On October 21, 2021, the Italian Parliament has definitively approved the conversion into law of Law Decree no. 118/2021, introducing "urgent measures concerning company crises and business reorganisation, as well as further urgent measures on justice" (the "Decree").
This focus has the purpose to sum up the main provisions of Chapter I (from Article 1 to Article 23-bis) containing measures for companies crisis and business recovery, bringing significant amendment to Italian Bankruptcy Law.
1) Deferral of the entry into force of Legislative Decree No. 14 of 12 January 2019 (the new Italian Bankruptcy Law, also known as Code of the Business Crisis and Insolvency - "CCII").
1.1.) Article 1 of the Decree provides for the postponement of the entry into force of the CCII to May 16, 2022, except for provisions under Title II of Part I concerning the regulation of the so-called "Early Warning System" and the "assisted crisis resolution procedure before OCRI": the entry into force of such provisions, in fact, is set for December 31, 2023.
The reason is that such postponement could allow the CCII to be better tailored to the Italian socio-economic situation (severely impacted by the pandemic), as well as to be adapted to the framework set forth by Directive (EU) 2019/1023, which must be transposed before July 2022.
2) Deferral of the mandatory appointment of limited liability companies' auditors and/or controlling bodies.
2.1.) Article 1-bis of the Decree provides for the postponement of the appointment of limited liability companies' auditors and/or controlling bodies to the date set for the the approval of the financial statements for FY 2022 (i.e. 2023).
3) The introduction of the so-called "negotiated settlement procedure".
The core innovation brought by the Decree is the introduction of a new insolvency proceeding: the negotiated settlement procedure of business crisis (the "Procedure").
3.1.) Articles from 2 to 19 of the Decree introduce this negotiated settlement procedure, which allows any distressed individual and collective companies to ask for the appointment of an independent expert who could facilitate negotiations between the debtor and the stakeholders, in order to lead the company to its recovery.
3.2.) From November 15, 2021, the business owner could ask to access the Procedure through an electronic platform, sending a formal instance available on the website of the local Chamber of Commerce.
3.3.) On that platform, the applicant can find instructions and guidelines for the draft of the recovery plan, as well as a practical test aimed to verify the needing and reasonable feasibility of the recovery itself.
3.4.) It is important to underline that the applicant has to attach all the documents provided by Article 5, par. 5, letters from a) to h) to the submission request of the Procedure.
3.5.) Once the application is received, the Secretary-General of the Chamber of Commerce forwards it to a special commission appointed on the Chamber of Commerce. Such commission remains in charge for two years and it is composed by three professionals (i.e. a Judge, a member appointed by the President of the Chamber of Commerce and another member designated by the Prefect).
3.6.) Within five days after the commission is designated, the commission shall appoint an independent expert aimed at assisting the company in crisis.
The expert must meet the requirements set out in Articles 3 et seq. of the Decree (i.e. the requirements of independence, third party status and professionalism).
In particular, the expert has the main task to facilitate negotiations between the company and stakeholders (i.e. creditors or, in general, interested third parties): if the recovery of the company is not achievable, the expert will order the closure of the Procedure.
3.7.) During the Procedure, the debtor can request to the Court interim asset protection measures aimed at preventing creditors from acquiring pre-emptive rights and/or the possibility to initiate and/or continue enforcement and precautionary actions against the debtor's assets.
By accessing the Procedure, the company may also obtain a suspension of the obligation to reduce the share capital and/or recapitalise the company pursuant to Articles 2446 and 2447 of the Italian Civil Code.
3.8.) During the Procedure, the management of the company is retained by the debtor (i.e. the powers concerning the ordinary and extraordinary administration). However, when the debtor performs acts of extraordinary administration, ask he/she to inform the independent expert, sending a written notice.
If the expert assesses that such act could cause prejudice to creditors or to the prospects of recovery, he/she has to report it in writing to the company and he/she has to register his/her dissent in the companies' register.
3.9.) During the Procedure, the Court may also authorise the debtor to:
(i) take on super senior loans;
(ii) transfer the business or company branches;
(iii) restate terms and conditions of existing contracts, in order to take them back to equity.
3.10.) In order to encourage companies to access the Procedure, the Decree provides also some incentive measures, such as the reduction of interests on tax liabilities and the reduction of tax penalties.
3.11.) All the above said, it is clear that the Procedure can allow distressed companies to solve their financial/economic crisis through the following alternatives:
(i) conclusion of an agreement with creditors; in this case, the company can benefit from the aforesaid, incentive measures if such agreement can ensure business continuity for a period of at least two years;
(ii) conclusion of a moratorium agreement pursuant to Article 182-octies of the Italian Bankruptcy Law;
(iii) conclusion of an agreement that achieves the same effects as the agreement pursuant to Article 67, par. 3, letter d) of the Italian Bankruptcy Law.
Alternatively, the company can either choose the traditional crisis resolution means provided by the Italian Bankruptcy Law (such as debt restructuring agreements "accordo di ristrutturazione dei debiti" and composition with creditors agreement "concordato preventivo") or the new insolvency procedures provided by the Decree (such as simplified composition with creditors agreements "concordato preventivo semplificato").
3.12.) As long as they are consistent with negotiations with creditors, the acts, payments and guarantees implemented by the company during the Procedure are not subject to clawback actions pursuant to Article 67, par. 2, of the Italian Bankruptcy Law.
3.13.) At the end of his/her assignment, the expert shall draft a final report, which need to be uploaded on the electronic platform. The expert, then, notifies such report to the involved company and to the Court (only if the Court has granted protective and precautionary measures).
4) Introduction the so-called "simplified composition for the liquidation of assets" (concordato semplificato per la liquidazione del patrimonio").
4.1.) Articles 18 and 19 of the Decree introduces the so-called "simplified composition for the liquidation of assets" (concordato semplificato per la liquidazione del patrimonio) (the "Simplified composition agreement").
4.2.) The debtor can apply for such agreement when a suitable solution has not been identified during the Procedure (see paragraph 3 above) (i.e. when the expert, in his/her final report, declares that negotiations during the Procedure have had a negative end). In this case, the debtor can apply to the Court in order to get the approval of the Simplified composition agreement, aimed to liquidate assets in order to satisfy creditors.
4.3.) After the proposal submission, the Court appoints a so-called "auxiliary", setting a deadline by which the auxiliary must submit an opinion also on the lawfulness of the company’s proposal. Then the proposal, together with the opinion of the auxiliary and the final report of the expert, must be communicated by the debtor to the creditors, specifying where they can find data and documents for their valuation: it is note provided any vote over the proposal.
4.4.) Only if the regularity of the procedure, as well as the compliance of the proposal with the pre-emption causes are verified, the Court approves the agreement. The decision issued by the Court can be complained before the Appeal Court.
5) The moratorium agreement and the so-called "facilitated" and "extended" debt restructuring agreements.
5.1.) Article 20, par. 1, letter f) of the Decree introduces Article 182-octies of the Italian Bankruptcy Law, i.e. the "moratorium agreement".
Pursuant to such provision, a moratorium agreement agreed with some creditors in order to temporarily regulate the effects of the crisis is effective also with regard to no-adhering creditors belonging to same class.
The extension of the effects is possible, if:
(i) the threshold of 75% of the adhering creditors belonging to the same class is reached;
(ii) all creditors of the class have been fully informed about the right to take part in negotiations;
(iii) non-consenting creditors are subjected to a proportionate haircut/postponement.
5.2.) Article 20, par. 1, letter f) of the Decree introduces also Article 182-novies of the Italian Bankruptcy Insolvency Law, regarding the so-called "facilitated" debt restructuring agreements.
In order to enter into such agreement, debtor should meet the following requirements:
(i) consent of – at least – 30% of the total amount of the claims;
(ii) not having requested any payment moratorium pursuant to Article 182-bis, par. 1, lett. a) of the Italian Bankruptcy Law;
(iii) not having filed the application for composition with creditors pursuant to Article 161, par. 6, of the Italian Bankruptcy Law;
(iv) not having requested the suspension of enforcement and precautionary actions pursuant to Article 182, par. 6, of the Italian Bankruptcy Law.
5.3.) Article 20, par. 1, letter c) of the Decree introduces Article 182-septies of the Italian Bankruptcy Insolvency Law, regarding debt restructuring agreements with extended effect.
The effects of debt restructuring agreement under Article 182-bis of the Italian Bankruptcy Law can be extended to non-consenting creditors belonging to the same class, provided that:
(i) such non-consenting creditors represent no more than 25 % of the claims of that class (cram down);
(ii) such agreement is based on a going concern basis;
(iii) non-consenting creditors of that class can be satisfied to an extent not less than the practicable alternatives.
6) Amendments to the composition with creditors' agreement.
6.1.) In addition to the above, Article 21 of the Decree provides the follow:
(i) a one-year postponement of the deadline provided for by Article 9, par. 5-bis, of Law Decree no. 23/2020.
Such provision grants to debtors who have been admitted to the composition with creditors "in bianco" or to the debt restructuring agreement by December 31, 2022 (originally set at December 31, 2021), the right to file a waiver of the proceeding, declaring that a recovery plan pursuant to Article 67, third par., letter d) of the Italian Bankruptcy Law has been filed.
6.2.) Article 22 of the Decree provides a specific period granted to the debtor for the filing of the required documents during the composition with creditors procedure. More specifically, such periods fixed between 60 and 120 days, and it can be extended for justified reasons, by no more than 60 days.
6.3.) Moreover, Article 23 of the Decree provides that every petitions aimed at terminate a composition with creditors agreement and those appeals filed for the declaration of bankruptcy are inadmissible until December 31, 2021.