BANKRUPTCY IN ITALY… What are the options?

Apr 20, 2020

Italian Bankruptcy law is quite complicated and it is constantly under revision and updates.

The current Italian Bankruptcy Law is regulated by Royal Decree No. 267 of 16 March 1942. Insolvency procedures aim to give a solution to the state of crisis or to the state of insolvency of a commercial enterprise by regulating its relations with creditors.

Insolvency procedures:

Basically, there are 5 insolvency proceedings.

  1. Bankruptcy proceeding: It is a legal proceeding involving an entrepreneur or business that is unable to repay their debts. Through this proceeding, a company is brought to an end by releasing the debtors from their debts and giving the creditors the opportunity of repayment (partial). In order to go under bankruptcy proceeding, insolvency situation must be real and proven.
  2. Arrangement with creditors: There are different types of arrangement with creditors. Unlike the bankruptcy proceeding, this one doesn’t intend to bring the company to an end, having two important function: a) to protect on one hand, the entrepreneur who is in a state of difficulty, and on the other hand, to also protect the creditors so that their credits can be partially repaid; b) it favors the recovery of the company and the continuation of the business activity.
  3. Compulsory administrative liquidation or Receivership: It is characterized by its administrative nature yet it is very similar to bankruptcy procedure. It is basically an insolvency proceeding that applies to specific types of business established by the law, such as: banks, insurance companies, etc. In case these companies are in a situation of crisis, instead of insolvency, they can apply for the “Arrangement with creditors” (exceptions may apply, see art. 3 Bankruptcy law), yet, as a general rule, they cannot apply for a Bankruptcy procedure. It is characterized by its administrative nature.
  4. Extraordinary administration: This is another insolvency proceeding that applies to “large business enterprises” as the Receivership, it is of administrative nature and its objective is not to bring an end to a company, instead, it aims the conservation, in its whole or in its part, of the business activity.
  5. Special extraordinary administration: This proceeding has been introduced relatively recently (in 2003 with “Decreto Mazano”). Generally speaking, this proceeding is very similar to the “Extraordinary administration”, with the difference that the “Special extraordinary administration” aims to launch, in a faster way, the company’s restructuring program, in order to ensure the continuation of the business activity.

So, even though there are 5 types of insolvency proceedings, it does not mean that one can chose which one to follow. Each proceeding has its own characteristics and requirements, therefore, the procedure to be followed will depend on the situation of each case.

* This article was written for general information purpose. In case you need assistance on bankruptcy proceeding (either as creditor or debtor) please contact us for an initial assessment.


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