Understanding Italy’s new concordato preventivo
January 2013 | 10QUESTIONS | BANKRUPTCY & RESTRUCTURING
FW speaks to Luca Petroni, a partner at Deloitte, about Italy’s new bankruptcy laws.
FW: What were the main drivers behind the introduction of Italy’s new bankruptcy rules?
Petroni: Within the Decreto Sviluppo the Italian government has edited our present bankruptcy law, introducing new articles concerning both debt restructuring, and the procedure di concordato, something similar to Chapter 11 in the US. The overall rationale of the new rule is twofold: to make it easier and faster to access Chapter 11-like protection, thereby increasing the chance that a business can be preserved rather than entering into bankruptcy.
FW: What are the key features and processes of the concordato preventivo?
Petroni: The most significant new rule is the domanda in bianco – blank filling – through which an entrepreneur can request Chapter 11 like protection without presenting all of the necessary documents to obtain the court clearance. Within 60 TO 120 days – plus an additional 180 days if the court sees special reasons – the entrepreneur has to fill the ‘full’ request of concordato, presenting all the documents requested, including a viable business plan attested by an independent professional. This opportunity essentially buys time and protects the business from possible action from creditors during the crucial weeks when the request for protection is being prepared.
FW: Could you explain the role and responsibilities of the judicial commissioner?
Petroni: The judicial commissioner supervises and oversees extraordinary management decisions and ensures that all parties respect the agreements.
FW: Could you outline the main advantages of the concordato preventivo from a debtor’s perspective?
Petroni: The primary benefit is to give a business the opportunity to turn itself around when the enterprise is under severe financial constraints.
FW: In what ways have the new rules altered access to interim financing?
Petroni: The new Article 182, Section 5 has introduced ‘interim financing’. Here, the court can grant the benefits of prededuction, immediately after the request of court protection and before the approval of decreto di omologa – the decree in which the court approves the procedures. This provision has been warmly welcomed by the banks which, under the old rules, were reluctant to take the risk of granting bridge financing before the decreto di omologa.
FW: What benefits, if any, does the new process offer to creditors?
Petroni: The real benefit for creditors is that the new rules should increase the chance of business turnaround, avoiding unnecessary bankruptcies.
FW: Can you explain the new creditor ‘classes’ introduced under the new rules?
Petroni: Ordinary creditors can now be split into ‘classes’, – groups of creditors with similar features. To each class the plan can offer different percentages of payment. Typical examples of categories are: (i) Financial institutions; (ii) other companies belonging to the same group of the company that is filing for protection, and (iii) suppliers / other ordinary creditors/. When the creditors of each class vote on the acceptance of the proposal there must be a majority vote, not only within each class, but also a majority from the other classes as well. This means that you must have an odd number of classes to avoid a tie or a stalemate which would have to be resolved by the court.
FW: Overall, what has been the reaction of practitioners to the provisions outlined in the new rules?
Petroni: By and large there has been a positive reaction. As expected, the opportunity to file a ‘blank demand’ has proved very popular. We are still at the very beginning of understanding the new regulations and we expect that the court will be overwhelmed by all these filings. This could cause a crisis in the already stressed Italian civil court system.
FW: What impact do you expect the concordato preventivo to have on business activities in Italy going forward?
Petroni: This is a very difficult question to answer. For example, the previous legislative reform of 2005 had a positive impact on the various insolvency procedures. Based on the latest market information in the first nine months of 2012, debt restructuring increased by 16 percent and, in particular, the number of procedure di concordato show an increase of 18 percent. Meanwhile, despite the severe economic crisis, the number of bankruptcy procedures have increased by only 2 percent and liquidations show an increase of only 0.3 percent in respect to the same period last year. Considering that these new rules are an improvement of the previous rules, I believe they will have a very positive effect. However, this depends crucially on how the court will apply the rules, hopefully with a ‘common sense’ approach. Judgements which are fair and even handed across different jurisdictions, avoid misinterpretation. Furthermore some other legislative adjustments would be welcome, such as the introduction of a concordato preventivo for company groups and conglomerates.
FW: The Monti government has pledged to reduce the number of courts in Italy, as part of its cost-cutting program. What impact do you believe this will have on bankruptcy procedures?
Petroni: My experience is that the judicial system – including bankruptcy procedures – depends more on the managerial skill of judges than on the rules and formal organisation of the courts. What I am most fearful of is the reduction in the number of judges and assisting staff, rather than the number of the courts that are often scattered around the country according to old geographical criteria that no longer applies.
Luca Petroni is a partner at Deloitte. He currently leads the Restructuring Advisory Department of Deloitte Financial Advisory Services in Italy. He is expert in Turnaround Planning, Debt Restructuring and Debt Reorganisation, Independent Business Review and has an in-depth knowledge of Italian bankruptcy procedures. Mr Petroni has acted as project leader in many restructuring operations such as Alitalia, the Italian Air Carrier and Hospital San Raffaele in Milan. He can be contacted on +39 06 3674 9382 or by email: email@example.com.
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