Debt restructuring agreements

Debt restructuring agreements are provided for in Article 57 of the Business Crisis and Insolvency Code. This article in particular provides the possibility for a company in crisis to finalize one or more debt restructuring agreements with creditors, through which to obtain more favorable payment terms or to reduce the company’s overall debt. Debt restructuring agreements must be approved by a majority of creditors, and may provide for payment suspensions, debt reductions, or other forms of renegotiation of the debt relationship.

The purpose of the procedure is to facilitate the continuity of the business and avoid bankruptcy.

Agreements are subject to court approval and require the adherence of a number of creditors representing at least 60 percent of claims (or the lower percentages stipulated by law under certain circumstances) as well as the full satisfaction of nonadhering creditors.

The moratorium convention

Article 62 of the Business Crisis and Insolvency Code provides for the possibility of obtaining a moratorium from creditors, i.e., a period of suspension of payments, for businesses that are in a state of crisis but have good prospects for recovery. During this period, creditors may not bring enforcement or precautionary actions against the company, and payments of debts due are suspended.

Restructuring plan subject to approval

Articles 64a et seq. of the Crisis and Insolvency Code govern the instrument of the Restructuring Plan subject to Approval (R.P.O.).
Through this institution, entrepreneurs in insolvency or crisis have the opportunity to carry out debt restructuring.

It is a voluntary procedure by which the entrepreneur proposes to the creditors their satisfaction with timetables and modalities reported in the plan that do not necessarily provide for compliance with the graduation of claims and Of the causes of preemption.

Innovative with respect to the previous regulations, this procedure allows the entrepreneur in crisis to wriggle out of one of the cornerstone principles of the Bankruptcy Law (par condicio creditorum) by allowing the latter to formulate proposals that provide for the payment of non-integral preferential creditors or favorable economic treatment for certain categories of creditors.
The proposal, in order to pass the Court’s scrutiny and obtain approval, must necessarily be approved by all classes of creditors.

The Preventive, Simplified and Minor Concordat

Preventive Arrangement is one of the main tools for resolving crisis or insolvency situations. Two types of composition with creditors are distinguished: liquidation composition with creditors and composition with creditors on a going-concern basis; the latter aimed at preserving business complexes and protecting the interests of creditors.

In a going-concern arrangement, business activity can be carried out directly or indirectly, while in a liquidation arrangement the entrepreneur proceeds to satisfy creditors by liquidating the entire business.

An arrangement with creditors is a voluntary procedure that can be activated at the request of an entrepreneur in a state of crisis or insolvency.

The Concordato Semplificato is a regulatory tool recently introduced into the Italian legal system for the regulation of business crisis. It is envisaged as an alternative to the ordinary composition with creditors and can be used by the entrepreneur in crisis only in the event of a negative outcome of the negotiated settlement procedure and on condition that it appears from the report of the expert in charge of the procedure that the entrepreneur has conducted negotiations with its creditors fairly and in good faith.

The Minor Concordat, on the other hand, is a procedure introduced for the settlement of over-indebtedness, which can be used by professionals, small entrepreneurs, agricultural entrepreneurs and innovative start-ups, excluding consumers. These individuals may submit to creditors a proposal for an arrangement, specifying the time and manner of overcoming the crisis of over-indebtedness and indicating the extent of satisfaction of claims to be implemented in any form.

Judicial Liquidation

Judicial liquidation is a procedure under the Business Crisis Code for liquidating the assets of an insolvent company. A judicial liquidation is initiated at the instance of the debtor or creditors, and involves the appointment of a judicial liquidator, who is responsible for selling the company’s assets and distributing the proceeds to creditors, following a precise order of priority established by law. The main features of judicial liquidation are its judicial nature, which distinguishes it from voluntary liquidation, and the priority of creditors, which is established by law according to the nature and origin of the claim

Over-indebtedness procedures

The Business Crisis and Insolvency Code defines over-indebtedness as “the state of insolvency or crisis on the part of an agricultural entrepreneur, professional, consumer, innovative start-up, or any other debtor who cannot be subjected to compulsory liquidation, judicial liquidation, or any other liquidation procedure that is provided for by special laws or the Civil Code.”

The new Business Crisis and Insolvency Code has modified the pre-existing regulatory framework by configuring four distinct procedures for resolving a situation of over-indebtedness:

1. CONSUMER’S DEBT RESTRUCTURING PROCEDURE: Takes the place of the old “Consumer Plan” and consists of a procedure through which the debtor proposes a debt satisfaction plan to be submitted to the court for evaluation. The debtor’s proposal is not put to a vote by the creditors, who, however, have the right to challenge its appropriateness over a liquidation alternative.
2. MINOR AGREEMENT: Reserved exclusively for businesses and professionals, it is a procedure through which the debtor submits its satisfactory proposal to a vote of the creditors and to the scrutiny of the court.
3. CONTROLLED LIQUIDATION OF OVERDEBTEDNESS: Consists of a procedure directed at the liquidation of the debtor’s assets and the distribution of the assets obtained among creditors. Controlled Liquidation can also be applied for at the request of creditors.
4. INCAPIENT DEBITOR’S EXDEBITATION: A procedure aimed exclusively at the debtor without income and assets to enable him to write off all his debts.