Insolvency proceedings are an integral part of business-commercial activities, in circumstances whereby a person or corporation might need to institute proceedings to rehabilitate its business activities or even to liquidate the company.

Insolvency reflects a factual situation in which a debtor (person or corporation) encounters economic and cash flow difficulties to the extent that the debtor is incapable of paying its debts to creditors on time.

On May 3, 2016 the Italian government approved Law Decree No. 59 (the “Decree”) which, inter alia, provides for new types of security and introduces streamlined in-court and out-of-court enforcement procedures. In addition, the Decree mandates the setting up of a centralized electronic register for security enforcement proceedings and insolvency and pre-insolvency restructuring proceedings. The Decree aims to facilitate financings and secondary debt transactions by reinforcing creditors’ rights and providing more flexible instruments to lenders and borrowers.

Proposed changes in Italian law mean that it should become easier to create certain types of security in Italy and to recover debt. The relevant law is Decree-law no. 59/2016 (“Urgent provisions on insolvency and executive procedures’’) which came into force on 4 May 2016 and which should be converted into binding law by early July.

The main changes introduced by the Decree are as follows:

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.

Italian bankruptcy law — Royal Decree No. 267 of 16 March 1942 — (the Bankruptcy Law) underwent a substantial reform between 2005 and 20091, mainly aimed at introducing (i) a more efficient regulation of the pre-bankruptcy agreement procedure (concordato preventivo)2 and (ii) new pre-bankruptcy schemes of arrangements, in the form of the out-of-court debt restructuring plan (piano attestato di risanamento)3 and the debt restructuring agreement (accordo di ristrutturazione dei debiti)4.

During the last few years, Italian bankruptcy law has been shifting from a traditional "procedural/judicial" model, based on the central role of courts called upon to safeguard the "public interest" involved in bankruptcy by actively directing the procedure and making the most important decisions, to a model that recognizes the private interests of creditors. Under the new paradigm, creditors are conferred with decisional powers, while courts maintain a principally supervisory role.

Overview of Insolvency Rules and Restructuring Procedures Pursuant to Italian Bankruptcy 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.

Japanese mobile phone service operator Willcom has filed for bankruptcy protection after failing to reach agreement with creditors on the restructuring of the company’s US $2.3 billion debt load. Filed late last week under Japan’s corporate rehabilitation law, the petition ranks as the largest bankruptcy to affect a Japanese telecom carrier. It is expected to wipe out the investment of the Carlyle Group, the U.S.-based private equity firm that, in 2004, paid US $330 million for a 60% controlling stake in what was then the mobile phone unit of KDDI Corp.

Court Acceptance of Petition for Corporate Reorganization