Upgrading and improving a somewhat outdated insolvency law
1. The course of the reform
By introducing the first systematic reform of insolvency law, which is largely based on the legge fallimentare of 1942, Italian lawmakers are pursuing ambitious goals.
After the implementation of initial important individual reforms at the beginning of the new millennium (starting in 2005), insolvency law in its entirety is now being given a new normative basis.
Once the “riforma Rordorf”, drafted under the direction of Renato Rordorf (presiding judge at the Court of Cassation) in the past years, cleared its first hurdle in October 2017 thanks to the enactment of the Enabling Act (Act of 19 October 2017, No 155) (cf. our newsletter of 26 October 2017), the government drew up a draft decree in the ensuing twelve months introducing the new Codice della crisi d'impresa e dell'insolvenza (hereinafter “Codice”).
The decree, now finalised to reflect the opinions of the parliamentary committees, was formally promulgated in Gazzetta Ufficiale Series Generale No. 38 of 14 February 2019.
The new law comes into force 18 months after its promulgation, so on the 15 August 2020 (Art. 389).
2. Key reform concerns
The lawmakers' interests focus on ensuring that viable companies are restructured under optimum conditions.
The general shift we see from dismantling to restructuring, having begun internationally as early as in the 20th century, is now set to be implemented in the new Italian insolvency law, particularly in the introduction of an early warning system (sistema di allerta); because the crisis is identified at an early stage, the chances of restructuring are expected to increase and at the same time achieve optimum creditor satisfaction.
The new law also gives priority to procedures aimed at resolving the crisis and ensuring the continuation of the company.
As for procedural economy, the various procedures for solving a company's crisis and insolvency are also to be streamlined and accelerated overall.
Among the gaps in the previous insolvency law identified by the Reform Commission is group insolvency law, which has now been legislatively regulated for a number of different group companies in the form of uniform group insolvency proceedings.
Finally, the reform is intended to simplify the existing legal situation, where the procedures have been scattered amongst various laws, and to unite them in a single code. This is why consumer insolvency (procedure di composizione delle crisi da sovraindebitamento), having only existed in Italy since 2012, has now also been included in the Codice. However, legislators have not fully met their objective of bringing together all the insolvency proceedings: the “special administration procedure for large undertakings” (amministrazione straordinaria delle grandi imprese) was already excluded from the reform under the Enabling Act.
3. Structure and content of the Codice della crisi d’impresa e dell’insolvenza
The new Codice della crisi d’impresa e dell’insolvenza consists of a total of 391 articles. It is divided into the following ten parts:
General Provisions (I.), Early Warning Procedures (II.), Uniform Procedure for Identifying a Company Crisis and Insolvency (III.), Instruments for Solving the Crisis (IV.), Court-Ordered Liquidation (V.), Group Insolvencies (VI.), Compulsory Liquidation by Administrative Proceedings (VII.), Court-Ordered Liquidation and Insolvency Offence Monitoring Measures (VIII.), Provisions on Offences (IX.), Provisions on Implementation and Transition (X.).
The comments below briefly describe the most important new developments.
a) Early warning procedures and procedures for assisted crisis resolution (Articles 12 to 25 Codice)
The reform legislators have been particularly careful to set up early warning procedures and procedures aimed at helping companies to resolve the crisis (Le procedure di allerta e di composizione assistita della crisi).
In addition to legally defining crisis indicators (Article 13 Codice), the new law provides for certain reporting obligations (Articles 14, 15 Codice), to be borne by the companies' supervisory bodies and at the expense of certain institutional creditors (i.e. tax office, social security authorities), to an authority to be set up at the Chambers of Commerce (OCRI – Organismo di composizione della crisi d'impresa). The OCRI will be tasked with assisting companies in a detailed procedure aiming to resolve the crisis within a three-month period (which may be extended once by an additional three months). As an incentive for making use of the procedure, the entrepreneur is assured of benefits under property and liability law (Articles 24, 25).
b) Instruments for solving the crisis by averting the need to dismantle the company (Articles 56 to 120 Codice)
It is of particular importance that, if detailed conditions are met, the legal consequences of a debt settlement agreement will also be extended to those creditors who are not party to the agreement, provided that the creditors who have declared themselves in favour of debt settlement hold at least 75% of the total claims (Article 61 para 2c Codice).
With regard to preventive settlement, articles 84-120 of the new Codice set out numerous new provisions for protecting creditors. At first glance, however, the new law somewhat limits the parties' freedom to negotiate in some areas, particularly with regard to the preventive settlement procedure involving the continuation of the business as a going concern (concordato in continuità). Special mention should be made in this context of the provision of Article 84 para 3 Codice, according to which creditors' claims are to be satisfied predominantly from the income generated in the course of the going concern, with the further condition that said income must be realised by the enterprise in the first two years by at least 50% of the employees employed at the time the application is filed. This restricts the possibilities for restructuring: a turnaround – as it is often undertaken today – in the form of satisfying creditors' claims predominantly from the proceeds of the sale of business branches that are unprofitable and/or no longer strategic will no longer be possible in many cases (at least as part of a concordato in continuità).
Furthermore, a liquidation settlement not involving the continuation of the business as a going concern (concordato liquidatorio) will be possible from now on solely if, with the help of external resources, the satisfaction of non-preferential creditors' claims increases by ten percent vis-à-vis the court-ordered liquidation (Article 84 No 4 Codice).
c) Court-ordered liquidation (Articles 121 to 283 Codice)
Court-ordered liquidation (liquidazione giudiziale) has replaced bankruptcy (fallimento), not merely changing its official name but also introducing a number of new rules aimed at speeding up the liquidation procedure overall.
Many of the amendments relate to procedural regulations (in particular with regard to ascertaining claims, realising assets, and the administrator's role).
Finally, by narrowing the scope of application of compulsory liquidation by administrative proceedings (liquidazione coatta amministrativa, Articles 293 to 316 Codice), the new law will indirectly expand the liquidazione giudiziale, qualifying it to serve henceforth as the primary procedure for liquidating non-viable companies.
d) Group insolvencies (Articles 284 to 292 Codice)
By introducing uniform insolvency proceedings for a number of different group companies, Italian legislators have closed a large gap in the legal landscape and at the same time taken full account of the European Commission's requirements (Recommendation of 12 March 2014, 2014/135/EU), UNCITRAL guidelines and the provisions of Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings.
The Codice sets out provisions permitting the institution of uniform insolvency proceedings for a number of different group companies; for this purpose, it implements special regulations for the purposes of determining the local jurisdiction and the respective authorities’ obligations to inform each other in the event of proceedings pending before a number of judicial authorities (Articles 286, 288, 289 Codice).
It also provides for the option to file a single application for judicial confirmation of a debt settlement agreement in respect of all group liabilities or for judicial confirmation of preventive settlement proceedings in respect of all group companies, whereby either one uniform or several plans may be drawn up (Article 284 paras 1, 2). In any case, the autonomy of the individual group companies' assets and liabilities must also be safeguarded in the context of the group insolvency; it must be ensured there is no confusion in this respect (Article 284 para 3 Codice).
4. Final remarks
The decree introducing the new Codice della crisi d'impresa e dell'insolvenza constitutes a milestone in the history of Italian insolvency law. It remains to be seen how the new law will prove itself in practice. Of particular interest in this context is the parallel progress of legal development at the level of Union law, where the progressive proposed Directive COM (2016) 723 has marked a further leap in development. In light of these steps forward, the new Italian insolvency law might – to some extent – serve as a model.
Chiara Fiorini, Avvocato (Lawyer, admitted in Italy)
Alessandro Honert, Avvocato (Lawyer, admitted in Italy) and Attorney at Law in Germany
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