Furthermore, joint-stock companies, limited liability companies and joint-stock limited partnerships are considered as terminated upon occurrence of any of the events below (termination events):

• expiry of the company’s term of duration as stated in the by-laws;
• achievement of (or impossibility to achieve) the purpose for which the company was established;
• the shareholders’ meeting can no longer function or remains long inactive;
• the share capital is reduced below the legal minimum amount and the shareholders fail to increase it or, alternatively, fail to convert the company into another type of company (in respect of which the minimum share capital requirement would be complied with);
• there are no profits or reserves available to reimburse the shares of a resigning shareholder and the company does not intend to or cannot follow the route of the capital reduction;
• any other reason laid down in the deed of incorporation or the by-laws; or
• in other circumstances provided for by law.

 

The occurrence of any termination event triggers the directors’ duty to convene a shareholders’ meeting to resolve on the removal of such triggering event or on the appointment of liquidators of the company. In the event the shareholders’ meeting fails to adopt such a resolution, and no reorganisation seems to be reasonably feasible, the directors shall apply for a judicial liquidation procedure or a controlled liquidation procedure.

The directors are personally and jointly liable for any damage that the company, its creditors and third parties may have suffered as a consequence of such delay or failure to take action. Furthermore, the directors of the company maintain the power to manage the company solely for the purpose of preserving its value. If they fail to do so, they are personally and jointly liable for any damage that the company, its creditors and third parties may have suffered as a consequence thereof.

Upon occurrence of any termination event, the extraordinary shareholders’ meeting must appoint one or more liquidators to manage the company to pay the company’s creditors’ claims by distributing to them the proceeds deriving from the sale of the company’s assets, until the company has been fully wound up after which it is cancelled from the Companies’ Register and ceases to exist.

A company in voluntary liquidation may still become insolvent (if it is unable to regularly pay its own debts), in which case the company’s directors or the liquidator (as the case may be) shall start reorganisation (namely, composition with creditors, debt restructuring agreement, restructuring plan subject to homologation, certified recovery plans, or negotiated settlement arrangement) or file a request for the opening of a judicial liquidation procedure or a controlled liquidation procedure.

Following the filing of a petition for a composition with creditors or a debt restructuring agreement and until the date of their homologation, the rule that considers the reduction of the share capital or the company as an automatic termination event does not apply.

Voluntary reorganisations

What are the requirements for a debtor commencing a voluntary reorganisation and what are the effects?

The main types of voluntary reorganisations are the following:

• debt restructuring agreement;
• restructuring plan subject to homologation;
• certified recovery plans; and
• negotiated settlement arrangement.

 

Each of the aforementioned reorganisations will be briefly described below.

Please consider that also the extraordinary administration of large, distressed enterprises under Legislative Decree 270/1999 and the extraordinary administration aimed at the reorganisation of large, distressed enterprises under Law Decree 347/2003 could be theoretically considered as voluntary reorganisations, to the extent that both procedures can also be started by the debtor voluntarily (in addition to the request that can be filed by a creditor or by the public prosecutor). However, both types of extraordinary administration procedure differ from the aforementioned reorganisations insofar that the latter can solely be commenced voluntarily by the debtor, who may in no way be legally forced to start any of the aforementioned reorganisations. 

For that reason, both the extraordinary administration of large, distressed enterprises under Legislative Decree 270/1999 and the extraordinary administration aimed at the reorganisation of large, distressed enterprises under Law Decree 347/2003 are to be considered as involuntary reorganisation procedures.

That having said, it must be noted that the requirements for a debtor to commence a voluntary reorganisation are different in relation to each of the tools and procedures mentioned above.

 

Composition with creditors

A debtor in crisis or insolvent may file a petition for a composition with creditors with the first instance court where its centre of main interests (COMI) is located. Once the composition with creditors has been opened, creditors representing at least 10 per cent in value of the aggregate amount of the debts owed by the debtor are entitled to file a concurrent plan and proposal for a composition with creditors where certain conditions (specified below) are met.

As a general rule, the petition must contain a proposal for an agreement with creditors and must be accompanied by:

• a restructuring plan;
• a report issued by an expert assessing the plan’s feasibility and certifying that the restructuring plan is suitable for successfully overcoming the insolvency status and that creditors will be better off than in a liquidation scenario; and
• other documents illustrating the debtor’s financial situation.

 

The experts are appointed by the debtor and must be independent professionals registered with the relevant register of auditors. Being technically insolvent (ie, unable to regularly pay its own debts) at the time of filing of the proposal is not a requirement for the debtor as it is sufficient that the relevant debtor is in a state of crisis (ie, a situation of temporary illiquidity or financial difficulties).

The debtor’s proposal shall provide for the following:

• the restructuring of debts and satisfaction of creditors through a wide range of arrangements, including, without limitation, the assignment of assets or the attribution of shares or financial instruments to creditors (as a means of satisfying their claims);
• the grounds upon which the composition with creditors is more favourable than a procedure of judicial liquidation; and
• the segmentation of creditors into separate classes, based on homogenous economic interest and legal situation, each of which may be offered a different treatment.

 

In general, secured creditors should be paid in full (and they are not entitled to vote for the approval or the refusal of the plan). However, the debtor’s proposal may also provide that such creditors are not fully satisfied, provided that each of them obtains at least the market value of the secured asset (ie, the value that could have been achieved from the sale of the asset in a liquidation context) and does not receive a worse treatment compared to unsecured creditors. If the debtor’s proposal provides for a partial payment of the secured creditors’ claims, secured creditors will be admitted to voting for the portion of their claim that is not expected to be paid in full. Further, secured creditors are admitted to voting if they waive their security interests.

As to unsecured creditors, (1) no floor is provided to their payment in the context of a composition with creditors envisaging the continuation of the business, while (2) the proposal must ensure that at least 20 per cent of the unsecured debt is paid and, in any event, the injection of external finance shall increase by at least 10 per cent of the value of the assets of the insolvent company at the time of the filing, if the composition with creditors envisages the disposal of the debtor’s assets and its dissolution (as opposed to the continuation of the business).

As an alternative to filing the ‘complete’ petition for a composition with creditors, the debtor may also file a conditional petition for a composition with creditors (ie, a generic petition without attaching the restructuring plan and the other documents required by law), reserving the right to subsequently file a final and complete proposal within a certain period. The relevant court can set a timeframe to file the final and complete proposal, which could be between 30 and 60 days (with a possible extension of a further 60 days). By the end of that period, the debtor may file the complete composition with creditors proposal or a petition for the homologation of a debt restructuring agreement.

To prevent abusive requests for a conditional petition, the following rules apply:

• when requesting to open the relevant procedure, the debtor is required to deposit a list of its creditors (indicating the amount and the priority ranking of the respective claims) together with its three latest financial statements;
• the court may decide to reduce the term by which the debtor must file the complete proposal;
• the court has the power to appoint a commissioner to monitor the debtor’s management and to report any breaches to the court during the procedure (eg, the concealment of losses);
• the debtor must provide information reports to the court at least once a month during the procedure; and
• if a commissioner has been appointed by the court, the debtor must pay an amount of between 20 per cent and 50 per cent of the costs of the procedure by the deadline set out by the court, in any case not exceeding 15 days from the appointment of the commissioner.

 

Without prejudice to the above paragraph and as already mentioned above, a concurrent plan and proposal for composition with creditors may also be filed by creditors representing at least 10 per cent of the outstanding claims towards the debtor when the debtor’s proposal does not provide for the satisfaction of (1) at least 40 per cent of its unsecured creditors (in the case of a plan contemplating the business liquidation) or (2) at least 30 per cent of its unsecured creditors (in the case of a plan providing for business continuity). In the case referred to under item (2) above, the relevant percentage would decrease to 20 per cent if the debtor has previously filed a petition for the commencement of a negotiated settlement arrangement. Competing proposals must be submitted no later than 20 days from the date set out by the relevant court for the voting of the creditors.

The petition for a composition with creditors, whether complete or conditional, is published in the Companies’ Register. Upon publication of such petition:

• if the debtor expressly requested the granting of protective measures, its creditors are prevented from (1) starting or continuing any enforcement or interim actions on the debtor’s assets, and (2) acquiring preferential rights or security thereupon, unless authorised by the relevant court. Such protective measures:
  • shall be confirmed, revoked or amended by the court upon a request filed by the relevant debtor;
  • shall not exceed the duration of four months and may be extended (subject to certain conditions to be met), but in any case shall not exceed 12 months overall; and
  • do not apply to employees’ receivables;
• any judicial mortgages registered in the 90 days prior to the publication of the petition for composition with creditors in the Companies’ Register will have no effect on creditors who have acquired their claims prior to the filing of the relevant petition;
• interest on the creditors’ claims ceases to accrue;
• the debtor may carry out acts of ‘ordinary’ (day-by-day) administration and, only if authorised by the relevant court, urgent acts of ‘extraordinary’ administration; and
• the debtor may request the court to authorise the termination or the suspension of ongoing contractual agreements (excluding employment contractual agreements).

 

Once the petition has been declared admissible, the court appoints a judicial commissioner (who, in the event of a conditional petition, is appointed after the filing of the conditional petition). The judicial commissioner monitors the debtor and its management and informs the delegated judge or the court (as the case may be) and the creditors of the results of its monitoring activity.

Upon homologation, the composition with creditors becomes binding on all creditors existing before the publication of the relevant petition in the Companies’ Register. However, creditors maintain their rights in relation to any joint obligors and to the debtor’s guarantors.

Finally, as a general rule, any payments or security interests provided in the composition plan or authorised by the relevant court in the context of a composition with creditors are not subject to clawback actions in the case of opening a procedure of judicial liquidation.

 

Debt restructuring agreement

The debtor may request the court to homologate one of the following types of debt restructuring agreements:

• a (standard) debt restructuring agreement, executed with creditors representing at least 60 per cent of the debtor’s outstanding debts;
• a debt restructuring agreement allowing extension of the effects of the agreement event to non-adhering creditors, provided that such agreement is executed with at least 75 per cent of the creditors of each relevant class and that other conditions are met. If the debtor’s indebtedness towards banks and financial intermediaries exceeds 50 per cent of the debtor’s overall indebtedness, the extension of the effect of the agreement to non-adhering creditors can be requested also in the case of a debt restructuring agreement contemplating the disposal of the debtor’s assets and its dissolution, otherwise, the extensions may only be obtained if the agreement contemplates the continuation of the business; or
• a simplified restructuring agreement that may be executed with creditors representing at least 30 per cent of the debtor’s outstanding debts (instead of the 60 per cent threshold generally required for debt restructuring agreements), provided that no protective measures and no 120-day moratorium of the debts towards creditors who are not party to the agreement are requested by the debtor.

 

Together with the petition for the homologation of any of the debt restructuring agreements mentioned above, in principle, the debtor is required to file the same documentation required for the composition with creditors.

Notwithstanding the similarity with the documentation to be filed in respect of a composition with creditors, the expert’s report shall certify that:

• the company’s data are accurate;
• the agreement is feasible; and
• the creditors who are not party to the agreement will be paid in full (possibly within the 120-day moratorium as described below).

 

Similarly to the procedure of composition with creditors, the debtor is also allowed to file a conditional petition for a debt restructuring agreement, reserving the right to subsequently file a final and complete proposal within a certain period, which the court can set out between 30 and 60 days (with a possible extension of further 60 days upon request from the debtor and subject to the existence of justified reasons).

Except for ‘simplified’ debt restructuring agreements, the payment of claims of creditors not adhering to the debt restructuring agreement must occur within 120 days of the homologation date (in respect of debts that are already due and payable on such date) or within 120 days of the expiry date (in respect of those debts that are not yet due and payable on such date).

All the aforementioned types of debt restructuring agreements are published in the Companies’ Register. The creditors and any interested party may oppose to the homologation of the debt restructuring agreement within 30 days from such publication. The relevant court homologates the debt restructuring agreement if it decides to reject the opposition. In that case the homologation is published in the Companies’ Register and the debt restructuring agreement becomes effective.

The agreement can be homologated by the court even in the absence of adherence by the tax and social security authorities, whose adherence shall be received within 90 days from filing of the agreement with the Companies’ Register. Lacking that adherence, the silence by the tax authority or the social security authority, or both, can be then overcome by the court if the agreement provides for a more advantageous settlement than the judicial liquidation and the expert certifies it in its relevant report.

Upon request by the debtor, during the negotiations of the debt restructuring agreement and upon its homologation, the court may grant the debtor a protection from creditors’ enforcement actions over the debtor’s assets.

 

Restructuring plan subject to homologation

The restructuring plan subject to homologation is a new tool contemplated by the Insolvency Code. It consists of a restructuring plan subject to a judgment of admissibility by the court, an approval by creditors and homologation by the relevant court.

It differs from the composition with creditors, among others, because: (1) during the procedure the debtor preserves the ordinary (day-by-day) and the extraordinary administration of the business, under the supervision of the judicial commissioner, although such administration shall be ‘in the best interests of the creditors’; and (2) the restructuring plan subject to homologation – under certain conditions – is exempted from the rules governing the distribution of the proceeds in accordance with the creditors’ priority ranking that generally apply to insolvency procedures.

The restructuring plan subject to homologation is homologated by the relevant court only if it is approved by the simple majority of the creditors (by value, not by headcount) representing each voting class.

If the plan is approved by all classes of creditors, the proceeds obtained from the execution of the plan may be distributed – as mentioned above – also waiving the rules governing the distribution of the proceeds in accordance with the creditors’ priority ranking generally applying to insolvency proceedings (except for payroll debts, which must be paid in full within 30 days from the date of homologation of the plan).

If the plan is not approved by the simple majority of the creditors of each class, and in general, any time prior and until homologation, the debtor may convert the plan into a composition with creditors and file the relevant petition.

 

Certified recovery plans

A debtor in state of crisis or insolvency (not irreversible) may prepare a plan with creditors aimed at restructuring its debt exposure and restoring its economic-financial situation.

The plan shall be in written form, shall meet certain requirements imposed by law as to the certainty of the date of execution (required also for unilateral deeds and implementing agreements), and shall include:

• a description of the economic and financial situation of the debtor;
• the main causes of crisis;
• an express indication of the strategy and timing for restructuring and instruments to be adopted in the case of deviations (the ‘self-adjusting’ plans);
• the number of creditors, the amount of the debts for which the renegotiation is proposed and the indication of resources allocated to the satisfaction of debts at maturity date; and
• the injection of new money (if any).

 

The plan shall be certified by an expert (an independent professional enrolled with the register of statutory auditors) appointed by the debtor.

The certification by the expert exempts any action carried out in accordance with the recovery plan from clawback actions and insolvency-related criminal liability, except for cases of gross negligence or wilful misconduct of the debtor or of the expert (that creditors were aware of).

 

Negotiated settlement arrangement

Among the innovations introduced by the Insolvency Code, it is also envisaged that, when a debtor is in a state of financial instability or distress which may likely lead to crisis or insolvency, it may file an application to the relevant chamber of commerce for the appointment of an expert to facilitate negotiations among the relevant debtor, its creditors and any other interested parties in order to restore its financial position.

The petition for the appointment of the expert must be made via a digital platform accessible from the website of the relevant chamber of commerce. The expert is appointed by an ad hoc committee established at each chamber of commerce within five business days from the filing of the petition. The appointment shall be accepted within two days thereof.

The debtor may file an online petition for protective measures together with the petition for the appointment of the expert or thereafter (by means of a separate petition). From the publication of the petition, no enforcement actions or procedure of judicial liquidation can be continued or opened, and no security interests can be obtained by creditors on the debtor’s assets unless specifically agreed with the same. Furthermore, the filing of the petition does not entitle the debtor’s creditors to terminate, withdraw from or accelerate (or otherwise refuse the performance of) pending contracts, and any contractual provision which does not comply with this rule shall be considered as unenforceable.

The solution to overcome the crisis shall be identified within 180 days of the appointment of the expert.

In the context of the negotiated settlement, the expert shall assess the prospects for recovery of the relevant debtor.

In particular:

• if there are no concrete chances of recovery, the expert shall order the closure of the procedure; and
• if there are concrete chances of recovery, the debtor, its creditors and any other interested parties shall cooperate in good faith and in a timely manner with the expert in order to identify solutions to overcome the crisis.

 

If in the context of the negotiations the parties have detected suitable solutions to overcome the crisis, the expert shall submit a final report with the Companies’ Register. In this respect, the debtor may alternatively:

• enter into an agreement with one or more creditors benefiting from the tax incentives, provided that the expert’s final report certifies that the agreement is likely to ensure business continuity for a period of at least two years;
• enter into an agreement with one or more creditors (and signed also by the expert) and benefit from the clawback exemption; or
• commence one of the restructuring procedures provided for under applicable law and namely:
  • request the homologation of a debt restructuring agreement;
  • prepare a certified recovery plan;
  • enter into a moratorium agreement;
  • file a request for simplified composition with creditors; or
  • request the accession to other procedures provided under the relevant applicable law.

 

Successful reorganisations

How are creditors classified for purposes of a reorganisation plan and how is the plan approved? Can a reorganisation plan release non-debtor parties from liability and, if so, in what circumstances?

The classification of creditors and the approval of the reorganisation plan varies depending on the type of reorganisation chosen by the debtor.

In general, only the composition with creditors, the restructuring plan subject to homologation and, to the extent its effects need to be extended to non-adhering creditors, the debt restructuring agreement require a proper classification of creditors and an approval by the same.

Indeed, on one hand certified recovery plans only apply to creditors who are party to the relevant agreement and do not generally require (or imply) a proper approval by creditors and a classification of the same.

On the other hand, extraordinary administration of large, distressed enterprises pursuant to Legislative Decree No. 270/1999 and extraordinary administration aimed at the reorganisation of large, distressed enterprises pursuant to Law Decree No. 347/2003 do not (usually) require approval by creditors, and their classification follows the same rules as provided for in judicial liquidation procedures (ie, the former bankruptcy procedure).

As far as the composition with creditors and the restructuring plan subject to homologation are concerned, the debtor may propose:

• the division of creditors into classes according to their legal status and homogenous economic interests. The latter must be assessed in relation to the specific proposed plan. Factors such as the type of claim, its amount, the time of its formation or its maturity as well as whether there is a possibility that the satisfaction and the existence of guarantees will be relevant to determine whether economic interests are sufficiently similar (to be included into a single class); and
• different treatment of creditors of different classes.

 

The composition with creditors and the restructuring plan subject to homologation must be approved by the favourable vote of creditors representing the majority by value of all creditors’ claims. If the majority is represented by one creditor only, the plan is considered approved if the majority per capita of the votes of the eligible creditors is obtained.

Where creditors are divided into classes, votes in each class are counted separately. The plan is approved upon the favourable vote of the majority of each class.

When the tax authority or social security institutions, or both, are included within the creditors and are entitled to vote, the relevant court may homologate the composition with creditors even if the tax authority (or social security institution) admitted to the procedure has not expressed its vote and its approval is essential to reach the above-mentioned majorities, provided that, according to the assessment of the expert relating to the proposal filed by the debtor, the plan is deemed to satisfy the claims of the tax authority (or social security or welfare institution) more than a judicial liquidation procedure.

Any dissenting (or non-voting) creditor, as well as any interested party (other than an admitted creditor), may file an opposition against the homologation of the composition with creditors arguing for its inadmissibility.

In addition, in the composition with creditors, dissenting (or non-voting) creditors may also file an opposition against the homologation, by claiming that the proposal does not fit the ‘no creditors worse off’ principle (ie, creditors are worse off than in a judicial liquidation procedure), provided that:

• if the creditors have been divided into different classes, the opposing creditor belongs to a class that voted against the composition; or
• if the creditors have not been divided into different classes, the opposing creditors represent (individually or in aggregate) at least 20 per cent of the claims admitted to voting.

 

However, the court can nonetheless homologate the composition with creditors despite such challenge if the terms of the petition allow dissenting creditors to be satisfied for not less than the amount they would have received following a viable alternative procedure.

 

Involuntary liquidations

What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

As a general rule, creditors are entitled to request that a debtor is placed into involuntary liquidation when that debtor is insolvent.

A business is deemed insolvent when it is unable to pay its debts as they fall due (the Insolvency Code defines insolvency as the inability of a debtor to regularly meet its payment obligations). A situation of transitional illiquidity or financial difficulty that is likely to be cured in a short term should normally not compel the debtor nor give grounds to creditors for filing for insolvency.

The Insolvency Code has replaced the original bankruptcy procedure with the judicial liquidation procedure – which is still an insolvency procedure aimed at the liquidation and dissolution of the insolvent enterprise – with a view to, inter alia, superseding the concept of bankruptcy, which was deemed to have a negative connotation.

Like the former bankruptcy procedure, the procedure of judicial liquidation can be started before the competent court upon a petition filed by the debtor itself, one or more creditors or by the public prosecutor. Generally, petitions are often filed by one or more creditors.

The main effects of the opening of a judicial liquidation by the competent court are the following:

• the debtor is no longer entitled to manage assets that are managed by a receiver appointed by the relevant court;
• the business activity is suspended, unless the relevant court expressly authorises the temporary continuation of business (which rarely happens);
• there is an immediate suspension of the payments of all debts and liabilities of the debtor;
• certain payments, security interests and other transactions could be subject to clawback actions if made or entered into by the debtor in a certain period (ie, the ‘suspect’ period, which varies from six months to two years) before the opening of a judicial liquidation;
• legal actions commenced by creditors (including incomplete enforcement proceedings) are suspended and any execution or attachment on the assets of the debtor cannot be further pursued (save for some enforcement proceedings relating to certain mortgage loans that are subject to specific publicity formalities); and
• any monetary obligation of the debtor towards each creditor must be verified during the procedure of judicial liquidation.

 

Some of the differences between the various voluntary liquidation procedures and the procedure of judicial liquidation can be summarised as follows:

• the voluntary liquidation procedures are private as they are initiated by the directors of the company and can be revoked upon a resolution passed by the extraordinary shareholders’ meeting, while the judicial liquidation, once triggered, is a court-driven procedure and not within the debtor’s control;
• the voluntary liquidation procedures are governed by one or more liquidators appointed by the shareholders’ meeting, while the procedure of judicial liquidation is governed by a court-appointed receiver; and
• unlike the judicial liquidation, during the voluntary liquidation procedures, the corporate bodies retain some powers, in particular (1) the liquidators retain the power to manage the company to preserve its value and realise its assets, until the necessary measures are taken and (2) statutory auditors (if appointed) remain in charge.

 

Involuntary reorganisations

What are the requirements for creditors commencing an involuntary reorganisation and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

Among reorganisation procedures, the only ones that may be started by third parties and as such imposed on the debtor are (1) the extraordinary administration of large, distressed enterprises and (2) the extraordinary administration aimed at the reorganisation of large, distressed enterprises. Those procedures can be commenced not only by the debtor itself, but also – as is often the case – by one or more creditors or the public prosecutor filing the relevant petition. Both of these extraordinary administration procedures are aimed at the reorganisation of large enterprises and at the protection of employment levels. As opposed to other insolvency and reorganisation proceedings that are court-driven, significant powers are vested with the Ministry of Economic Development.

Moreover, compared to the other (voluntary) reorganisation procedures, in the procedures of extraordinary administration of large, distressed enterprises and extraordinary administration aimed at the reorganisation of large, distressed enterprises, the debtor (and if it is a company, its directors or shareholders, or both):

• may not revoke the procedures of extraordinary administration of large, distressed enterprises and extraordinary administration aimed at the reorganisation of large, distressed enterprises that are completely driven by the relevant administrative authority (and to some extent by court), and are not under the debtor’s control; and
• loses all management powers, which are instead entrusted to one or more extraordinary commissioners.

 

More specifically, the extraordinary administration of large, distressed enterprises and extraordinary administration aimed at the reorganisation of large, distressed enterprises will be described in brief below.

(1) The extraordinary administration of large, distressed enterprises is available to companies or groups where at least one company individually belonging to the relevant group:

• employed at least 200 employees during the previous year (including those admitted to the redundancy fund);
• has debts equalling at least two-thirds of its own assets; and
• is insolvent but able to show serious restructuring prospects within strict time limits (to be achieved through the sale of business assets, financial restructuring or assignment of contracts).

 

The court is tasked with assessing the chances of achieving such restructuring. After hearing the advice of the judicial commissioner and the Ministry of Economic Development concerning the opening of the aforementioned procedure, the court issues a decree that places the relevant company under the procedure of extraordinary administration of large distressed enterprises or, if the restructuring is deemed to be unachievable, the court will open a judicial liquidation of the relevant company.

The Ministry of Economic Development appoints one or three extraordinary commissioners, who are primarily responsible for drafting a reorganisation plan, detailing the assets to be kept, the assets to be transferred, and any possible sale option. The execution of the plan must be authorised by the Ministry of Economic Development after consultation with a supervisory committee appointed by the Ministry.

The extraordinary commissioners may (within 60 days from the appointment) request the Ministry of Economic Development to extend the extraordinary administration to other companies of the group (ie, companies that control or are directly or indirectly controlled by the company subject to the extraordinary administration), if that is considered as beneficial for the procedure and the feasibility of the reorganisation plan.

The whole procedure is also supervised by a supervisory committee of three or five members, appointed by the Ministry of Economic Development within 15 days of the appointment of the extraordinary commissioners. The Ministry of Economic Development can raise questions to the supervisory committee in relation to any acts carried out by the extraordinary commissioners.

(2) The extraordinary administration aimed at the reorganisation of large distressed enterprises has been introduced following the insolvency of the Parmalat Group in 2003 to facilitate and expedite the restructuring and reorganisation of large insolvent companies (or groups of companies). In the past, the economic and financial restructuring provisions set out by the extraordinary administration of large distressed enterprises had rarely been used and the preferred route was often disposal of the relevant company or group’s assets.

In summary, the extraordinary administration aimed at the reorganisation of large distressed enterprises and large groups of companies under Law Decree No. 347/2003 differs from the extraordinary administration of large distressed enterprises under Law No. 270/1999, among others, because (1) it provides the extraordinary commissioners with more powers so that the reorganisation may be pursued in a shorter time frame; and (2) it enhances the powers of the Ministry of Economic Development compared to those of the court, with the former having most of the approval powers.

In general terms, extraordinary administration aimed at the reorganisation of large distressed enterprises is currently available to insolvent companies or groups of companies with at least 500 employees and an overall debt of at least €300 million (at consolidated group level). The Ministry of Economic Development (or in the case of companies providing public services also the Prime Minister) can admit large enterprises to extraordinary administration aimed at the reorganisation of large distressed enterprises, and can appoint one or three extraordinary commissioners immediately upon application by the relevant company. The court is informed of the company’s application and the Ministry’s decision and shall declare the company’s insolvency within 15 days of the relevant Ministry’s decision.

Within 180 days of the relevant appointment the extraordinary commissioners shall:

• file with the relevant court a report on the state of insolvency and the list of creditors with the relevant security interests and ranking; and
• file with the Ministry of Economic Development (which has the power to approve) (1) a plan for the extraordinary administration, consisting of either an economic and financial restructuring and reorganisation of the business throughout a period not exceeding two years, or the disposal of business assets for a period not exceeding one year, and (2) a detailed report of the reasons underlying the insolvency of the company or the group.

 

Prior to the approval of the plan by the Ministry, the extraordinary commissioners may request to be authorised by the Ministry to implement the transactions (or categories of transactions) that are necessary to ensure the continuation of the business and protect the economic and commercial value of the relevant company or group. Such authorisation is not required for any transaction implemented in the ordinary course of business or having a value (when considered individually) lower than €250,000.

Should the Ministry of Economic Development reject the plan, the relevant court shall, after consultation with the extraordinary commissioners, open a judicial liquidation.

As an alternative to the above, the extraordinary commissioners may carry out negotiations for the disposal of the business concern and assets. The decision of the extraordinary commissioners must comply with the principles of transparency and non-discrimination governing any insolvency and restructuring procedure and the disposal price must not be lower than the market value of the disposed assets (as estimated by the Ministry of Economic Development).

If the part of the business requiring licences or concessions is sold, such licences and concessions are transferred to the purchaser.

If the extraordinary commissioners are willing to dispose of certain business assets to protect the economic and commercial value of the relevant company, the extraordinary commissioners and the purchaser shall enter into a consultation procedure with the trade unions to agree on the transfer of the appropriate number of employees. In particular, the extraordinary commissioners and the purchaser may agree to transfer only some of the employment contracts, thus granting the possibility for employees to benefit from the redundancy fund. Any decision relating to the employee redundancy or unemployment shall be agreed upon among the parties in a very short time frame.

The extraordinary commissioners may (within 60 days from the appointment) request the Ministry of Economic Development to extend the extraordinary administration of large enterprises and large groups of companies to any other company of the group (ie, companies that control or are directly or indirectly controlled by the company subject to the extraordinary administration), if that is considered beneficial for the procedure and the feasibility of the reorganisation plan.

Expedited reorganisations

Do procedures exist for expedited reorganisations (eg, ‘prepackaged’ reorganisations)?

A debtor in financial difficulties may try to avoid the opening of a formal court-driven reorganisation (or, even more so, insolvency) procedure by means of an out-of-court recovery plan aimed at restoring its financial balance. An independent expert must certify the truthfulness of the accounting data and the sustainability of the recovery plan. The recovery plan may take different forms and it is often documented by an agreement between the debtor and all or some of its creditors (very often lenders). The main advantages and disadvantages of the recovery plan compared with the reorganisation procedures can be summarised in the following:

 

Advantages

• There is no court involvement;
• there is no minimum threshold of creditors’ approval of the plan;
• as a general rule, a recovery plan would achieve the exemption from clawback action against any act, payment or security interest executed or granted under the recovery plan in the case of subsequent opening of a procedure of judicial liquidation. However, such exemption is granted to the extent that certain requirements are met and only insofar as no fraud or wilful misconduct is established in the execution of such recovery plan;
• a recovery plan would achieve the exemption from criminal liability for bankruptcy-related crimes in respect of any act or payment carried out or made under the plan; and
• a recovery plan is not required to be published in the Companies’ Register, thus ensuring a higher degree of confidentiality. However, the decision as to whether proceed or not with the publication of the recovery plan is also often the result of commercial or tax considerations, or both.

 

Disadvantages

• There is no stay of enforcement actions;
• only creditors approving the plan are involved in and bound by the plan (ie, there is no cram-down); and
• there is a risk that the exemption from clawbacks and bankruptcy related crimes is questioned ex post in court if gross negligence or wilful misconduct of the debtor or the expert (and the awareness of the relevant creditors) is claimed.

 

Unsuccessful reorganisations

How is a proposed reorganisation defeated and what is the effect of a reorganisation plan not being approved? What if the debtor fails to perform a plan?

Out-of-court reorganisations (like the certified recovery plan and to a certain extent the negotiated settlement arrangement) are not subject to specific approvals and therefore, once the agreement with the relevant creditors has been reached, there is generally no specific risk that the reorganisation is defeated or rejected.

Differently, the composition with creditors, the debt restructuring agreement and the restructuring plan subject to homologation are subject to approvals (by the creditors and by court) and there is a risk that they are rejected (by the relevant creditors or by the court).

In general, the main effect of such rejection is that the reorganisation ceases its effects, including possible protection from enforcement actions by creditors, if any, and from requests to open a judicial liquidation. Moreover, as the debtor is either insolvent or at least in a distressed situation (crisis), it runs the risk that any creditor or the public prosecutor may request the opening of a judicial liquidation.

More specifically, with reference to the composition with creditors, the relevant petition will be declared inadmissible if the statutory requirements for its admission have not been met. The court will issue a decree, which may be challenged within the following 15 days, declaring the petition to be inadmissible once it has heard the debtor. Following the above decree, it must be noted that a procedure of judicial liquidation may be opened by the relevant court upon request of one or more creditors or of the public prosecutor, subject to verifying that the debtor is insolvent and that any other statutory requirements for the opening of a procedure of judicial liquidation have been met.

A procedure of judicial liquidation (subject to verifying that the debtor is insolvent and that any other statutory requirements are met) could further be opened if a composition with creditors has not been approved by the creditors. The admission of the composition with creditors may also be revoked ex officio by the relevant court (which will inform the public prosecutor and the creditors), when it becomes apparent that the debtor has hidden any part of its assets, wilfully omitted to declare one or more debts, declared non-existent liabilities or committed other fraudulent acts. At the end of the procedure, the relevant court, upon request of one or more creditors or the public prosecutor, may issue a decree declaring the company insolvent if the relevant requirements are met. The same rules apply if, during the composition with creditors, the debtor carries out unauthorised acts or acts intended to defraud one or more of the creditors.

Moreover, the composition with creditors may be rejected by the court (possibly, but not necessarily) upon opposition filed by one or more creditors or other interested parties, in the context of the homologation decision, or even after the homologation if the same is appealed. The consequences are the same as those described above, namely a judicial liquidation procedure could be opened upon request of one or more creditors or the public prosecutor.

Lastly, after the homologation of the composition with creditors and during the performance of the plan, any creditor may ask for the procedure to be terminated if the debtor fails to comply with the arrangements provided for in the plan. However, the procedure may not be terminated for a minor default.

The above applies, mutatis mutandis, also with respect to the debt restructuring agreement, the debt restructuring agreement allowing the extension of the effects of the agreement to non-adhering creditors, the simplified debt restructuring agreement and the restructuring plan subject to homologation, with regard to the rejection of the relevant reorganisation plan and the relevant effects.

With regard to cases of non-performance of the relevant plan, while the general rule for the composition with creditors and the restructuring plan subject to homologation is that the plan may not be amended after its homologation, such amendments are allowed with regard to the debt restructuring agreement, the debt restructuring agreement allowing the extension of the effects of the agreement to non-adhering creditors, and the simplified debt restructuring agreement, provided that (1) the expert certifies that such amendments do not hamper the ability of the debtor to fulfil the agreement, (2) such amendment and the relevant report by the expert are registered with the relevant Companies’ Register and (3) the creditors are given notice. Creditors are then entitled to challenge such amendment before the relevant court within 30 days of the relevant notice.

On a different ground, in respect of the procedure of extraordinary administration of large, distressed enterprises, if, at any time during the relevant procedure, it appears that the reorganisation cannot be usefully continued, the relevant court may, upon request of the extraordinary commissioners or upon its own initiative, order the conversion of the procedure into a procedure of judicial liquidation. Before submitting the request for conversion, the extraordinary commissioner must inform the Minister of Economic Development.

A conversion into the procedure of judicial liquidation may also occur in any of the following circumstances:

• when, despite the authorisation of a programme providing for the sale of business assets, such sale has not yet taken place, in whole or in part, after the expiry of the programme, unless an extension has been granted; or
• when, once a restructuring plan is authorised, at the end of the programme the debtor has not recovered the ability to regularly meet its obligations.

 

The conversion of the procedure of extraordinary administration of large, distressed enterprises into the procedure of judicial liquidation is ordered by the relevant court, following the consultation with the Minister of Economic Development, the extraordinary commissioners and the debtor. Any interested party can further file a complaint before the relevant court of appeal against such decree within 15 days from its notification (as to the relevant debtor and the commissioner) or its publication (for any other third party).

Likewise, with regard to the procedure of extraordinary administration aimed at the reorganisation of large, distressed enterprises, the court may, upon consultation with the extraordinary commissioners, order the conversion of the procedure into a procedure of judicial liquidation when the adoption of the relevant programme (which is one of the conditions for the admission to such procedure) is not possible or the Minister of Economic Development does not authorise it. The same rule applies when any of the events mentioned above occur with respect to the extraordinary administration of large, distressed enterprises.

Corporate procedures

Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

The dissolution of a company may be voluntary and in such case the rules set out by the Italian Civil Code apply and no court is involved in the procedure. Dissolution of joint-stock companies, limited liability companies and joint-stock limited partnerships are subject to voluntary liquidation procedures.

 

Conclusion of case

How are liquidation and reorganisation cases formally concluded?

In general, liquidation cases are formally concluded with the dissolution and cancellation of the debtor, while reorganisation cases are concluded with the completion of the relevant reorganisation (of whatever nature) and the restoring of the financial viability of the debtor. In the case of in-court reorganisation procedures, the court issues the homologation, sanctioning the (positive) conclusion of the procedure, or orders its rejection in case of negative outcome.

More specifically, with regards to voluntary liquidation, the liquidator must draft and file with the Companies’ Register the final liquidation financial statements (which are considered as approved by the shareholders if not challenged by any of them within 90 days following their filing).

The company will then be cancelled from the Companies’ Register upon request of the liquidator and ceases to exist as a consequence thereto. However, after the cancellation of the relevant company from the Companies’ Register and notwithstanding the consequent extinction, creditors whose claims have not been fully satisfied may initiate or continue individual enforcement proceedings against:

• the shareholders, up to the amount of the sums collected by them on the basis of the final liquidation financial statements; and
• the liquidator, if the non-payment was due to their fault.

 

According to the prevailing case law of the Italian Supreme Court, if no amount is collected by the shareholders, the unsatisfied creditors’ claims are extinguished (see, inter alia, Italian Supreme Court, 31 January 2017, No. 2444 and Italian Supreme Court, 22 June 2017, No. 15474).

However, a judicial liquidation procedure may be opened in respect of an insolvent company within one year from the cancellation of the relevant company from the Companies’ Register, provided that the insolvency status became apparent before such cancellation or within the year following the cancellation.

With regard to the procedure of judicial liquidation, the relevant court issues a formal order that declares the procedure closed. The main effect of the order is that creditors whose claims have not been fully satisfied may initiate or continue individual enforcement proceedings over the debtor’s residual assets (except for specific cases of exemption). To this purpose, the court decree by which the relevant claim has been admitted to the procedure of judicial liquidation constitutes written evidence for the purposes of starting an injunction procedure.