Italy: Bankruptcy In Italy: The Italian Bankruptcy Law

Bankruptcy in Italy: Formalities of filing that you should know even if your company is a foreign one

The discipline concerning bankruptcy in Italy falls within the scope of the Italian Bankruptcy Law, which has changed radically over the years, starting with Royal Decree Law No. 267, which saw the establishment of a system inspired by the graduation of creditors identified as follows:

• Unsecured;
• Privileged;
• Mass;

As well as the identification of two requirements for being subject to the bankruptcy procedure, which are:

• Subjective requirement (Article 1 Bankruptcy Law), which states that "entrepreneurs who carry out a commercial activity, excluding public entities, are subject to the provisions on bankruptcy and arrangement with creditors";
• Objective requirement (Article 5 Bankruptcy Law), according to which the entrepreneur who is in a state of insolvency is declared bankrupt.

The bankruptcy procedure takes place before the Court which has the task of ascertaining the state of impotence of the entrepreneur to pay the debts and therefore declaring it bankrupt, as well as having control and authorization tasks regarding the fulfillment of acts by the bankruptcy trustee and the creditors' committee. The Court is the first figure that has the power to administer and preserve the assets of the failed entrepreneur.

Over time, the bankruptcy discipline in Italy has changed, with the almost total abandonment of the punitive concept, in favour of the continuation of entrepreneurial activity.

More specifically, the “arrangement with creditors” was born as an instrument designed to allow the entrepreneur not to declare bankruptcy and to be able to satisfy creditors in a reduced form, compared to the initial credit, compatibly with what was agreed with the creditors.

Today, the arrangement with creditors has also taken on further forms, with the so-called “arrangement with creditors in reserve” and “the arrangement with creditors with business continuity”, based on the need to ensure the continuity of the business and the agreed satisfaction of credits.

Bankruptcy in Italy: How do I declare bankruptcy in Italy? 

Bankruptcy in Italy is declared at the appeal of the debtor, one or more creditors or at the request of the public prosecutor (only in the cases indicated in Article 7 of the Bankruptcy Law).

Formalities of Filing for Bankruptcy in Italy are linked to the person which submits the application.

If the entrepreneur himself asks for his bankruptcy, he is obliged to file the request, providing the obligatory accounting and tax records of the last three previous years or of the entire existence of the company, the list of names of creditors with the indication of credits, the list of names of those who have real and personal rights on things in its possession, indication of the title from which the right arises.

The bankruptcy procedure in Italy begins with the filing of the bankruptcy petition.

The bankruptcy petition is the act by which the bankruptcy procedure is hinged against the entrepreneur. The prerequisite is the state of insolvency of the latter, and therefore his financial inability to meet the assumed credits.

The application must be based on the most useful to prove the insolvency of the entrepreneur.

The jurisdiction lies with the Court of the place where the company's head office is located, with a proceeding that takes place in the council chamber and ends with the issuance of a final provision (sentence) ascertaining whether or not the bankruptcy is declared.

In the first case, the delegated judge and the trustee are appointed, and the bankrupt company is ordered to deposit the mandatory documents, indicate of the place, day and time of the meeting for the examination of the passive status, and assign to creditors and third parties a deadline for submitting requests for submission.

The bankruptcy sentence is recorded at the business register office where the entrepreneur is registered and takes effect from the date of its publication and, with regard to third parties, from the date of registration in the same business register.

Bankruptcy in Italy: May a foreign company liquidate under the Italian Bankruptcy Law? 

Pursuant to and for the purposes of Article 9 of the Bankruptcy Law, the declaration of bankruptcy is the responsibility of the Court of the place where the entrepreneur has its head office (or where the management and administration activity is exercised).

If the head office of the company is abroad, the jurisdiction lies with the court of the place of the secondary office.

The entrepreneur, who has the head office of the company abroad, can be declared bankrupt in the Italian Republic even if a declaration of bankruptcy has been pronounced abroad.

International conventions and European Union legislation are reserved.

The transfer of the company's headquarters abroad does not exclude the existence of Italian jurisdiction, if it took place after the filing of the appeal or presentation of the application by the Public Prosecutor.

Bankruptcy in Italy: What is extraordinary administration? 

It is an insolvency procedure dedicated to the insolvency of a large company.

Its function is to conserve the productive assets, that is not to liquidate the assets and liabilities but to continue, reactivate or reconvert the company's business activity.

Therefore, the aim is not to bankrupt large companies, but to restore them within certain time limits.

1) Through a company sale program, with liquidation purposes, of a maximum duration of 1 year;

2) Through a company restructuring program, with conservative purposes, lasting 2 years.

Often the consequence of filing for bankruptcy is the crime of fraudulent bankruptcy.

This form of crime is governed by Article 216 of the Bankruptcy Law, according to which the entrepreneur who:

• has distracted, concealed, disguised, destroyed or dissipated all or part of its assets in order to harm creditors, or has exposed or recognized non-existent liabilities;
• has stolen, destroyed, falsified in whole or in part the books or other accounting records or has kept them hidden in order to make it impossible to reconstruct the assets or the movement of business, with the aim of procuring an unjust profit for oneself or others or causing prejudice to creditors;

is punished with imprisonment from three to ten years.

The same penalty is expected for the entrepreneur who commits one of the aforementioned actions during the bankruptcy procedure.

Otherwise, a bankrupt who, before or during the bankruptcy procedure, makes payments or simulates pre-emption rights to the detriment of creditors, is punished from one to five years.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.