Italian Code on Insolvency
In January 2019, a new Code on Insolvency has been approved in Italy. The Code concerns insolvency proceedings and the crisis for over-indebtedness of companies, with the purpose of simplifying the previous corporate regulatory framework.
The Code entails an overhaul of the bankruptcy and restructuring legal framework and it amends several aspects of Italian Corporate Law.
Early warning procedure
First of all, the Code introduces a system of alert measures for restructuring and distress of the companies.
The entrepreneur is required to adopt, just before the crisis, the necessary actions to prevent the insolvency. The company, therefore, must implement an adequate organizational structure to detect a crisis as early as possible and to adopt adequate measures to address the situation.
The supervisory bodies of the company have to implement early warning signs, which are also required to be made by public qualified creditors (Agenzia delle Entrate, INPS and collection agencies). Furthermore, each local Chamber of Commerce has to create special bodies assisting the company (“CCOs”, Crisis Composition Organizations).
This system of alert measures will not apply to listed companies, large enterprises and financial institutions.
The new Insolvency Code also amends the judicial composition with creditors (concordato preventivo), aiming to settle a fairer balance between debtors and creditors.
The Code provides two types of compositions:
- In-Court Liquidation Composition (concordato liquidatorio): the full liquidation of the debtor’s assets will be permitted only if:
- External funding increases the satisfaction of unsecured creditors by at least 10%; and
- Unsecured creditors are offered at least 20% of the overall of unsecured claims.
- In-Court Composition in Continuity (concordato in continuità): the continuation of the debtor’s business as a going concern will be permissible only if:
- 50% of the labour force employed is kept for a certain period.
The Code also introduces a single procedure when several companies of the same group go through a crisis or are insolvent.
Specifically, insolvency proceedings may be started through a single restructuring process of the same court. Nevertheless, the assets and liabilities of each company will be separate.