ITALY RESTRUCTURING UPDATETHE NEW CONCORDATO PREVENTIVO: THE ITALIAN CHAPTER 11?OCTOBER 2012

The Italian legislator recently overhauled the statute concerning concordato preventivo proceedings (i.e. Italian Bankruptcy Law – “IBL”). The new rules came into effect on 11 September 2012.

The concordato preventivo proceeding is essentially a restructuring instrument through which the debtor can agree a plan with creditors (subject to a vote) in order to not be declared bankrupt, under the control of the relevant bankruptcy court.

In brief, the debtor (businessperson or business entity) at risk of bankruptcy or insolvency can now file for concordato preventivo and subsequently have a term of a minimum of 60 days and a maximum of 180 days (granted by the bankruptcy judge) to file the plan, pursuant to which the debtor intends to restructure/liquidate the company (“Plan”). Prior to the recent amendment, a Plan had to be filed immediately with the petition and therefore companies had to prepare the Plan in advance, and this system required debtors to address a number of issues without any kind of protection from creditors. Since the amendment, “blank” filing (i.e. without a Plan) now immediately grants an automatic stay against enforcements and precautionary judgements, similar to the U.S. Automatic Stay.

After filing, the debtor remains in possession and runs the business as usual. Only acts of extraordinary administration need to be authorised by the bankruptcy court and credits arising after filing are granted with super priority (prededuzione). Once a Plan is filed and the proceeding formally opened (indeed this happen only after the filing of a Plan), the debtor remains in possession but is supported by a judicial commissioner (commissario giudiziale), appointed by the bankruptcy court.

A Plan may provide inter alia for:

(i) restructuring of debts and satisfaction of creditors’ claims through any technical or legal means, including assumption of debts, mergers or other corporate transactions: in particular, a Plan can allow for the allocation to creditors or classes of creditors, or companies in which they have holdings, of stock/shareholdings, quotas or bonds, including bonds convertible into shares, or other financial instruments and debt instruments;

(ii) the transfer of the assets/going concerns to a white knight;

(iii) the separation of creditors into classes, according to their legal position and uniform economic interests;

(iv) different treatment for creditors belonging to different classes.

The debtor may be authorised by the bankruptcy court to terminate any executory contracts or to obtain a suspension (of 60 – 120 days) for the performance of the same. Termination clauses triggered by filing for concordato preventivo are void.

During the proceeding, the debtor may be authorised by the bankruptcy court to request and obtain new finance that is granted with super priority. New finance granted to the debtor in execution of the agreed and homologated Plan is granted with super priority as well.

A Plan approved by the majority of creditors with voting rights (impaired creditors) is subject to the approval by the bankruptcy court (omologazione).

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The vote is expressed pursuant to the silence-consensus principle (silenzio-assenso). Accordingly, the creditors that do not express their vote are considered to be in favour of the Plan and the Plan passes if 50% of the creditors with voting rights do not vote against the Plan.

The new concordato preventivo should help Italian companies to find solutions to financial problems well before arriving at an overtly irrevocable insolvency status, as has frequently been the case until now. This should help preserve going concerns and productive assets and for certain aspects it duplicates the U.S. approach to handling financial difficulties, as addressed by the Chapter 11 discipline.

In addition to the above, before a Plan is filed the concordato preventivo proceeding may be converted into a pre-packaged agreement: the accordi di ristrutturazione proceeding (i.e. Article 182-bis Agreement). The accordi di ristrutturazione

is a restructuring/liquidating proceeding briefly concerning an out-of-court agreement with at least 60% of the creditors (in amount). In such a case, the plan/agreement that is approved out-of-court by at least 60% of the creditors is not required to be put to a vote and is immediately submitted to the bankruptcy court for approval (omologazione).

Can we consider this revised Italian concordato preventivo to be the new Italian Chapter 11?

For further information please contact:

Alberto Angeloni Senior Associate T +39 06 688801 alberto.angeloni@dlapiper.com