General remarks

On 15 June 2012 the Italian Cabinet (Consiglio dei Ministri) approved a law decree introducing certain urgent measures aimed at the growth and development of the Country (the "Development Decree"). The Development Decree has been published on the Official Gazette of the Italian Republic (Gazzetta Ufficiale) on 26 June 2012 (Law Decree No. 83 of 22 June 2012) and will have to be subsequently converted into law, with or without any amendments, within 60 days from the date of its publication.

Article 33 (Amendments to the Italian Bankruptcy Law in order to support the going concern) of the Development Decree significantly amends the Royal Decree n. 267 of 16 March 1942 (the "Italian Bankruptcy Law") and, in particular, its provisions regarding pre-insolvency workout agreements (concordato preventivo), restructuring agreements pursuant to article 182-bis of the Italian Bankruptcy Law and restructuring plans pursuant to article 67 para. 3 (d) of the Italian Bankruptcy Law. Not only did the Development Decree amend the existing provisions but it also introduced new provisions in the Italian Bankruptcy Law itself.

As a preliminary remark, it is worth noting that the provisions amended and introduced by the Development Decree in the Italian Bankruptcy Law will only apply to pre-insolvency workout agreements and restructuring agreements pursuant to article 182-bis of the Italian Bankruptcy Law in relation to which filing with the Court occurs after the thirtieth day from the entry into force of the law converting the Development Decree and to restructuring plans pursuant to article 67 para. 3 (d) of the Italian Bankruptcy Law drafted after such date. In the meanwhile the Italian Bankruptcy Law will continue to apply as it is to pre-insolvency workout agreements, restructuring agreements and restructuring plans elaborated and filed before the aforementioned date.

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1. Restructuring plans and prerequisites of the third party expert

As to the restructuring plans pursuant to article 67 para. 3 (d) of the Italian Bankruptcy Law, the reform carried out by the Development Decree introduced a new and more specific set of rules about the prerequisites and the duties of the third party expert as well as the possibility to publish the restructuring plan in the competent Companies' Register upon request of the debtor.
As to the first point, it shall be underlined that, after the reform, the scope of work of the expert's certification will not be anymore the reasonableness of the plan but, indeed, the "truthfulness of the accounting data ("dati aziendali") and the feasibility" of the plan, in line with the provisions governing the pre-insolvency workout agreements.
New article 67 para. 3 (d), moreover, expressly states that the expert shall be appointed by the debtor (thus sorting out the debate on the competence over such an appointment) and that its independency shall be assessed pursuant to the following prerequisites:

(i)absence of any professional or personal relationship with the company or with those bearing an interest in the restructuring such as to compromise its independency of judgment;

(ii)possession of the requisites provided by the Italian Civil Code for the eligibility as internal auditor (sindaco) (see article 2399 of the Italian Civil Code);

(iii)absence, during the last five years, of any performance of work (whether as an employee or as a consultant, also through professionals with whom the expert is associated) in favour of the debtor or absence of any participation in the governing or auditing bodies of the debtor.

By virtue of the cross-references contained in the Italian Bankruptcy Law the aforementioned requisites shall apply also in the context of pre-insolvency workout agreements and restructuring agreements.

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2. Restructuring plans pursuant to article 182-bis of the Italian Bankruptcy Law: repayment in full of the creditors that are not parties to the agreement

Article 182-bis, as amended by the Development Decree, provides that the debtor shall ensure repayment in full (thus not just "regularly" as provided by the current wording) of the creditors who are not parties to the restructuring agreement and that such full repayment shall be made within the following terms:

(i)within 120 days from the Court's approval (omologazione) in respect of any receivables due and payable on such a date; and

(ii)in respect of any receivables not yet due and payable on the aforementioned date, within 120 days from their respective due date.

Such provision seems to be in line with the most recent case law, according to which a restructuring agreement can be approved by the Court only provided that, as of the date on which the request for approval of the restructuring agreement is filed within the competent Court, financial resources are actually available so as to ensure the repayment of the creditors not joining the restructuring agreement.
Article 182-bis also provides that starting from the date on which the restructuring agreement is published and for the following 60 days, the creditors whose rights and claims are outstanding prior to such date not only, as already provided, cannot exercise any enforcement or conservative actions over the debtor's assets but also cannot obtain any pre-emption rights (except if it was so agreed).
Finally, new article 182-bis allows the debtor, who has timely filed a proposal of restructuring agreement pursuant to the Italian Bankruptcy Law, to file a request for a pre-insolvency workout agreement within the term stated by the Court: in such a case, the debtor's assets will continue to benefit from the protective effects granted by the Italian Bankruptcy Law.

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3. The new pre-insolvency workout agreements

Provisions regulating pre-insolvency workout agreements have been significantly amended by the Development Decree.

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3.1 Filing for admission to a pre-insolvency workout agreement

Significant changes have been made starting from the very first phase of the procedure leading to a pre-insolvency workout agreement, i.e. the filing for admission to the procedure.
Article 161 of the Italian Bankruptcy Law, as amended by the Development Decree, now states that - along with the documents already provided- a "plan containing an analytical description of the modalities and the timing for the performance of the proposal" shall be attached to the request. In addition to that, a relevant innovation has been provided for the debtor who can file with the competent Court just a simple request for admission to the pre-insolvency workout agreement (which shall be published by the Court's clerk in the competent Companies' Register within one day), provided that it shall file the proposal, the plan and the other necessary documents within a term established by the Judge and which shall be included between 60 and 120 days from the date of filing of the sole request.
As an alternative, and within the aforementioned term, the debtor will also be entitled to file request for approval of a restructuring agreement: in such a case, the debtor's assets will continue to benefit from the protective effects granted by the Italian Bankruptcy Law up until the date on which the restructuring agreement is approved.
It has also been provided that in the period included between the date of filing of the request and the date of the decree of admission to the pre-insolvency workout agreement the debtor can execute not only acts of ordinary management but also urgent acts of extraordinary management provided that, in such a case, it has been duly authorized by the Court. All the third-party claims which may arise from any acts legally executed by the debtor will be deemed super-senior (prededucibili).
Finally, it is worth noting that the rules introduced by the Development Decree expressly provide for the possibility to make (even substantial) changes to the plan or the proposal: in such a case, the expert will have to draft a new certification.

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3.2 Non effectiveness of judicial mortgages and rules governing pending contracts

The Development Decree modified the date starting from which the creditors cannot exercise enforcement and conservative actions against the debtor's assets: instead of the date of filing of the request, such a date will be the one on which it is published in the Companies' Register. It shall be noted that the judicial mortgages registered during the 90 days preceding such date will not be effective towards creditors whose claims arose before the pre-insolvency workout agreement.
The Development Decree also introduced a significant innovation as to the rules governing pending contracts. Newly introduced article 169-bis of the Italian Bankruptcy Law provides that the debtor, by means of the request for admission to the pre-insolvency workout procedure, is entitled to ask the Court - or, subsequently to the decree of admission, the delegated judge (giudice delegato)- for the authorization to withdraw from the pending contracts or to suspend their execution for no more than 60 days. In both cases, the counterparty will be indemnified against the damages suffered because of such a withdrawal and its credit will be satisfied as a claim arisen prior to the pre-insolvency workout agreement.
Article 169-bis does not apply to employment contracts, real estate lease agreements and to preliminary agreements for the sale of a real estate property designated to be the main house of the buyer or of its relatives (parenti e affini) within the third grade, provided that they have been registered in accordance with the Italian Civil Code.

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3.3 Pre-insolvency workout agreements with going concern

The Development Decree introduced in the Italian Bankruptcy Law a specific provision (article 186-bis) dealing with the hypothesis in which the pre-insolvency workout plan provides for the continuation of the business activity, the sale or transfer of the active business-concern to one or more companies - also newly established. This is the hypothesis of the so-called "pre-insolvency workout agreement with going concern".
In such a case, and provided that the plan may also provide for the liquidation of non-instrumental assets, the following requisites shall be verified:

(i) the documents to be attached to the request for admission to the pre-insolvency workout procedure shall contain a detailed forecast of the costs and proceeds arising from the continuation of the business activity provided by the plan, together with a specific indication of the financial resources and of their respective coverage; and

(ii)the expert shall certify, in its certification, that the continuation of the business activity is instrumental to a better satisfaction of the creditors.

Moreover, the plan may provide for a standstill of the payment to preferred creditors (creditori privilegiati) up to one year from the approval (omologazione) of the pre-insolvency workout agreement, exception made for the case of a liquidation of assets or rights on which a right of pre-emption exists.
The rules governing the pre-insolvency workout agreement with going concern contain specific provisions regarding the agreements which are pending as of the date on which the request for admission is filed- and which will not be automatically terminated as a consequence of the procedure- and also regarding contracts entered into with public entities.
Such public contracts may continue to be effective provided that the expert certifies that they are in conformity with the plan and that the debtor has a reasonable capacity to perform the contracts.
Finally, the newly introduced article 186-bis provides that a company admitted to a pre-insolvency workout agreement with going concern may take part in public procurement contracts, provided that, in the tender, it will exhibit the following documents:

(i)a report of an expert attesting the conformity with the plan and the reasonable capacity to perform the contract;

(ii)a declaration made by a different operator, which has the general, financial, technical and economical requisites, along with the certifications, requested for the award of the contract and which has undertaken towards the competitor and the contracting authority (stazione appaltante) to make the resources necessary for the execution of the contract available for all the duration of the contract and to replace the company in case it goes bankrupt during the tender or after the signing of the contract, or in case it becomes unable to regularly execute the contract for any reasons whatsoever. Rules contained in the Italian Code of Public Contracts governing the so called "avvalimento" will be applicable.

The company will also be entitled to compete also by means of a temporary joint-venture with other companies, provided that such companies are not experiencing any insolvency proceedings and that the company itself does not act as agent.

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4. Provisions common to pre-insolvency workout agreements and restructuring agreements

The Development Decree introduced in the Italian Bankruptcy Law articles 182-quinquies and article 182-sexies, which apply both to restructuring agreements and pre-insolvency workout agreements.

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4.1 Granting of new financial resources and going concern

Article 182-quinquies contains provisions regarding the granting of new financial resources and the so-called "going concern".
As to the first point, this article provides that the debtor, when making request for admission to the pre-insolvency workout procedure or for the approval of a restructuring agreement (or of a proposal of restructuring agreement) may ask the Court for the authorization to execute new super-senior facility agreements, out of the scope and in addition to those provided by article 182-quater of the Italian Bankruptcy Law, provided that an expert (in possession of certain requisites), once it has verified the company's financial needs up until the approval from the Court (omologazione), certifies that such facilities are aimed at a better satisfaction of the creditors. Such authorization may also concern facilities identified only by typology and amount and which have not yet been negotiated, as well as the granting of a pledge or mortgage in order to secure the facilities themselves.
As to the second point, article 182-quinquies provides that:

(i)a debtor that has filed request for admission to the pre-insolvency workout agreement with going concern is entitled to ask the Court to be authorized to pay credits for the supply of goods or services which have arisen prior to the pre-insolvency workout procedure, provided that it submits a specific certification made by an expert in possession of the requisites provided by the Italian Bankruptcy Law. Such a certification will not be necessary in case of payments made up to an amount equal to the one granted to the debtor as new financial resources, that are not to be repaid or that are subordinated to the other creditors' claims.

(ii)a debtor that has filed for an approval of a restructuring agreement or a proposal of restructuring agreement pursuant to the Italian Bankruptcy Law is entitled to ask the Court to be authorized, provided that the conditions listed under para (i) above are satisfied, to pay credits for supply of goods or services that have arisen prior to filing. In such a case, these payments will not be subject to claw-back action pursuant to the Italian Bankruptcy Law.

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4.2 Non applicability of rules governing the reduction and loss of share capital

According to the newly introduced article 182-sexies, the rules governing the loss and reduction of the share capital set forth in the Italian Civil Code do not apply to the Italian companies during the period included between the date of filing of the request for admission to the pre-insolvency workout agreement or for the approval of the restructuring agreement (or proposal of a restructuring agreement) and the date of their respective approval (omologazione). During such period, moreover, the rule according to which a company shall be wound up in case of reduction or loss of the share capital will not apply.
Nevertheless, during the period preceding the filing of the aforementioned requests or of the proposal of a restructuring plan, article 2486 of the Italian Civil Code - providing for the powers and duties of the directors after the company's winding up- will be applicable.

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5. Criminal liability of the expert

The Development Decree also introduced a specific provision concerning the criminal liability of the expert in case of false certification and reports. Article 236-bis of the Italian Bankruptcy Law states that the expert who, in a report or certification to be provided in the context of a restructuring plan, pre-insolvency workout agreement or restructuring agreement, certifies false information or leaves out relevant information shall be punished by imprisonment for a term of two to five years and by payment of a fine for an amount included between Euro 50,000 and Euro 100,000. The punishment shall be increased in case the expert acted in order to procure an unfair profit to itself or someone else. If the creditors are suffering damages because of such a conduct of the expert, the punishment will be increased by half.

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6. Further amendments to the Italian Bankruptcy Law: acts exempted from bankruptcy claw-back action

In addition to the amendments already outlined above it shall be noted that the reform also broadened the list of acts exempted from bankruptcy claw-back action. Article 67 para. 3 (e) of the Italian Bankruptcy Law, as amended by the Development Decree, provides that in addition to any act, payment and guarantee executed pursuant to a pre-insolvency workout agreement and a restructuring agreement, also any act, payment and guarantee legally executed after the filing of the request for admission to the pre-insolvency workout procedure shall be exempted from such an action.

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7. Tax provisions

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7.1 Taxation of extraordinary income ("sopravvenienze attive")

Article 33 para. 4 of the Development Decree modifies the rules governing the taxation of extraordinary income by amending article 88 para. 4 of Presidential Decree n. 917/1986 ("Tuir") (the Italian taxation act). Such article, as amended by the Development Decree, provides that in case of a restructuring agreement approved pursuant to article 182-bis of the Italian Bankruptcy Law or of a restructuring plan published in the competent Companies' Register pursuant to article 67 para. 3 (d) of the Italian Bankruptcy Law, the extraordinary income arising fromportion of the company's debt-reduction exceeding the tax losses regulated by article 84 of the Tuir does not amount to a taxable extraordinary income for the portion exceeding the tax losses available to the company pursuant to article 84 of the Tuir (i.e., tax losses accrued in the relevant tax period and/or rolled-over from previous tax periods which can be used by the company to offset the its taxable income).

This new exemption applicable to extraordinary income shall be added to the ones already provided for by article 88 para. 4 of the Tuir prior to the reform, i.e. the ones relating to sinking-fund contributions or capital contributions made by the shareholders to the companies, as well as to their waiver to the respective receivables and to the company's debt-reduction in the context of a post-insolvency workout agreement ("concordato fallimentare") or of a pre-insolvency workout agreement.

These amendments are significantly relevant for the debtor because they allow it to benefit from the tax exemption on extraordinary income also in case of any company's debt-reduction deriving from the application of the aforementioned restructuring procedures (which do not represent proper bankruptcy proceedings).

It shall be noted that the wording of the amended article 88 para. 4 of the Tuir provides that in case of a restructuring agreement pursuant to article 182-bis of the Italian Bankruptcy Law the debtor will be granted with the said tax exemption only after the restructuring agreement has been approved by the Court. In case of a restructuring plan pursuant to article 67 para. 3 (d), instead, the granting of the tax exemption is conditional upon the publication of the restructuring plan in the competent Companies' Register.

It shall also be noted that such new tax-exemption cases do not apply in respect of the entire amount of the extraordinary income, but only in respect of the portion of such income exceeding the pre-existing tax-losses of the debtor. As a consequence, the only effect of the new provisions is that the debtor may suffer a reduction or offsetting of the available tax losses regulated by article 84 of the Tuir.

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7.2 Deductibility of the credit losses

Article 33 para. 5 of the Development Decree also modifies the rules regarding the tax position of the creditors of a company facing a financial crisis, by amending article 101 para. 5 of the Tuir in respect of the deductibility of the credit losses. Article 101 para. 5 of the Tuir, as amended by the Development Decree, provides that the credit losses are deductible in case they result from clear and objective circumstances and, in any case, provided that the debtor is subject to any bankruptcy proceedings or that it executed a court-ratified restructuring agreement pursuant to article 182-bis of the Italian Bankruptcy Law.

Such a long-awaited amendment provides for the automatic deductibility of the credit losses - which prior to this reform was applicable only in case of certain bankruptcy proceedings (e.g. bankruptcy and "liquidazione coatta amministrativa") - also in the context of a restructuring agreement pursuant to article 182-bis; this rule seems to be also in line with the position already expressed by the Italian tax authorities in respect of the interpretation and applicability of article 101 para. 5 of the Tuir in the context of a restructuring agreement pursuant to the Italian Bankruptcy Law.

According to the new wording of article 101 para. 5 of the Tuir, therefore, any creditor accepting the reduction of its credit as a consequence of a restructuring agreement will be entitled to automatically deduct the corresponding loss once the restructuring agreement has been approved.

Finally it shall be noted that, according to the amendments made by the Development Decree to article 88 and article 101 of the Tuir, the debtor and its respective creditors do not share the same position: while the tax exemption granted to the debtor on extraordinary income applies to both restructuring agreements and restructuring plans pursuant to the Italian Bankruptcy Law, the automatic deductibility of the credit losses applies only in case of a restructuring agreement.

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