The so-called Business Crisis Bill (Law Decree 118 of 24 August 2021) has now been converted into statute (Law 147/2021 published on the Official Gazette on 23 October 2021) (the Business Distress Act, “BDA").
These provisions are among the many recently adopted by the Italian government to address corporate distress following the COVID-19 pandemic, to provide companies with new legal tools to prevent the onset of economic distress or overcome reversible financial instability.
The main innovations introduced by the BDA include:
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postponement to 16 May 2022 of entry into force of the Italian insolvency law reform, i.e. of the new Business Distress and Insolvency Code ("BDIC"), with the exception of Title II relating to alert measures (scheduled to enter into force on 31 December 2023),
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the introduction of a new Negotiated Composition tool to settle business distress (composizione negoziata), into force as of 15 November 2021 ("Negotiated Settlement"),
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’simplified’ composition with creditors with liquidation aims (concordato semplificato), to be used at the end of the Negotiated Settlement as an alternative to existing creditor arrangement tools (composition with creditors and debt restructuring agreement), and
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the amendment of certain Italian Bankruptcy Law provisions to incorporate innovations introduced by the BDIC insolvency law reform and anticipate its effects, notably on debt restructuring agreements (e.g. ‘extended effectiveness’ agreements also applicable to non-financial creditors, and new ‘facilitated’ restructuring agreements).
The core innovation introduced by the BDA is Negotiated Settlement.
NATURE/ACCESS - Access is on a voluntary basis through an online platform, by any company experiencing financial or economic instability, where distress or insolvency are likely. It is a negotiated, out-of-court settlement tool under the supervision of an independent expert supporting in the negotiations to recover economic and financial stability. For groups of companies, there is only one application for access, centred in the place of venue of the company exercising management and coordination or of the company with the largest debt.
BUSINESS RUNNING - The expert’s appointment does not open a proper restructuring process nor results in any divestment of the assets of the company, whose directors continue to manage the ordinary and extraordinary course of business and may inter alia make payments or seek super-priority loans upon court application. Company management is to be carried out so as not to jeopardise the economic and financial sustainability of the business and "in the overriding interest of creditors" in the event of emerging insolvency.
OUTCOME - Successful negotiations may lead to the implementation of agreements and resolution instruments as listed in the BDA. Otherwise, the company may have access to the creditor arrangement tools provided by Italian insolvency law (i.e. composition with creditors or debt restructuring agreements) as well as to the new ‘simplified’ composition with creditors procedure (concordato semplificato).
BENEFITS - Following the opening of the Negotiated Settlement process, the company may also seek certain benefits and bonus measures granted to incentivise the use of this tool, such as: asset protection measures, suspension of recapitalisation obligations and of the causes of dissolution in the event of reduction or loss of share capital, and tax benefits. When, in applying for Negotiated Settlement, a company seeks asset protection measures, these require court approval, and the relevant application is also published in the Company Register.
OTHER - Technical provisions introduced by the BDA include: (i) the online platform being managed by the Chambers of Commerce under the supervision of the Ministries of Justice and Economic Development), (ii) experts enrolling in a public registry, and (iii) upon appointment of the expert, corporate recapitalization and dissolution duties being suspended until end of the negotiations or termination of the Negotiated Settlement.
Lastly, several deadlines are postponed for companies to the 2023 financial statement approval board meeting: deadline for LLCs and cooperative companies incorporated as of 16 March 2019, to appoint mandatory control bodies or the statutory auditor and, where necessary, to align their memorandum and articles of association with Civil Code provisions.
Next steps
The newly enacted provisions of the BDA appear undoubtedly pragmatic and ambitious, characterised by innovative elements aimed at potentially superseding the most problematic aspects of the BDIC (especially insofar as alerts and SME distress).
Negotiated Settlement, in particular, into force as from 16 November 2021, was generally welcomed positively by sector operators, as it offers companies the opportunity to react effectively to distress through a more streamlined and rapid process, where the key role is played by the independent expert, entrusted to guide the debtor out of the economic downturn, significantly influencing the success of this new instrument.
Attention should now be brought to the implementation of the Negotiated Settlement tool, to be monitored over time to assess the its effectiveness and suitability to achieve the desired aims.
Authored by Filippo Chiaves, Ernesto Apuzzo, Pierantonio Musso, Alessandra Dima, Giulia Melegari, Giulia Vettori, and Valerio Vadalà.
