Italy: Urgent Measures to Address Business Crisis and Stimulate Corporate Recovery Adopted

Italy: Urgent Measures to Address Business Crisis and Stimulate Corporate Recovery Adopted

On October 24, 2021, Law No. 147, which converted into law Decree Law No. 118 of August 24, 2021, establishing urgent measures to tackle the current business crisis and stimulate corporate growth in Italy, entered into effect. Decree Law No. 118 defers the entry into force of the Codice della Crisi d’Impresa e dell’Insolvenza (Corporate Crisis Code, CCC) until May 16, 2022, with the exception that Title II of Part One regulating “Crisis Alert and Assisted Settlement Procedures” (articles 12–25) is to enter into force on December 31, 2023. (Decree Law No. 118, art. 1(a) & (b).) Law No. 147 appropriates funds in the amount of 5,962,281 euros (about US$6.7 million) for 2022 to finance the higher costs associated with the management of corporate financial recovery procedures. (Decree Law No. 118, new art. 26-bis(1), as added by Law No. 147.)

The most important innovation introduced by the new legislation is the Negotiated Composition for the Solution of the Corporate Crisis (Composizione negoziata per la soluzione della crisi d’impresa) as a “new out-of-court restructuring procedure … with a view to fostering an early approach to a company’s financial difficulties in accordance with the key tenets of [Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on Preventive Restructuring Frameworks, on Discharge of Debt and Disqualifications, and on Measures to Increase the Efficiency of Procedures concerning Restructuring, Insolvency and Discharge of Debt, and Amending Directive (EU) 2017/1132 (Directive on Restructuring and Insolvency)].”

Mechanisms to Provide Solutions to Business Crises

Under Decree Law No. 118, commercial and agricultural entrepreneurs facing harsh economic-financial conditions that make crisis or insolvency probable may request the secretary general of the respective chamber of commerce, industry, crafts and agriculture (Unioncamere) to appoint an independent expert to determine whether the economic recovery of the company is reasonably possible. (Decree Law No. 118, art. 17(1).) This approach is called “a self-examination” of the company.

To that effect, Law No. 147 sets up a national online platform at each Unioncamere for benefited entrepreneurs to register their businesses. (Decree Law No. 118, art. 3(1), as amended by Law No. 147.) The website is to contain tools aiding micro, small, and medium-sized enterprises to prepare recovery plans and assess the likelihood of their recovery. (Decree Law No. 118, art. 3(2), as amended by Law No. 147.)

Law No. 147 also establishes at each Unioncamere of each regional capital and the autonomous provinces of Trento and Bolzano a list of experts to assist affected entrepreneurs. (Decree Law No. 118, art. 3(3), as amended by Law No. 147.) Stringent requirements are set for members of the expert roster, related to their competence, independence, honorability, experience, and confidentiality. (Decree Law No. 118, art. 4(1)–(2), as amended by Law No. 147.) The entrepreneur may request that the expert be assisted by consultants appointed by the entrepreneur. If the expert finds concrete prospects for company reorganization, he or she must inform the entrepreneur and the secretary general of the respective Unioncamere regarding the filing of a request for a negotiated settlement. (Decree Law No. 118, art. 5(5).) If after 180 days from the expert’s appointment the parties have not identified an adequate solution, the expert’s task is considered terminated, unless the parties request a postponement of the expert’s mandate. (Decree Law No. 118, art. 5(7), as amended by Law No. 147.) The entrepreneur may request the application of protective measures of his or her assets. (Decree Law No. 118, art. 6(1).) During the negotiations, the entrepreneur retains the ordinary and extraordinary management of the company, seeking to avoid prejudice to the economic and financial sustainability of the activity; in addition, when the expert believes that a specific action may cause prejudice to creditors or to the negotiations or prospects for recovery, he or she may report this situation to the entrepreneur and the supervisory body. (Decree Law No. 118, art. 9(1), as amended by Law No. 147.)

Renegotiation of Contracts and Court Authorizations

At the request of the entrepreneur (not at the request of third parties), the respective court may adopt several measures to ensure business continuity and the best satisfaction of creditors, including authorizing the entrepreneur to take out predeductible loans, to contract loans from predeductible shareholders, and to transfer the company or one or more of its branches. Additionally, the court may authorize one or more companies belonging to an economic group to contract predeductible loans. (Decree Law No. 118, art. 10(1), as amended by Law No. 147.) The expert may invite the parties to renegotiate contracts with continued or periodic execution or with deferred execution if the activity has become excessively onerous due to the pandemic. (Decree Law No. 118, art. 10(2).)

Conclusion of Negotiations

After successful negotiations, the parties may conclude (a) a contract with one or more creditors, based on the expert’s report ensuring business continuity for a period of not less than two years; (b) a moratorium agreement; or (c) an agreement signed by the entrepreneur, the creditors, and the expert. (Decree Law No. 118, art. 11(1), as amended by Law No. 147.) Upon completion of the negotiations, the entrepreneur may request the approval of a debt restructuring agreement. (Decree Law No. 118, art. 11(2).)

Simplified Settlement with Creditors for the Liquidation of Assets

When the expert in the final report states that the negotiations have not been successful and that the solutions are not practicable, the entrepreneur can present, within 60 days, a proposal for an arrangement for the transfer of assets together with a liquidation plan. (Decree Law No. 118, art. 18(1), as amended by Law No. 147.)  This is called the concordato semplificato (simplified agreement), and after filing it, “the debtor is prevented from repaying creditors (whose claims arise out of circumstance prior to the application) and enforcement/precautionary measures cannot be commenced or pursued.” The entrepreneur must request approval for the arrangement from the court of the place where the company has its headquarters. (Decree Law No. 118, art. 18(2).)

Urgent Measures for the Hiring of 500 Ordinary Magistrates

In addition, the new legislation authorizes the Ministry of Justice to launch a public call, to be announced within six months from the date of Law No. 147’s entry into force, for the recruitment of 500 ordinary magistrates to fill vacant judiciary posts. (Decree Law No. 118, new art. 26-bis(1), as added by Law No. 147.) The hiring process lists stringent qualification and selection requirements that include written tests, examination of candidates by panels, and the completion of an oral examination. (Decree Law No. 118, new art. 26-bis(4)–(5), as added by Law No. 147.)

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