Ministero della Giustizia

Last updated on 27 March 2020 by the Ministry of Justice

CONTINUATION AND RESUMPTION OF ACTIVITY DURING THE LIQUIDATION PROCEDURE

Under what circumstances can a debtor continue in business if a rescue or insolvency procedure is in place

If the debtor is subject to an arrangement with creditors, he maintains the administration of his assets and manages the business under the supervision of the judicial commissioner.

This means that he can perform all acts of ordinary business while for acts of extraordinary administration (e.g. sale of real estate, granting of mortgages, sureties) the Official Receiver's written authorisation is required, under penalty of invalidity with respect to creditors prior to the agreement.

By means of the decree with which the procedure for the arrangement with creditors is opened the court can establish a value limit below which authorisation is not required.

If, on the other hand, the debtor is subject to bankruptcy, the activity cannot continue except in two cases provided for by law: lease of the enterprise or temporary operation.

The enterprise lease allows the continuation of the business activity or even of some parts of it by third parties when choosing its continuation appears to be useful for selling the enterprise more profitably (Article 104 bis of the Bankruptcy Act).

The lessee is chosen through a competitive procedure on the basis of the estimated value of the business and in this choice not only is the amount of the rent offered considered but also the guarantees given and the seriousness of the plan to continue the business particularly as concerns maintaining employment levels.

Temporary operating can be ordered as part of the bankruptcy judgment in the cases in which the interruption of the activity could cause serious damage as long as the continuation of the business does not prejudice the creditors (Article 104 Bankruptcy Act).

The business is managed by the liquidator who acts in place of the bankrupt business owner.

The debts incurred during the temporary operation rank first in priority and are therefore paid before all the other debts even if preferential (liens, pledges, mortgages).

Relevant legislation

Royal Decree of 16 March 1942 No 267 (Bankruptcy Act)

• Article 5 State of insolvency
• Article 111 Order of distribution of sums
• Article 182 quater Provisions regarding the priority of debts in the arrangement with creditors, in debt restructuring agreements

Civil Code

• Article 2467 Shareholder financing
• Article 217 Reckless bankruptcy

Civil Code - Article 2086 Business management

Rules on the exemption of overly indebted business owners from liability obligations for unsecured debts established by a court order or an agreement with creditors

In the event of the bankruptcy of a partnership, the natural person who administers it is bankrupt also.

A natural person who has gone bankrupt personally is released from the residual debts not settled during bankruptcy proceedings (without prejudice to the rights of creditors to claim against co-debtors, guarantors of the debtor, and debtors in recourse) if:

• he has cooperated with the procedural bodies, providing all the information and documentation useful for ascertaining the liabilities and making every effort to bring the operations to a successful conclusion;
• has not in any way delayed or contributed to delaying the proceedings;
• has respected the obligation to deliver correspondence to the liquidator;
• has not benefited from any other discharge from debt in the ten years preceding the application;
• has not misapplied the assets or claimed write downs, caused or aggravated the bankruptcy by hindering the reconstruction of assets and business activity or by abusive recourse to credit;
• has not been convicted with a final judgment for fraudulent bankruptcy or for crimes against the public economy, industry and commerce, and other offences committed in connection with the exercise of the business activity, except for such offenses for which he has been rehabilitated. If criminal proceedings are pending for one of these offenses, the court shall suspend the proceedings until the criminal proceedings are completed.

Discharge cannot be granted unless the bankruptcy creditors have been paid, even in part.

The following are excluded from discharge:

1. maintenance and maintenance debts and in any event debts deriving from relationships unrelated to the business;
2. payables for damages from an extra-contractual unlawful fact as well as penal and administrative sanctions of a pecuniary nature that are not ancillary to extinguished debts.

If the application for discharge is accepted, the discharge also applies to creditors prior to the proceedings who have not submitted a claim for debt and only apples for the portion that exceeds the percentage attributed to creditors of the same order of priority. For more information on the discharge procedure, please consult the website of the Court of Turin

Relevant legislation

Royal Decree of 16 March 1942 No 267 (Bankruptcy Act)

• Article 142 Discharge
• Article 143 Discharge procedure
• Article 147 Partnerships with unlimited liability

Rules on the exemption of overly indebted business owners from liability obligations for unsecured debts established by a court order or an agreement with creditors

For business owners not subject to bankruptcy (small business owners who do not have the size requirements as indicated in sheet 1) or for the consumer, the legislation on over-indebtedness applies. For more information on the over-indebtedness crisis settlement procedure please consult the website of the Court of Turin

The three following procedures are provided for:

• the settlement agreement with creditors;
• the consumer's plan;
• the liquidation of assets.

In the first two cases the effect of release from residual debts derives from the proper performance of the agreement or of the approved consumer's plan (as in the case of a correctly performed arrangement with creditors).

In the event of liquidation of the assets, proceedings controlled by the Court are necessary when the debtor:

1. has cooperated in the regular and effective performance of the procedure, providing all useful information and documentation, as well as making every effort to carry out the operations successfully;
2. has not in any way delayed or contributed to delaying the proceedings;
3. has not benefited from any other discharge from debt in the eight years preceding the application;
4. has not been convicted, with a final judgment, for one of the offenses provided for in Article 16 (e.g. increase or reduction of assets or liabilities to avail himself of the procedure, production of false documentation);
5. has carried out, in the four years following the filing of the liquidation application, an income-producing activity that is adequate with respect to his skills and the market situation or, at any event, has sought employment and has not refused, for good reasons, employment proposals;
6. the creditors for debts prior to the decree opening the liquidation have been satisfied, at least in part.

The discharge is excluded:

1. when the debtor's over-indebtedness is attributable to negligent recourse to credit disproportionate to his resources;
2. when the debtor, in the five years preceding the opening of the liquidation or during the same, has defrauded the creditors, made payments or other dispositions of his assets, or counterfeited seniority rights, in order to favour some creditors to the detriment of others.

The discharge does not apply:

1. for debts deriving from maintenance and maintenance obligations;
2. payables for damages for an extra-contractual unlawful fact as well as penal and administrative sanctions of a pecuniary nature that are not ancillary to extinguished debts;
3. for tax debts which, despite having a cause prior to the decree opening the proceedings referred to in the first and second sections of this chapter, were subsequently ascertained due to the supervening acquisition of new evidence.

Relevant legislation

Law of 27 January 2012 No 3 (Provisions regarding usury and extortion, as well as the settlement of over-indebtedness crises)

• Article 14 undecies Contingent assets and receivables
• Article 14 terdecies Discharge from debt

Rules on access to finance to offer business owners a second chance

In Italy there are rules on loans granted before an insolvency procedure (arrangement with creditors or restructuring agreement) and rules on loans granted while performing the arrangement or agreement.

Specifically:

1. loans granted on the basis of the submission of the application for approval of a restructuring agreement or arrangement with creditors (bridge finance: Article 182 quater paragraph 2, Bankruptcy Act);
2. loans authorised pending the composition procedure or the application for approval of a restructuring agreement (interim finance: Article 182 quinquies paragraphs 1-4, Bankruptcy Act);
3. loans to perform the agreement or approved arrangement (restructuring loans: Article 182 quater paragraph 1).

Loans granted to perform the approved arrangement have first priority and therefore are paid, in the event of subsequent bankruptcy, before all other receivables (including senior debts).

Loans – only up to 80% of the amount financed – disbursed by shareholders in dispensation from Article 2467 of the Civil Code also have first priority.

Relevant legislation

Royal Decree of 16 March 1942 No 267 (Bankruptcy Act)

• Article 111 Order of distribution of sums
• Article 182 quater Provisions regarding the priority of debts in the arrangement with creditors, in debt restructuring agreements

Civil Code

• Article 2467 Shareholder financing

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