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Italian law views insolvency as a de facto situation that may give rise to a bankruptcy or winding-up order or to the opening of other proceedings whereby assets held by the debtor are administered and sold so that the proceeds can be used to pay creditors.
The other type of procedure is known as an “arrangement with creditors” and is governed by bankruptcy law. In this case the debtor submits a plan for restructuring the debts to the creditors. The proposal is then examined by the court in the place where the company has its registered offices. The court may allow the procedure by issuing an order to that effect, or it may dismiss the application and formally declare the operator bankrupt. Where the arrangement procedure is accepted, the debtor retains control of the company’s assets and activities under the supervision of a receiver.
The official procedures that arise out of bankruptcy are insolvency, arrangements with creditors and compulsory liquidation. The latter procedure is applied in the case of companies that are not allowed to go bankrupt by law on the grounds of public interest (for example, banks and major insurance companies).
The only real condition for opening any of the proceedings is that the company must be insolvent.
The bankruptcy declaration is made known to all those concerned and published in the form of an entry in the register at the office of the Registrar of Companies where the company has its registered offices. Any interested party may have access to the register, which is also available online.
The order opening the proceedings for an arrangement with creditors is published in the court register, recorded by the office of the Registrar of Companies and, where the debtor owns property or assets recorded in public registers, by entries in said registers. The court may also require the order to be published in one or more named newspapers.
In its ruling the court may also require the publication of its order elsewhere.
The participants in bankruptcy proceedings are the court, the court-appointed receiver, the insolvency practitioner and creditors’ committee.
The court rules on applications for bankruptcy or winding-up orders and may order compulsory liquidation or approve applications for arrangements with creditors. The court also administers the bankruptcy proceedings, participates in the compulsory liquidation proceedings and approves settlements under the powers vested in it by law.
The court-appointed receiver has the functions of ensuring the regularity of the proceedings.
The insolvency practitioner is responsible for the material operations involved and for liquidating the assets.
The creditors’ committee supervises and approves the insolvency practitioner’s work, giving its opinion in the cases stipulated by law or at the request of the court or the court-appointed receiver.
Once declared bankrupt, the debtor is not allowed to pay individual creditors and must hand over assets and assets subsequently acquired to the insolvency practitioner. Debtors must inform the insolvency practitioner of any change of residence or domicile and, if summoned, must appear before the court-appointed receiver, the insolvency practitioner or the creditors’ committee to provide all the information or clarification needed for the purposes of the proceedings. They must also hand over all correspondence concerning financial and commercial relations pertaining to the bankruptcy to the insolvency practitioner. Finally, if they are allowed to live in their own homes for reasons of personal and family need, the house must not be used for any other purpose.
Every creditor has the right to ask the court to declare commercial operators (their debtors) bankrupt if they are insolvent. Moreover, where there are legal grounds for giving priority to certain creditors’ claims (liens, pledges or mortgages), these preferential creditors enjoy special privileges regarding the settlement of their claims that are set out in detail by legislation.
In bankruptcy cases the creditors have the right to offset the amounts owed by the bankrupt against their debts, unless they were entered into as a result of an inter vivos transactions concluded subsequent to the bankruptcy declaration or in the year prior to it.
There are no special rules governing compensation. The bankruptcy suspends the reckonable date of legal interest.
As regards contracts of sale with reservation of title, the bankruptcy of the seller does not cancel the contract.
The bankruptcy of the tenant does not cancel property rental agreements and the insolvency practitioner takes over the agreement. However, the insolvency practitioner may withdraw from the agreement at any time, as long as the landlord is paid fair compensation for the early cancellation. In the event of a dispute, the court-appointed receiver decides the sum payable after hearing the parties concerned.
Subordinate employment relationships are terminated if the bankrupt company ceases trading. If the whole company or parts thereof are sold to third parties, a special procedure makes it possible to transfer only some of the staff employed in the bankrupt company to the employ of the new owner or amend previous employment contracts.
Bankruptcy law sets out detailed rules on creditors’ rights. Special protection is given to claims that are covered by legal grounds for giving priority, while claims where the debtors entered into contracts that would increase their insolvency are safeguarded by the possibility of revocatory action.
The creditor’s main duty is to refrain from taking personal, enforcing or preventive action from the day of the bankruptcy.
The rights of preferential creditors regarding certain movable assets may be exercised during the bankruptcy proceedings as long as the assets are included in the liabilities subject to pre-emptive rights.
Bankruptcy law takes restructuring plans into consideration during the procedure for reaching an arrangement with creditors. The debtor attaches the plans to the proposal submitted to the court. They must contain a debt restructuring forecast and proposals to pay the debts in some form.
The debtor may reach agreement with the creditors on a specific plan for restructuring the debts in an out-of-court settlement before the decision is taken to approve an arrangement with the creditors.
The debtor may lodge this agreement at the hearing held to approve the arrangement, if it has been approved by creditors who hold at least 60% of the claims, together with an expert report on the viability of the agreement.
The debtor’s restructuring plan or the agreement reached with the creditors may allow for the temporary suspension of payment and implementing measures or a reduction of the claims.
In winding-up proceedings the insolvency practitioner collects on claims, sells assets and establishes the liabilities on the basis of the claims presented by the creditors.
Where winding-up proceedings generate a positive balance, the sum in question is distributed among the creditors on the basis of the priority of claims. Where the liabilities are greater than the assets, the creditors retain the right to receive payment of the sums owed to them even after the proceedings have been brought to an end, unless the debtor has collaborated fully during the bankruptcy proceedings and is allowed by the court to waive the outstanding debts under a new mechanism introduced in the recent reform of the bankruptcy laws known as “esdebitazione”.
The winding-up proceedings may be closed where the debts have been settled in full, the assets have been distributed among the creditors in accordance with the priority of their claims or, where creditors’ claims have not been satisfied, if it has been established that the continuation of the bankruptcy proceedings will not result in unsecured claims being met.
The consequences for the bankrupt are:
The recent reform of the bankruptcy laws has removed the previous restrictions preventing the bankrupt from resuming trading after the conclusion of the bankruptcy proceedings. The bankrupt is not automatically prevented from embarking on commercial activities after the bankruptcy, unless he has been convicted of an offence in connection with the bankruptcy and has been banned from running a company as a result.
Under bankruptcy law, individual operators or managers of bankrupt companies who have committed any related offences (such as fraudulent bankruptcy, credit fraud, reporting non-existent creditors and failure to meet other obligations) may face custodial sentences or ancillary penalties regarding the running of companies, as indicated above.
The law also provides for other offences committed by the insolvency practitioner or third parties.Top
Last update: 18-01-2007