In recent years, the Italian Insolvency Law has been the subject of several reforms, all of them purporting to encourage economic growth, simplify the procedure for each insolvency proceeding and facilitate investments in financially distressed companies. When dealing with bad debt’ situations, bankruptcy’s ghost is just around the corner. Our insight will provide you with some basic information on the most common issues arising out of management of insolvency and bankruptcy procedures for companies in Italy.
First things first, what is bankruptcy? Currently, the Italian Insolvency Law provides solely for a definition of insolvency, i.e., the inability of a debtor to regularly fulfil its obligations, serving as the actual prerequisite for the commencement of a bankruptcy proceeding. According to the Italian provisions of The Insolvency Act, crucial prerequisite for bankruptcy is a situation when a company or sole trader is deemed to be insolvent. A debtor trader is insolvent when he is no longer able to regularly meet his obligations. Insolvency is a per se situation, which justifies a Declaration of Insolvency by the court even where is not the result of misconduct.
Commencement of the Proceedings
The company must be a trading company. The Italian Civil Code specifies who may be subject of an insolvency proceeding, namely any company or individual whose main activity consists of the production or trade of goods and services. Small traders, as defined in the Italian Civil Code, are exempt. Non-residents, (companies and individuals) may also be subjected to bankruptcy proceedings. The procedure initiates by an order of the Court having jurisdiction over the debtor’s principal place of business based on a petition, which may be presented by: the debtor himself (or the directors of company); a creditor; the Public Administrator or the Bankruptcy Court ex officio.
Procedural Steps and Debt Reorganisation
The Bankruptcy Judge issues an order; the o rder will direct the following:
– The appointment of a deputy judge (“giudice delegato”), as the proceedings’ supervisor;
– The appointment of a receiver (“curatore”), in charge of dealing with the distribution of the debtor’s assets;
– The filing of all the debtor’s accounting records and ledgers.
– The establishment of the terms upon which creditors must file their claims, and agreement as to the date, place and time of the creditors’ meeting, which will review creditors’ claims and the report prepared by the receiver on the debtor’s assets and liabilities.
As the order is issued, the debtor immediately loses his rights to manage his business and becomes no longer be able to dispose of his assets. Thus, any legal action taken by creditors against the debtor will be stayed.
A situation of insolvency may as well reflect a criminal issue, due to the debtor’s fraudulent activities or misdemeanour, and therefore constitute a criminal offence, punishable by a prison (between three and ten years for fraud or between six months and two years for misdemeanour). Directors of a company may as well be held equally liable.
Receiver’s Appointment and Duties
The receiver is appointed by the court and usually chosen from practising accountants or lawyers deemed to be experienced in insolvency matters. Once appointed, he becomes a public official and is required to perform his duties in person, but he may be allowed by to obtain expert or professional assistance. He performs his duties and acts in conjunction with the creditors’ committee, which has an advisory as well as a supervisory role in the proceedings.
The Bankruptcy Estate
In the case of a general partner, all the assets of the debtor’s estate are to be available to his creditors, with the exception of personal belongings and of what is necessary for the maintenance of the debtor and his family. When the bankrupt is a corporation or a limited company, the bankruptcy estate is limited to the assets of such legal entities. Save for the case of a general partner, the corporate veil may be discarded, that is, it may be possible to claim against the assets of directors of the company or corporation, but only when such directors are found to have acted improperly.
Priority of claims
The Italian Civil Code establishes an order of priority of claims to follow for creditors’ satisfaction. Claims of Italian and foreign creditors rank pari passu (equally). There are several rights to preferential payment under Italian legislation. Such preferential claims are normally secured by pledges, mortgages or other liens of the debtor. Creditors who believe their claims are preferential must inform the receiver within the fixed time – usually approximately two months. Other debts and counterclaims are off set at the same date.
Procedure for filing claims
The receiver gives notice of bankruptcy order to all creditors, specifying the time set to file their claims. The filing of a claim responsibility, meaning that even when he does not receive the proper notice, he is not usually allowed to sue the receiver to recover sums already allocated to others. Claims are to be filed in writing, in Italian and on stamped paper (“carta da bollo”) and indicate name, address of the creditor and the amount of the credit. All the claims are to be discussed in a hearing, in case the receiver rejects a claim, the creditor may file a motion setting forth their reasons. Finally, the court issues the schedule of liabilities and decides on any pro-rata claim, compensation or settlement.
End of Bankruptcy Proceeding
A proceeding is closed by an order of the bankruptcy court. Once the receiver has disposed of all the assets, he has a duty to submit a final report to the deputy judge on his administration. Creditors may file motions against it. Once a decision on those motions has been decided, the deputy judge orders the allocation of the net proceeds. Notice of such distribution must be given to all creditors.
Settlement of Bankruptcy Proceeding (“Concordato Fallimentare”)
A bankruptcy proceeding may also end with a settlement accepted by the creditors. When the court establishes the schedule for the distribution, the debtor may choose to offer creditors a settlement for quicker recovery. He must submit his offer to the court, which decides whether the offer is in the best interests of the creditors; in that case, it issues an order and a notice of the offer to be given to all the creditors. For the settlement to be effective, it must be accepted by a majority of the unsecured creditors representing at least two-thirds of the total amount of their claims. Creditors who fail to cast their votes are deemed to have accepted the settlement.
If you are a business-man dealing with an insolvency/bankruptcy’s situation in Italy interested to know further details on Italian Legislation or simply if you need advises regarding this matter, please do not hesitate to contact our Italian department or send an email to email@example.com, we will offer you legal assistance and guidance for settling rapidly and cost efficiently. Our team of English-speaking Italian lawyers can assist both locals and foreigners, through an international network of experienced and skilled attorneys.
Article by Daniela Pacino | Make an enquiry here.