Vol 4 (2007) - Issue 3

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Italian Companies Subject to Bankruptcy and Preventive Arrangements with Creditors: The Declaration of Bankruptcy of a Group of Companies

Bankruptcy proceedings in the Italian bankruptcy law reforms

As already mentioned in a previous article, the Italian bankruptcy law – which is mainly regulated by Royal Decree No. 267 dated 16 March 1942 (the ‘Bankruptcy Law’) – has been recently amended by Law No. 5 dated 9 January 2006 which came into force in July of the same year (the ‘Reform’).

Following the Reform, any insolvent debtor or any debtor who is facing a crisis may currently be subject to the following bankruptcy proceedings:

(a) Bankruptcy (‘fallimento’), involving the liquidation of the debtor’s assets, as unitary proceedings, for the purpose of satisfying all creditors’ claims;
(b) A preventive arrangement with creditors (‘concordato preventivo’), as significantly changed by the
Reform, constituting an opportunity for the entrepreneur to avoid declaration of bankruptcy;
(c) A compulsory administrative liquidation (‘liquidazione coatta amministrativa’), being actually a mostly administrative procedure reserved for a few companies deemed particularly important for economic and social purposes (e.g., banks and insurance companies);
(d) An extraordinary administrative procedure (‘amministrazione straordinaria’) which is regulated by Law No. 270, dated 8 July 1999 and its further amendments, which is applicable to large Italian companies and groups under certain circumstances. This procedure has something in common with both the declaration of bankruptcy and the compulsory administrative liquidation and therefore combine the purposes of the liquidation and those of corporate preservation and rescue, for the basic scope of safeguarding the employees. With particular reference to its bankruptcy aspect, it is particularly referred to as an enforcement proceeding designed to coercively execute creditors’ rights, and is divided into in phases aimed at:

– ascertaining the fulfillment of the requirements prescribed by the law for the declaration of bankruptcy;
– acquiring and preserving the assets of the bankrupt company/individual;
– ascertaining the liabilities;
– liquidating the assets; and,
– distributing the resulting revenues among the various creditors.

The new concept of small business entrepreneur and small trading company

Pursuant to the new article 1, paragraph 1, of the Bankruptcy Law, the provisions relating to bankruptcy and to preventive arrangements with creditors are applicable to entrepreneurs who carry out a business activity, except for public entities and small business entrepreneurs.

The same rule (paragraph 2) defines small business entrepreneurs as those who carry out a business activity whether individually or collectively (i.e. both companies and individuals) which have met at least one of the following requirements:

(a) have invested an overall amount of more than EUR 300,000 in the business; or,
(b) have somehow achieved gross revenues, calculated on the average of the last three years or since the beginning of the business, if shorter, for an overall yearly amount of more than EUR 200,000.