The recently enacted Legislative Decree 5 of January 9 2006 has introduced wide and important amendments to the existing bankruptcy legislation contained in Royal Decree 267 of March 16 1942 (the amended Royal Decree).
The new rules entered in force on July 16 2006.
The recent reform modifies the effects of bankruptcy on transactions entered into before a party to a transaction is declared bankrupt.
One of the most relevant amendments is introduced in Article 72, paragraph 6, of the amended Royal Decree: clauses providing for the automatic termination of a transaction in the event of declaration of a party's bankruptcy are no longer effective.
The reason for the change to the existing legislation is to allow the receiver, upon authorization of the creditors' committee, to decide whether the bankruptcy procedure should take the place of the insolvent in a transaction or should terminate it.
The performance of a transaction is, consequently, suspended until the receiver exercises its right to succeed in the transaction, taking on the relevant obligations, or to terminate it.
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