Corporate Insolvency & Reorganisation Report 2018: Italy
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Corporate Insolvency & Reorganisation Report 2018: Italy

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Giulia Battaglia and Antonio Tavella, Chiomenti


SECTION 1: Market overview

1.1 Please provide a brief overview of your jurisdiction's corporate insolvency and restructuring environment and its versatility in cross-border cases. Are there any significant current concerns/debates taking place in the market?

There is a satisfactory level of coordination and cooperation between member states in relation to insolvency proceeding involving companies which have their centre of main interests (Comi) in an EU state. The opening of insolvency proceedings in an EU member state is recognised in all other member states. In addition to the above, the EU Insolvency Regulation provides that a secondary procedure can be opened under domestic rules in the member state where the distressed company has a secondary establishment. Regarding insolvency proceedings commenced in a non-EU member state, there are no specific conflict of law provisions. In any case, foreign insolvency judgments and orders can be recognised in Italy upon the filing of a specific request and, if certain conditions are met, they may be recognised by the Italian courts with immediate effect.

1.2 What have been the key recent market trends and/or legal developments in the area that practitioners should be aware of?

The most significant legal development is the ongoing overhaul of the entire Italian legal framework governing insolvency and restructuring proceedings, aimed at creating an Italian bankruptcy code (the overhaul has not yet been finalised and definitively approved by the Italian Parliament). According to the approved draft law, bankruptcy will be replaced by judicial liquidation. This refocusing intends to encourage the survival of businesses as going concerns, where this leads to a better outcome for creditors. Therefore, liquidation procedures are to be considered the last resort.

The innovations of the draft law also include (i) the envisaged introduction of a specific management procedure governing the insolvency of a group of companies, and; (ii) the introduction of an alert procedure aimed at averting financial crisis in the first place.

1.3 Please review any major (recent/current) restructuring cases or initiatives that are influencing activity or court decisions regarding insolvency and/or restructuring cases that have set precedents.

Chiomenti recently advised two Italian distressed companies in filing a particularly innovative and complex pre-insolvency workout agreement petition. This is a rare example of a pre-insolvency workout agreement proposal providing for, inter alia, the – indirect – continuation of company's business activities by a new company, and the subsequent assumption of debts and assets by a third party which will also ensure the continuation of the business as a going concern.

According to precedent, a similar workout scheme might have been qualified as a liquidation scheme, with the consequence that the relevant rules would have applied accordingly. Nevertheless, certain judgments (among which the two above-mentioned procedures are an example) have confirmed recent case law, which seems to be in line also with the principles of the current reforms. As such, the application of the rules governing the pre-insolvency workout agreements and going concerns has been permitted.

SECTION 2: Processes and procedures

2.1 What restructuring and insolvency processes are typically available for financially troubled debtors in your jurisdiction? Do groups of companies receive special treatment?

Italian bankruptcy law provides makes several restructuring procedures available to distressed companies in order to avoid bankruptcy.

Among the out-of-court tools, a distressed company may reschedule its debts and stabilise its financial position by entering into an agreement with its creditors based on a rescue plan the financial data supporting and feasibility of which are certified by a qualified and independent professional. Such an agreement can be executed without the intervention of the courts and the borrower retains full control of its business during the implementation of the certified rescue plan.

A distressed company can also enter into a debt restructuring agreements with creditors who represent at least 60% of all claims against it and submit the agreement to the relevant court for approval. Again, such an agreement must be based on a rescue plan the financial data supporting and feasibility of which are certified by a professional and which contemplates the repayment in full of the dissenting creditors who are not parties to the agreement. Again, the borrower retains full control of its business during the implementation of the rescue plan. Specific rules are provided for debt restructuring with financial institutions, according to which, upon satisfaction of certain conditions (for example, at least 50% of the company's indebtedness must be owed to banks or financial institutions), the debt restructuring agreement can, by operation of law, be made binding on dissenting minorities.

Three further judicial procedures are available to distressed companies in Italy. Firstly, prior to the declaration of bankruptcy, a distressed company may propose a pre-insolvency workout agreement with its creditors based on a workout plan and a specific proposal to creditors (including terms as to repaying creditors). The financial data and feasibility of the plan must be certified by an independent expert. Should the company's proposal provide for the business to be transferred and run as a going concern, the independent expert must also certify that doing so will ensure a better outcome for creditors than insolvency proceedings.

Following admittance of the petition before the courts, creditors then vote on the proposal. If adopted upon a vote without challenge, the court will approve the pre-insolvency workout agreement. Interim management of the company is supervised by the courts, as well as by a judicial commissioner appointed by the court; certain transactions will still require the prior authorisation of the courts.

Secondly, there are special bankruptcy proceedings applying only to large corporations, which are not only court-supervised but also government-supervised. Such procedures envisage the appointment by the government of one, or three, receivers to substitute the existing management in the company's operations and the adoption of a rehabilitation programme which might alternatively be a programme of corporate restructuring or of asset disposals.

For the time being, Italian law does not provide for any special treatment relating to company groups.

2.2 What is the impact on creditors of a formal filing? Are contractual termination rights affected? Are security or individual enforcement actions stayed?

Despite the fact that the declaration of bankruptcy might be considered as a contractual event of default, upon the declaration of bankruptcy: (i) the monetary claims of creditors vis-à-vis the insolvent entity are deemed due and payable (scaduti); and (ii) subject to the application of specific provisions relating to certain types of contracts, as a general rule the receiver will have the right to decide whether to (a) step-in and proceed with the execution and performance or (b) terminate any pending agreements which have not been fulfilled (or fully fulfilled) by the parties.

The execution of contracts and/or transactions is suspended until the receiver decides whether to take them over or not. In order to overcome the uncertainty that may arise, the contractual counterparty may file a written petition requesting the courts impose a deadline of no more than 60 days; by such deadline, the receiver must decide whether to enter into the agreement or withdraw from it.

In accordance with pre-insolvency workout procedures, distressed companies may ask the court for authorisation to withdraw from pending contracts or to suspend their performance for certain period upon an indemnification for the damages suffered by counterparties.

With a few exceptions, a stay on creditor enforcement action is generally available under most Italian insolvency procedures, including pre-insolvency workout agreements, debt restructuring agreements, and extraordinary administration (amministrazione straordinaria). The effect of such stay is that the debts of creditors arising prior to the commencement of proceedings cannot be enforced. One exception to this rule is financial collateral security interests.

2.3 Can a creditor or a class of creditors be crammed-down?

The pre-insolvency workout agreement is the main judicial procedure which envisages the cramdown of dissenting creditors. The court may approve the petition filed by the distressed company in relation to the workout if the terms of the petition allows the dissenting creditors to be satisfied to the same extent as they would have been following a liquidation.

Debt restructuring agreements with financial institutions may also involve the cram-down of dissenting creditors and/or classes of creditors. In order to do so, in addition to the consent of creditors representing 60% of the company's aggregate exposure (which is required for all restructuring agreements), it is also necessary (i) that at least 50% of the indebtedness is owed to banks or financial institutions, and; (ii) to obtain the consent of 75% of each class of such creditors.

2.4 Is there a process or practice for facilitating the sale of a distressed debtor's assets or business?

In the case of extraordinary administration proceedings, the official receiver must liquidate the insolvent company's assets and/or businesses via properly advertised public auctions, so as to generate wide market interest. Similar bidding procedures are also mandatory for sales of companies' assets or businesses effected under pre-insolvency workout agreements; no pre-packaged procedures are allowed.

2.5 What are the duties of directors of a company in financial difficulty?

Directors of distressed companies must manage the company in a prudent manner, and avoid actions that worsen the financial position of the company or result in preferential treatment of certain creditors. Should the company suffer a reduction in its share capital to below the legally required minimum, directors must promptly call a shareholder meeting to increase the share capital to or above the legally required minimum, or to resolve to liquidate the distressed company.

Italian law does not provide for a specific duty of the directors to file for bankruptcy within a certain period of time after insolvency has been ascertained. However, directors may be found personally liable to the company's creditors where they negligently disregard the insolvency and wrongfully carrying on trading. In the case of pre-insolvency workout agreements and debt restructuring agreements, Italian law suspends the requirement to liquidate the company in the event the share capital is not increased.

2.6 How can any of a debtor's transactions be challenged on insolvency?

Italian law provides for a specific claw-back action that, in the case of bankruptcy, may give rise to the revocation of acts and payments to certain creditors or investors or the setting aside of security interests and other transactions made by the company prior to the declaration of bankruptcy. Transactions, payments, guarantees and securities implemented in the execution of an insolvency proceeding are exempted from bankruptcy claw-back.

2.7 What priority claims are there and is protection available for post-petition credit?

Italian insolvency proceedings deal with debts arising after the commencement of the judicial proceedings and those that arise during and/or for the purpose of such procedures. These debts are deemed as super-senior and must be discharged in full, by the due date, and in preference to other creditors.

The ranking of creditors' claims upon liquidation under Italian law is as follows: (1) debts arising during or for the purpose of an insolvency procedure (administrative costs and expenses associated with the insolvency procedure itself and any other claim arising in connection with such procedure); (2) debts secured contractually or by operation of law; (3) unsecured debts; and (4) shareholder loans, if subordinated by contract or operation of law.

2.8 Are there any sectors or industries with their own or modified insolvency and restructuring regimes?

Bank insolvencies are governed by EU directive. When a bank becomes insolvent, a specific Italian compulsory winding-up regime known as liquidazione coatta amministrativa applies under the supervision of the Italian Department of Economy and Finance. This procedure also applies to cooperatives and insurance companies and its purpose is to enable the liquidation of the relevant entity. A bank may also be made subject to this compulsory winding-up regime for serious management failures. Special procedures and provisions apply to insurance companies, investment funds and financial intermediaries. According to the draft Italian insolvency law, the scope of the administrative compulsory winding-up regime will be limited to cases under the special laws concerning, inter alia, banks, financial intermediaries, insurance companies and similar entities.

SECTION 3: Cross-border cases

3.1 Can restructuring or insolvency proceedings be opened in respect of a foreign debtor.

EU law provides that insolvency proceedings can only be commenced in the member state in which the company has its Comi, which is the jurisdiction from which the borrower manages its business. Nevertheless, a secondary procedure can be opened under domestic rules in the member state where the distressed company has a secondary establishment.

3.2 What recognition and assistance can be given to foreign insolvency or restructuring proceedings?

The EU Insolvency Regulation provides that in the event there is an establishment in Italy of a foreign company subject to principal insolvency proceedings outside Italy (on account of its Comi) then such proceedings shall also apply to the Italian establishment. The insolvency official of the foreign state is entitled to exercise in Italy all the powers they have under the law applicable to the main insolvency proceedings, provided that they do so in accordance with Italian law and Italian liquidation procedures.

SECTION 4: Other material considerations

4.1 What other major stakeholders (eg governmental or regulatory institutions) could have a material impact on the outcome of the reorganisation?

In the case of pre-insolvency workout agreements and debt restructuring agreements, the distressed company may be able to reschedule and/or obtain a write-off of the sums due to social security and tax authorities. A number of further major stakeholders could have a material impact on the outcome of the reorganisation, such as, in extraordinary administration proceedings, the Italian Department of Economic Development, and, in general, trade unions, which may have an important role in relation to all matters involving employees. The activity of listed companies is subject to the supervision of CONSOB, an administrative independent entity.

In addition to the above, please consider that, in the context of the procedures involving banks, insurance companies and similar entities, specific supervisory and control bodies shall be appointed. As per listed company.

SECTION 5: Outlook 2018

5.1 What are your predictions for the next 12 months in the corporate reorganisation and insolvency space and how do you expect legal practice to respond?

As noted above, the Italian legal framework governing insolvency and restructuring proceedings is currently subject to a fundamental overhaul.

As a general remark, it is likely that the judicial liquidation procedure (ie the procedure which will replace the current bankruptcy procedure) will be considered a procedure or last resort, and in principle, proposals aimed at preserving a company as a going concern including following a change of management will be favoured.

The draft law also provides for the introduction of an alert procedure aimed at averting or, at least, mitigating the risk of a business' financial distress becoming irreversible.

About the author



Giulia Battaglia

Partner – Head of the fnance department, Chiomenti

Milan, Italy

T: + 39 02-721571

F: +39 02 72157224



Giulia Battaglia joined the firm in 1992 and became a partner in 2003. In 1994 she was visiting lawyer at Slaughter and May in London. Head of the Finance Department, Giulia has 25 years' experience in this industry and specialises in structuring complex transactions. She advises debtors, banks, Italian and international investors on real estate financing, acquisitions, project finance and securitisation, factoring, debt restructuring transactions, bankruptcy law, insolvency proceedings and distressed assets purchase transactions. She has significant experience in debt restructuring in the shipbuilding and healthcare industries. Giulia's practice also includes infrastructure and procurement with a particular focus on the energy sector.

Giulia has been ranked as a leading lawyer in prominent international legal guides such as Chambers, IFLR 1000 and Legal 500. She was awarded the Lawyer of the Year in Banking award at the Legalcommunity Finance Awards 2017 and the Lawyer of the Year in Finance Restructuring award at the Legalcommunity Finance Awards 2016.

Giulia graduated in economics (1992) and in law (1999) from the University of Rome, La Sapienza (1991). She was admitted to practise before the taxation courts in Italy in 1992, and to the Bar in Italy in 2003. She is fluent in Italian and English.

About the author



Antonio Tavella

Partner – Head of the restructuring & insolvency team, Chiomenti

Milan, Italy

T: +39 02-721571

F: +39 02 72157224



Antonio Tavella joined the firm in 2004 and became a partner in 2013. Head of the Restructuring & Insolvency Team, he advises Italian and international clients on corporate finance transactions, purchase of receivables, debt restructuring transactions, bankruptcy law and insolvency proceedings, acquisition of distressed assets, acquisition finance transactions, real estate and asset finance, and inventory finance. Within his practice, Antonio has gathered experience on corporate law, mergers and acquisitions, private equity, joint ventures, commercial contracts, corporate governance, capital increases and issuance of structured finance instruments.

Antonio has been ranked as a leading lawyer in prominent international legal guides such as Chambers, IFLR 1000 and Legal 500.

Antonio graduated in law from the University of Parma in 2000 and was admitted to the Bar (Italy) in 2006. He is fluent in English and Italian.