Outlining the new reform of the Italian Bankruptcy Law under discussion by parliament

March 2017 | EXPERT BRIEFING | BANKRUPTCY & RESTRUCTURING

financierworldwide.com

The Italian parliament is currently discussing yet another reform which touches upon the regulation of insolvency and bankruptcy proceedings. However, contrary to the numerous reforms approved between 2012 and 2016, which intervened – often in a fragmented and uncoordinated way – on specific matters, the one under discussion is aimed at a systematical and organic revision of the whole Italian bankruptcy law.

This legislative intervention has been prompted by reorganisational and age-related reasons (the Italian Bankruptcy Law dates back to 1942), but also by the impulses that have been recently given by the EU with the Recommendation no. 2014/135 and with the Regulation no. 848/2015, both of which point toward the harmonisation of insolvency procedures within the EU.

As a result, on 10 February 2016, the Italian government approved the project drafted by the Rordorf Commission for the “systematic reform of the legal framework concerning companies in distress and of the Bankruptcy Law regime”. Thereafter, this project was brought before the Italian parliament for discussions, which are still ongoing.

The key points of the reform project are the simplification, acceleration and rationalisation of insolvency and bankruptcy proceedings, and the ultimate goal is to improve the outcomes of said proceedings for creditors. This need for reform is particularly strong in light of the increasing levels of non-performing loans (NPLs).

Crisis alert procedures

Solid empirical data shows that Italian enterprises in a position of financial and economic distress are usually reluctant to start proceedings aimed at the composition of their crisis. As a result, when they finally make use of the measures set forth under the Italian Bankruptcy Law – such as composition with creditors, and debt restructuring agreements and certified recovery plans – the company has already entered a period of irreversible insolvency. As a consequence, the effectiveness of said measures is impaired.

The project of reform drawn up by the Rordorf Commission sets forth a crisis alert system for enterprises which is meant to remedy the problems explained above and help to preserve the value of business assets.

This system – which is already common in other jurisdictions – allows companies in the early stages of a business crisis to apply to a private crisis settlement panel to get assistance and support in analysing the reasons for the crisis, and in finding feasible solutions that might entail reaching an agreement with creditors.

The main features of such alert procedures is that they take place out of court, which is a factor believed to encourage enterprises to make use of this instrument, considering the stigma that is usually perceived in relation to court-driven insolvency proceedings. Without prejudice to the above, it is worth noting that in order to obtain standstill of all creditors’ requests for payment, the company must file an apposite petition to the court.

Moreover, the project of reform envisages different benefits for companies that avail themselves of this system, which are both patrimonial and personal (for example, the waiver of liabilities for management). Another relevant aspect is the strict confidentiality of the whole procedure.

Lastly, to ensure the efficiency of this crisis alert system, the Rordorf Commission proposed reinforcing the powers conferred to the companies’ surveillance bodies and the signalling system that public entities, such as the Revenue Agency, should implement and bring out, according to data in their hands which may indicate signs of distress.

Group insolvency

One of the main revolutionary proposals made by the Rordorf Commission concerns the introduction into Italian Bankruptcy Law of provisions that allow a group of enterprises to access insolvency and bankruptcy proceedings. The fact that the Italian legal system does not currently provide a definition of ‘group of enterprises’ is indicative of the extent of reform required.

Indeed, currently, distressed companies belonging to the same group are forced to file separate petitions to access said procedures, sometimes even before different courts. This will inevitably lead to inefficiencies in managing these procedures, with possible negative effects on creditors’ satisfaction, given that most restructuring plans of companies belonging to the same group are, unsurprisingly, connected.

The project of reform aims at introducing, first of all, a definition of a group of enterprises. Thereafter, it provides the possibility for said group to file a sole petition before the same Court (with the predetermination of such Court) and to have their respective positions examined collectively within a unitary proceeding. This, however, does not change the fact that the pool of assets of each company is separate from that of the others.

Composition with creditors and debt restructuring agreements

The Rordorf Commission proposed the amendment of the main instruments set forth by the Italian Bankruptcy Law for the composition of a business crisis by means of an agreement with creditors.

In relation to the composition with creditors agreements under Article 160 of the Italian Bankruptcy Law, the reform proposal focuses on introducing provisions that favour agreements which envisage business continuity as opposed to winding-up, which should be considered a limited and residual solution. In particular, agreements should be feasible only if the debtor can access new financial resources from third parties which results in a significant increase in the satisfaction of creditors.

As for debt restructuring agreements under Article 182-bis of the Italian Bankruptcy Law, currently they need to be approved by 60 percent of the claims. The Rordorf Commission thought of a way to facilitate the conclusion of said agreements. The proposal provides – under certain circumstances – the elimination of this threshold and the ability to overrule the dissent expressed by a small number of creditors. In other words, the debtor may request that the agreement be binding for the creditors that have not signed it, as long as, among other conditions, the claims adhering to the restructuring agreement represent at least 75 percent of the claims of the same category. This opportunity is currently accredited by Article 182-septies of the Italian Bankruptcy Law only to creditors categorised as financial intermediaries.

Abandoning the notion of fallimento

It may be less relevant from a practical point of view, but it is still noteworthy that, if the draft of the reform drawn by the Rordorf Commission is transposed into law, any notion of bankruptcy (fallimento) contained in the Italian Bankruptcy Law will disappear and will be replaced by the more neutral notion of “judicial liquidation of assets”.

This change is strictly due to the aura of dishonour that the concept of bankruptcy has always brought. Besides, it is in compliance with the terminology already adopted, for the same reason, in other jurisdictions within the EU.

Current status of the reform process

On 1 February 2017, the Chamber of Deputies of the Italian parliament approved, with amendments, an excerpt of the reform project drawn by the Rordorf Commission, which is now under discussion by the Senate. Once approved, the project will pass to the government, which will be delegated by parliament to transpose the content of the project into actual legal provisions, which will be promulgated by means of a Legislative Decree.

Paolo Pototschnig is a partner and Sara Colombera is an associate at Legance. Mr Pototschnig can be contacted on +39 02 896 3071 or by email: ppototschnig@legance.it. Ms Colombera can be contacted on +39 02 896 3071 or by email: scolombera@legance.it.

Paolo Pototschnig and Sara Colombera

Legance