i Liquidity and state of the financial markets

The trend in macroeconomic terms on the Italian market continues to be positive in 2019, although the growth of Italian productivity is lower compared to other European countries.

The very high public debt remains a heavy burden on the Italian economy and a major source of vulnerability, especially in the context of protracted weak growth.

The figures for 2018 relating to the public debt and presented in the Economic and Financial Document which contains the economic and financial policies decided by the Italian government on an annual basis, showed that public debt is equal to 130.8 per cent of GDP. In 2019, the debt-to-GDP ratio is expected to be 128 per cent, thus confirming the reversal trend of recent years.

Overall, companies' financial positions have continued to strengthen gradually; bankruptcies have diminished by 7 per cent compared to the previous year.

In this context, the existence of huge numbers of non-performing loans still represent a serious concern for Italian financial markets. On this point, great attention should be paid to the innovations brought by Law Decree No. 18 of 14 February 2016, as subsequently amended, which introduced a public guarantee mechanism applicable to the securitisation procedure of non-performing loans, thus improving the economic value of doubtful loans and the stability of the financial system as a whole.

ii Market trends in restructuring procedures and techniques employed during this period

The latest figures related to insolvency and bankruptcy procedures have shown a steady improvement over the previous year.

Statistics from the archives of the Cerved Group SpA show that, in the fourth quarter of 2018, 3,029 companies applied for a bankruptcy procedure – a decrease of 7.9 per cent compared to the same period of the previous year.

Furthermore, the decline in non-bankruptcy proceedings continued at a steady pace: 379 procedures were opened in the fourth quarter of 2018, 20 per cent fewer than in the same period of the previous year. At the origin of this improvement, there is the sharp decrease in the filing of composition with creditors' procedures (concordato preventivo): only 491 petitions were filed in the year 2018.

On the other hand, statistics show that 451 compulsory liquidations and voluntary liquidations were opened in 2018: this is a pronounced decrease that brings the figure back to the levels of 2016.

This is, in summary, the picture emerging from the data relating to bankruptcy proceedings and voluntary liquidations opened in the fourth quarter of 2018.


The main source of Italian insolvency law until August 2020 is the Royal Decree No. 267 of 16 March 1942 (the Insolvency Act), as amended and integrated from time to time by the Italian legislature. As will be discussed in Section VI, the Italian government, in application of the Law No. 155 of 19 October 2017, issued Legislative Decree No. 14 of 12 January 2019, containing the Code of the Business Crisis and Insolvency, substantially reforming the procedures used to manage business crises and insolvency. This reform will enter into force in August 2020 and the new rules will apply to proceedings that start after this date.

The Insolvency Act currently in force provides for several bankruptcy and restructuring proceedings that have been amended in the last years and some of which are described below.

i Legal procedures


The bankruptcy proceeding is the most invasive procedure for a debtor. The law specifically indicates which debtors are subject to the bankruptcy procedures (not all debtors can fall bankrupt). In general, the bankruptcy procedure applies to any company or individual entrepreneur whose main activity consists of the production or trade of goods and services. A debtor is declared insolvent when it is no longer able to regularly meet its payment obligations through ordinary means. The insolvency status is per se a situation that justifies a declaration of bankruptcy by the relevant court, even if the insolvency has not been caused by the debtor's misconduct.

The procedure is started by an order of the court having jurisdiction over the debtor's principal place of business on the basis of a petition, which may be filed by the debtor itself (or the directors of the debtor company), a creditor, the public prosecutor, or the bankruptcy court ex officio.

The proceeding is carried out and supervised by a receiver (appointed by the court), a deputy judge and a creditors' committee representing all the creditors.

Upon declaration of bankruptcy by the court, the debtor no longer has the legal right to manage its business and dispose of its assets. All legal individual actions taken by the creditors against the debtor and its assets are suspended.

The receiver is a public officer and is required to perform his or her duties in person. The receiver is paid through the debtor's assets, and such remuneration ranks as senior over the creditors' unsecured claims. The Insolvency Act imposes certain specific duties on the receiver: in particular, to manage the company's assets and operate the business in the interest of the creditors. His or her main task is that of disposing of the company's assets and distributing the relevant proceeds to the creditors, who will be reimbursed according to a distribution plan, which must respect the order of claim priorities established by the Italian Civil Code and by several provisions of the Insolvency Act, and be certified by the court. Priorities are normally granted to claims secured by pledges, mortgages or other liens voluntarily granted by, or imposed on, the debtor. Claims of Italian and foreign creditors rank equally.

Before the execution of the distribution plan, the receiver must submit a final report to the deputy judge with a full description of all the activities carried out in managing the debtor's assets as well as in administering its business. Creditors may object to the final report. Once the motions have been decided, the deputy judge orders the implementation of the distribution plan. Creditors are always entitled to file oppositions against the distribution plan in order to obtain payment of any unrecovered portion of their claims and of interest thereon.

Bankruptcy proceedings may also end up with a settlement accepted by the creditors, as will be described below.

It is worth noting that significant changes to the bankruptcy proceedings have been introduced by Law No. 132/2015. In particular, it introduced the following provisions regarding the appointment and the revocation of the receiver, the liquidation phase and the maximum duration of the procedure:

  1. litigation procedures that are related to the bankruptcy proceedings are treated as a priority by courts;
  2. the receiver shall provide a liquidation plan within 60 days of the draft of the inventory and in any case no later than 180 days from the bankruptcy declaration. Law provides for the revocation of the receiver in case of non-fulfillment of these obligations;
  3. payment of liquidated assets prices can be made by instalments;
  4. the liquidation procedure can be completed notwithstanding pending litigation. Further incomes will be distributed according to the court resolution for the approval of the distribution plan; and
  5. the completion of the liquidation procedure shall occur within two years of the bankruptcy declaration. Time extensions can be granted in specific circumstances.

Settlement of bankruptcy proceedings

The Insolvency Act allows creditors and, under certain circumstances, the debtor to have recourse to a settlement procedure in bankruptcy. In particular, once the court has set out a timetable for the distribution of proceeds, a settlement proposal can be submitted by a creditor or the debtor, provided that the proposed settlement, in principle, guarantees a greater or faster recovery than the one envisaged under the bankruptcy distribution.

If the court decides that the settlement proposal is in the best interests of the creditors, the court orders to notify the proposal to all creditors for their approval. For the settlement to be effective, the proposal has to be accepted by the majority of creditors.

Composition with creditors proceedings

While the bankruptcy procedure is highly regulated and is under the full control of the court and the receiver, an higher level of autonomy is granted to the debtor in the context of the composition with creditors' proceedings.

In general, a company applies for protection under a composition procedure when it is either insolvent (but believes it is in a position to be able to repay its creditors, at least partially) or is in financial crisis but not yet insolvent.

The court, once it has admitted the company to the procedure, appoints a commissioner who acts as a public observer.

During the procedure, the assets continue to be managed by the debtor, while the commissioner supervises the management of the company in the interest of the creditors.

The petition must be accompanied by a concordato plan, which shall include:

  1. an updated economic and financial statement of the company;
  2. an analysis of all the economic activities carried out by the company, including a list of all creditors and a description of the relevant credits and of any pre-emption rights;
  3. a list of all people having personal and property rights over the debtor's assets; and
  4. an estimate of the value of the debtor's assets and particular categories of creditors.

The concordato plan must indicate how and to which percentage the creditors will be repaid (see the limitations indicated in (b) above) and must be accompanied by a report, drafted by an independent third-party expert, certifying the correctness of the company's data and the feasibility of the plan. The commissioner, inter alia, expresses his or her opinion on the feasibility of the concordato plan.

As a general rule, the concordato plan must be approved by the majority of the unsecured creditors while secured creditors do not vote to the extent that the plan envisages the repayment of their credits in full.

The procedure is regulated by the court, which plays a key role in terms of supervision and implementation. Although an intensive debate exists regarding the admissible level of court intervention, much depends on the approach of the territorial court where the procedure is started. Another significant characteristic of the composition procedure is that, once approved with the prescribed majorities, the concordato plan is binding on all creditors (even those dissenting).

The debtor may anticipate the effects of a concordato procedure by submitting a petition for composition with creditors without a concordato plan, and postponing the filing of the plan and of all the other documents required by law at a later stage (the pre-concordato request). The pre-concordato request must be filed together with the three latest approved balance sheets of the debtor and a detailed list of all its creditors. The condition for the admittance is that a petition for concordato was not unsuccessfully filed by the debtor in the previous two years.

Following the filing of a pre-concordato request, the court, subject to its positive evaluation of the same, admits the debtor to the pre-concordato phase, granting a term between 60 and 120 days (which can be extended for no more than 60 additional days) for filing the concordato plan and all other related documents. The pre-concordato proceeding is intended to allow the debtor to seek immediate protection against enforcement or interim actions brought by individual creditors. During the pre-concordato phase, however, all activities exceeding the ordinary course of business must be authorised by the court. The court often sets thresholds of value above which such authorisation is required.

During the pre-concordato phase, the debtor must provide certain periodical information (mainly financial) to the court, and the court may appoint a judicial officer to monitor the company's activities in the interest of all creditors.

Distressed companies often pose a risk for their partners and counterparties; in fact, in the event that the company is declared bankrupt, any payments made by the debtor up to one year prior to the commencement of the bankruptcy proceedings are at risk of being clawed back or revoked (see Section II.iii). This can often result in further deterioration of the business of the company, thus worsening its crisis. To avoid this, as well as to create incentives for the debtor's business partners to continue dealings with the debtor and facilitate access to credit during the crisis, the law provides, among other things, the following:

  1. from the day on which the request is filed with the Register of Companies (i.e., one day after it is submitted to the court), the debtor may be authorised to engage in specific transactions in the ordinary and extraordinary course of business. All credits resulting from authorised transactions (including unsecured ones) are granted priority status (even over secured pre-petition claims, with certain exceptions);
  2. payments made by the debtor in connection with authorised transactions are not subject to claw back action in case of subsequent bankruptcy of the debtor; and
  3. similarly to 'first-day orders' set forth by the US Bankruptcy Code, the court may allow the debtor to pay pre-petition claims of critical vendors and suppliers.

Along the same lines, the debtor is allowed to terminate unprofitable or excessively burdensome unperformed contracts with the prior authorisation of the court. This is aimed at preserving the goodwill of the debtor and increasing the chances of its recovery.

Certain ground-breaking changes have been made to this procedure. In particular:

  1. creditors representing at least 10 per cent of the total debt are entitled to file a competing proposal for a concordato preventivo plan, which shall then be evaluated by the creditors alongside the one filed by the debtor. This right is not granted if the concordato plan filed by the debtor provides that at least 40 per cent of unsecured creditors are repaid (30 per cent if the plan provides for business continuity);
  2. a concordato plan that does not provide for business continuity but aims at the liquidation of the debtor's assets for the benefit of the creditors shall provide that at least 20 per cent of the unsecured creditors are repaid;
  3. the court shall start a compulsory tender for the research of the best offer in the event the concordato plan provides for the transfer of the company, of a going concern or of key assets. Offers will be compared on an economic basis. The court is required to set the criteria for the tender, to be determined on a time-to-time basis depending on the specifics of the case; and
  4. a debtor who has already filed a petition for the admission to a creditor composition procedure or an application for the approval of a debt restructuring agreement can obtain new financing or continue to use existing receivables credit lines on an urgent basis provided that:
    • the new financing is required for urgent operational needs;
    • the debtor is unable to obtain the financing in a different way;
    • the debtor indicates the envisaged use of the financing; and
    • not granting the financing would result in the disruption of the business continuity.

Debt-restructuring agreements

Debt-restructuring agreements, regulated by Article 182 bis of the Insolvency Act, are private agreements whereby the debtor and creditors representing at least 60 per cent of the total credits reach an agreement on the restructuring and repayment of the debtor's debts. Restructuring agreements need to be validated by a third-party independent expert as to their feasibility and are subject to confirmation by the competent court.

Dissenting creditors, however, are not bound by the restructuring agreement and their credits need to be repaid in full within 120 days from the date when the court approves the restructuring agreement or, if longer, from the date when the relevant debts become due.

Certain similarities exist in the restructuring agreements, as well as in the concordato procedure:

  1. debtor may submit an application to the court to obtain new debtor-in-possession (DIP) financing from banks or other sources of credit, and to pay creditors that are crucial to ensuring the continuity of the business. Such financing will rank as a senior priority, which is an incentive for lenders to provide financing to a distressed company;
  2. transactions carried out by the debtor pursuant to a restructuring agreement are not subject to claw-back action in the event of subsequent bankruptcy of the debtor; and
  3. the provisions of law imposing the reintegration of corporate capital in the event of losses are not applicable. This is designed to give a distressed company a breathing spell to prepare a restructuring plan without the pressure of complying with corporate capital requirements and injecting new equity when the survival of the company is still in doubt.

Furthermore, Article 182 septies of the Insolvency Act provides that, in the event the majority of the total debt is due to credit and financial institutions, a restructuring agreement entered into by the debtor and creditors holding at least 75 per cent of credits falling into such category is automatically binding for creditors holding the remaining 25 per cent of the credits provided that all creditors have been duly informed about the procedure and all creditors belonging to the same category are treated pari passu.

Compulsory administrative liquidation

Compulsory administrative liquidation is an administrative procedure controlled by state officers instead of by the courts. The procedure is used when the debtor's business is deemed to be of public interest, such as insurance companies, banks, cooperatives and non-profit entities, which are subject to a number of governmental controls. The purpose of this procedure is to achieve recovery of the business through a settlement or an arrangement plan. The debtor, the directors of the debtor company and any of the creditors are entitled to apply to the court in order to start the procedure. The court is under the obligation to seek the advice of the governmental agency responsible for supervising the debtor's enterprise. The judge may initiate the proceedings by declaring the insolvency of the debtor and appointing a liquidator. All legal actions by creditors against the debtor are then suspended, with the exception of those aimed at ascertaining the amount of the claim. The liquidator, who also acts as a public officer, is assisted by a supervisory committee consisting of a number of experts, whose number can vary from three to five and who are not required to be creditors of the debtor (even if this might be preferable). Unlike in other insolvency proceedings, there is no requirement for a judge or a commissioner to be in charge. The liquidator must review the claims and evaluate whether the settlement plan is feasible.

Extraordinary administration

The extraordinary administration procedure applies to big companies falling within certain specific requirements, the occurrence of which is checked by the relevant court where the request for the extraordinary administration procedure is filed. The procedure applies to companies employing no less than 200 employees for at least one year, and having an overall amount of debt, the value of which is no lower than two-thirds of the aggregate value of both assets and revenues. For the application of the extraordinary administration, the company must have 'concrete chances for the recovery of its financial stability'. After consultation with the Ministry of Economic Development and the Ministry of Economy, the court issues an order declaring the insolvency of the company. The Ministry of Economy appoints an 'extraordinary commissioner', who proposes a plan for the disposal of the assets or a recovery plan within 60 days of his or her appointment. All legal actions initiated by creditors against the company are suspended as a consequence of the foregoing order. Special variances of the extraordinary administration procedure apply to (1) large companies employing no less than 500 employees in the year preceding the filing of the relevant petition and having a total amount of debts amounting to, or exceeding, €300 million, as well as (2) large companies operating in strategic public services.

ii Duties of directors of companies in financial difficulties

According to the provisions of the Italian Civil Code, the directors of a company must act with a duty of care, avoid conflicts of interest and comply with the law and the company's by-laws in the day-to-day management of the company. In all cases, the directors are jointly liable if they fail to adequately supervise the general conduct of the company's affairs or if, being aware of prejudicial acts, they do not act in order to prevent any harmful activities, or to eliminate or reduce the harmful consequences of such activities. Liability for acts or omissions of directors does not extend to those directors that, acting without fault, express their dissent without delay, such dissent being registered in the minute book of the meetings and resolutions of the board of directors, with written notice also to the chair of the board of auditors. Again, according to the Italian Civil Code, directors are held liable to the company's creditors for non-compliance with their duties concerning preservation of the company's assets. The action can be brought by creditors when the company's assets prove to be insufficient to satisfy their claims. In the event of bankruptcy or compulsory administrative liquidation, the action against the directors can be brought by the receiver in bankruptcy or by the commissioner. A waiver of the action by the company does not prevent the company's creditors from exercising their legal rights against the directors.

iii Bankruptcy claw-back actions

Transactions carried out by a debtor prior to the date of the bankruptcy declaration may be subject to claw back under the Insolvency Act upon certain conditions. The 'suspect period' varies from one year to six months prior to the bankruptcy declaration depending on the nature and characteristics of the scrutinised transaction. In the event the bankruptcy declaration occurs after the filing of a petition of a concordato procedure, the suspect period commences on the day in which the petition was published in the company register.

In particular, the following transactions are subject to claw back unless the other party proves that it was not aware that the debtor was insolvent at the time of transaction:

  1. transactions for consideration carried out in the one-year period preceding the declaration of bankruptcy if the obligations assumed by the insolvent party exceed by more than one-quarter the paid or agreed consideration;
  2. transactions extinguishing payable pecuniary debts carried out in the one-year period preceding the declaration of bankruptcy if the debt repayment was not made in cash or by other normal payment methods;
  3. pledges, anticresi and voluntary mortgages perfected on the debtor's assets during the one-year-period preceding the declaration of bankruptcy to secure prior debts that were not overdue at the time when the security interest was perfected; and
  4. pledges, anticresi, voluntary and judicial mortgages (mortgages created by an order of the court) perfected on the debtor's assets during the six-month period preceding the declaration of bankruptcy to secure overdue debts.

Furthermore, transactions in the ordinary course of business carried out in the six-month period preceding the declaration of bankruptcy may be clawed back if the receiver proves that the other party was aware that the debtor was insolvent at the time of transaction.2


i Legislative Decree No. 14, dated 12 January 2019

The Legislative Decree No. 14, dated 12 January 2019, introduced the new Code of the Business Crisis and Insolvency (the New Code) that will be implemented in full in 2020. However, from 16 March 2019, certain provisions are already in force that are considered functional to the new reform process (see Section VI).


It is worth mentioning that when dealing with distressed companies, either as an investor, debtor or creditor, special attention must be paid to Law Decree No. 231 of 8 June 2001 (Law 231), which concerns the administrative liability of legal entities, companies and associations without legal capacities, and the consequences of its violation by the company.

In particular, the application of Law 231 becomes more important when the distressed situation of the relevant company is a consequence of (or simply occurs in the context of) the commission by the entrepreneur (or by the board of directors) of specific crimes.

Committing those crimes can trigger the submission of the company itself to certain sanctions, including the confiscation of the company's properties, if the company did not create a system capable of protecting itself from the negative consequences of committing those crimes by physical individuals operating in the name or on behalf of the company. Therefore, in evaluating a business opportunity, the investor has to take into account any possible consequences in the event that a violation of Law 231 has been charged to the company. In fact, the creditor's right to be satisfied by the company's assets or the company's right to recover from the distressed situation (sometimes) thanks to the intervention of a third-party investor could be overridden by the state's interest in confiscating all (or part of) the assets of the company, to the detriment of creditors and all other interested parties. According to a recent decision of the Supreme Court, this principle, according to which the interest of the state has priority over the interests of the creditors, has been slightly overridden, to the benefit of the creditors and the company. This decision is quite important and it would be suitable for a provision of law to be implemented to confirm these principles.


The Regulation (EU) 2015/848 (the Regulation), which applies from 26 June 2017 with a few exceptions among Member States, has introduced the following:

  1. Article 1 provides that the Regulation applies to 'public collective proceedings, including interim proceedings', aiming at the rescue, the completion of a debt restructuring agreement, the company reorganisation or the company assets liquidation;
  2. the rules regulating the applicable jurisdiction and the centre of main interest are now defined by the Regulation as 'the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties' and the national courts are now allowed to claim the jurisdiction in the event 'the company's actual centre of management and supervision and of the management of its interests is located' within its territory, and ascertain ex officio the correctness of the jurisdiction;
  3. it is now possible to suspend or refuse secondary insolvency proceedings in the event of contrast with a connected insolvency procedure dealt by another Member State;
  4. an international network for the insolvency databases has been created; and
  5. a duty of cooperation between different Member State courts has been introduced in case of insolvency proceedings regarding two or more companies' part of the same group.


As stated above, a broad and innovative reform has been introduced with the New Code. The New Code will enter into force in its entirety in August 2020, except for the regulations which introduce amendments to the Italian Civil Code and which, although they do not regulate purely bankruptcy aspects, are functional to the reform process.

The New Code has the scope of bringing together all relevant laws concerning the crisis, together with significant changes to the current law system. The fundamental goal of the New Code is to highlight as soon as possible the symptoms of a business crisis through the provision of warning systems, accompanied by the introduction of a body for the composition of corporate crisis (OCRI), to be set up at the various chambers of commerce, to which the control bodies of the companies and qualified public creditors (such as the Revenue Agency, National Social Security Institute and Collection Agent) shall have to report anomalous situations that emerge from the application of certain indicators of the crisis (imbalances of an income, equity or financial nature), related to the specific characteristics of the company and the entrepreneurial activity carried out by the debtor.

The provisions of the New Code regulate the state of crisis and insolvency of any debtor, including consumers, professionals and entrepreneurs of any size and nature, including agricultural ones, operating as a natural or legal person or other collective body, group of companies or public companies, with the exclusion of public bodies only.

The most important novelty of the reform is the replacement of the bankruptcy with the 'judicial liquidation', aimed at liquidating the assets of the insolvent entrepreneur and distributing the proceeds in favour of creditors on the basis of the gradation of their receivables (pre-deductible receivables, secured receivables and unsecured receivables). This procedure is, however, to be considered as an extreme measure, since the main objective of the legislator is to help the company in crisis to recover.

In this context, the alert procedures play an important role and have been introduced by establishing in each chamber of commerce a body responsible for the management of the business crisis (OCRI) to assist the debtor during the procedure. Furthermore, the New Code has introduced a special procedure for the assisted settlement of the crisis, which is aimed at seeking a solution through negotiations with creditors carried out with the mediation of the OCRI and the regulation of reward measured (financial and legal) for debtors that self-report the circumstances of the crisis facing their company in a timely manner, that is, within six months of the occurrence of certain crisis indicators.

Another novelty of the reform is the express recognition of the institution of a group of companies, whose fundamental prerequisite is the effective management and coordination activity carried out by the parent company. The current legislation does not allow a group of companies to be treated as a single entity, and considers each company an autonomous legal entity. A new set of rules is therefore laid down that, for groups of companies, provides for a uniform procedure before the company's court for access to the various procedures.


1 Tiziana Del Prete is a partner at Grimaldi Studio Legale.

2 Article 67 of the Royal Decree No. 267/1942 (Insolvency Act).