Comprehensive reform of Italian insolvency law gets under way
In Italy a comprehensive and systematic reform of insolvency law is pending, following approval by the Italian Senate (Senato della Repubblica) on 11 October 2017 of the “disegno di legge n. 2681”, which confirmed the draft law (legge n. 3671bis) passed by the Italian Chamber of Deputies (Camera dei deputati) on 1 February 2017.
1. Government given power to issue statutory instruments
Implementation of the reform should occur within 12 months, following a delegation of authority to the government to issue statutory instruments, which is contained in Article 1 of the law described above.
2. The “general principles” of the new insolvency law
In this context, the government is to implement the general principles set out in detail in Article 2 of the legislation. Some of the key points are set out below:
- The term “bankruptcy” (fallimento) is to be replaced by the term “judicial liquidation” (liquidazione giudiziale). The intention is to prevent stigmatisation of the business owner affected by the insolvency and also to take account of the fact that the new insolvency law is intended as a tool to overcome business crises. The background to the new terminology is that the Italian word “fallimento” means “failure” when translated literally and therefore does not take into account the future oriented objectives which are the purpose of the new insolvency law.
- The introduction of the definition of the concept of “business crisis”, which describes the probability of a future insolvency and sits alongside the definition of “insolvency” which is already contained in the current insolvency law.
- The introduction of a unified judicial process, which aims to include all categories of debtor which may be affected by a “business crisis” or “insolvency” (natural or legal persons, consumers, freelancers, industrial, agricultural or manual business owners) and which will feature a particularly short time scale for proceedings.
- Granting priority to proceedings which are targeted at overcoming business crises and which ensure continuation of the business, including, where appropriate, by another business operator where i) this best serves the interests of creditors and ii) suitability for on-going satisfaction of creditors is set out in the plan. This is intended to restrict judicial liquidation to situations where no other suitable alternative solution exists.
3. Special rules relating to individual insolvency law institutions
In connection with the explanation of these “general principles”, additional “specific principles” are provided for by the legislators in relation to individual insolvency law institutions, which are to be implemented during the course of the reform. In detail:
- Art. 3 Group insolvency: Provisions are envisaged to enable unified insolvency proceedings for a number of different group businesses; for this purpose particular rules are to be implemented to enable local jurisdiction to be determined, as well as mutual duties to provide information between relevant bodies in cases of pending proceedings among a number of judicial authorities. Furthermore, the possibility of a unified application for judicial confirmation of an agreement for settlement of debts is envisaged, which would relate to all consolidated debts, or for pre-emptive composition proceedings for all group companies, whereby either a single or a number of plans could be created. In each case, the autonomy of the assets and liabilities of the individual group companies is to be maintained within the scope of the group insolvency, so that there can be no mixing of these.
- Art. 4 Early warning proceedings: Introduction of special proceedings which, through a prompt analysis of the reasons for the economic and financial difficulties of the business, enable the crisis to be established at an early point, as well as overcoming these through the promotion of negotiations with the creditors. As an incentive for using the proceedings, the business owner should benefit from advantages in relation to assets and liabilities. Additionally the settlement will not be handled by the insolvency court, but rather transferred to an office created for this purpose by chambers of commerce, in order to avoid the impression that the proceedings are simply a “precursor to insolvency”. Lastly, in order to ensure that a crisis is recognised early on, the governing bodies of the company and institutional creditors will be under a duty to make the company aware of any indicators of a potential illiquidity.
- Art. 5 Debt restructuring agreement: Extension of the legal consequences of a debt restructuring agreement within the meaning of Article 182bis of the Italian Insolvency Act (legge fallimentare) to creditors who are not a party to the agreement, where creditors who have agreed to the debt settlement hold at least 75% of the total claims.
- Art. 6 Composition proceedings: Composition proceedings will be restricted to cases of continuation of going concerns, as only the guarantee of continuation of the business justifies the granting of the particular, beneficial legal advantages connected to the composition. So-called “liquidation-composition proceedings without business continuation” will be considered, if necessary, where a third party targets the proceedings with financial means which, based on the situation in a normal insolvency, put the creditors in a “noticeably better position” and always on the condition that a rate of at least 20% in favour of non-preferential creditors is envisaged.
- Art. 7 Judicial liquidation
- In less complex proceedings, in order to simplify the process, the functions of the creditors’ committee are to be replaced by electronic consultation with creditors, whereby the silence of a creditor can be assumed to be consent.
- Strengthening of proceedings for judicial liquidation through measures which target preservation of preferential rights during enforcement and in compulsory sale procedures and also in relation to liens over property.
- Reform of provisions relating to pending transactions:
- In all cases of operational management or entry in to the contract by the insolvency administrator, the right to deduct is to be restricted to only those claims which have come into existence during the course of the proceedings.
- Termination of all contracts of a highly personal nature, unless it is agreed that they should continue with the express consent of the other contracting party.
- Implementation of particular rules relating to preliminary agreements, in particular in relation to the acquisition of property still to be constructed.
- Acceleration, simplification and concentration of the process of establishing claims, whereby electronic claims are encouraged (also for foreign creditors) and the permissibility of late claims is restricted;
- For the purposes of accelerating the conclusion of proceedings, the following measures are envisaged:
- Transfer of responsibility for distribution to the insolvency administrator, subject to the right of the parties to seek a legal remedy:
- Reform of the arrangements for concluding proceedings in the case of pending legal proceedings;
- Regulation and promotion of insolvency plan proceedings on the initiative of creditors, third parties or the debtor, where the latter provides means which will mean more than a minimal increase in the insolvency estates.
- Art. 8 Discharge of residual debt
- A rule, that the debtor can apply for discharge of the residual debt immediately following the conclusion of proceedings, and at the latest within three years following the commencement of proceedings, if he/she has cooperated with the judicial authorities and there has been no abuse of the law;
- Introduction of particular forms of discharge of residual debt for small value proceedings;
- Extension of discharge of residual debt to companies.
- Art. 9 Consumer insolvency or insolvency of small businesses (“sovraindebitamento”)
- Extension of the proceedings to businesses with unlimited liability and regulation of criteria for the coordination of consumer insolvency proceedings which affect a number of members of the same family.
- Grant of discharge of residual debt in favour of “worthy” debtors, even where this does not provide any direct or indirect benefit to creditors, or only provides future benefits (“Zero-plan”), however, only on one occasion and with the provision that the liabilities will return, if the debtor obtains assets within 4 years.
- Inadmissibility of proceedings where i) the debtor has already been granted a discharge of residual debt within the previous five years or ii) has already enjoyed a discharge of residual debt on two occasions or iii) in cases of proven fraud.
- Introduction of protective measures similar to those provided for in cases of composition proceedings (“concordato preventivo”), which can be removed in cases of fraud to the detriment of creditors, either upon their application or ex officio.
- Establishment of an authority for creditors and, where businesses are affected, the public prosecutor to apply for the commencement of liquidation proceedings (and also in the case where measures of individual compulsory enforcement are pending);
- Grant of discharge of residual debt in favour of legal persons (exception: where there is a case of fraud to the detriment of creditors or the intentional non-fulfilment of a restructuring agreement or plan).
- Art. 10 Privileges (“privilegi”) - reorganisation of the system of creditor privileges
Through the reform of insolvency law, which dates back in its origins to the year 1942, Italian legislators are pursuing ambitious goals which will, in part, lead to wide ranging changes. It remains to be seen whether all the solutions sought by the legislators will subsequently be implemented.
Avvocato Lawyer Alessandro Honert
Avvocato Chiara Fiorini, Gestore dell’OCC presso l’Ordine degli Avvocati di Bologna