Restructuring Under Italian Law

Traditionally in Italy the financial distress of a corporation was treated in a very strict way through proceedings aimed at the dissolution of the company, the sale of its assets and the replace of the directors with commissioners appointed by Public Bodies.

Indeed, should the enterprise become insolvent (i.e. not able to regularly pay its debts), it was unavoidably destined to be declared under bankruptcy or be put into extraordinary administration, a special form of insolvency procedure dedicated to the largest companies and aimed at preserving the workforce.

Under the bankruptcy, a lot of negative effects occur:

The company's business gradually ceases; The assets are no longer part of a sole on-going concern and often separately sold at a low price; The employees are fired; The creditors have the right to be paid only in part and not in whole. In addition, very often the liquidity of the company is so lacking that the creditors are not paid at all. Evidently all the above mentioned consequences arising out of the bankruptcy have a shocking impact both to the company and, more generally, to the domestic economics and the social welfare.

In light of above, the legislator decided to bring into question its punitive view of the financial distress opting for solutions aimed at the corporate restructuring and relegating the bankruptcy for the most serious cases only.

The Restructuring Agreements: How They Work

Few years ago the Italian Parliament introduced a measure alternative to the bankruptcy and named "Restructuring Agreement", deputy, in the same breath, to save the company, to positively solve its distress and to preserve the rights of the creditors.

The regulation of such measure in short provides that:

The company under financial distress is entitled to enter into an agreement with creditors representing at least the percentage of 60% of the overall amount of the debts. Through this agreement, generally the main creditors either waive part of their rights or accept to postpone the payments of their credits or deicide to convert part of their receivables into equity thus becoming stake-holders of the company. The latter item is especially appreciated by the financial creditors (such as banks) which participate to the re-launch of the corporation and aim at obtaining the payment of their receivables through the dividends of the enterprise once the distress is over; Once executed and notarized, the Restructuring Agreement must be filed...