Coronavirus crisis: Italy postpones insolvency law reform and suspends capital maintenance provisions

1. Insolvency law reform deferred until 1 September 2021

A key element of the reform is the creation of alert mechanisms. In addition to defining indicators of a crisis (Article 13), the Code places detailed obligations on the company’s control bodies (Article 14) and on certain institutional creditors (Article 15), such as the tax office and social insurance authorities, to report to an agency to be set up at the chambers of commerce called the “Entity for the Settlement of Business Crises” (organismo di composizione della crisi d’impresa, OCRI). 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 and 25).

However, in the global financial crisis brought about by the coronavirus pandemic, the alert mechanisms are ill-suited to providing reliable indicators of the existence of a company-specific crisis so as to be able to respond to it with targeted measures designed to preserve the company.

The legislators thus recognised the risk that in the current macroeconomic crisis, the alert mechanisms could act, so to speak, as a “fire accelerant” for insolvency proceedings. In addition, the basic economic conditions prevailing at this time make it less likely that viable companies can be preserved (after overcoming the current crisis), and this poses a risk to achieving the main concern of the reform, whose very aim is to ensure the best possible restructuring. Finally, the legislators want to prevent courts and advisors from being exposed to the uncertainties associated with a new and in many respects revolutionary reform law during times that are already difficult as a result of the coronavirus crisis.

2. Insolvency applications are inadmissible in the period from 9.3. 2020 to 30.6.2020

All  bankruptcy petions filed between 9 March 2020 and 30 June 2020 are inadmissible.

3. Capital maintenance provisions under company law suspended

Italian company law contains comprehensive capital maintenance provisions covering stock corporations (Articles 2446 et seq. of the Civil Code [codice civile, CC]) and limited liability companies (Articles 2482-bis et seq. CC).

They require the management body (or where it does not act, the supervisory board) to immediately convene a meeting of the shareholders or members if losses have caused equity to fall below the minimum amount prescribed by statute. If the shareholders or members do not then resolve to recapitalise the company, it is deemed dissolved by operation of law, and the management body incurs grave (personal) liability risks.

The legislators now plan to suspend the statutorily mandated legal consequence of company dissolution as a result of loss of capital. This is intended to give companies time to deal with the losses occasioned by the coronavirus crisis.

Chiara Fiorini, Avvocato (Lawyer, admitted in Italy)
Alessandro Honert, Avvocato (Lawyer, admitted in Italy), Attorney at Law in Germany

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