Vol 2 (2005) - Issue 3

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Italian Extraordinary Administration Procedures in the Wake of Cirio and Parmalat and an Overview of the Current Italian Bankruptcy Law Reforms

Italian extraordinary administration laws in the wake of Cirio and Parmalat

The Italian insolvency regime is mainly regulated by the Royal Decree No. 267, 16 March 1942 (the ‘Italian Bankruptcy Law’). Nonetheless, during the past 60 years this bankruptcy system has been changed by means of several laws and judgments rendered by the ‘Corte Costituzionale’, in order to satisfy various issues, especially those in connection with a large group of companies in insolvency status.

The Extraordinary Administration Laws

The first major change in this respect came with the Law No. 95, 3 April 1979 (the ‘Extraordinary Administration Law’ known as ‘Legge Prodi’) when the government recognized that large Italian companies with big labour forces and with economic importance could be provided with guarantees by the government for interim loans to help sustain the insolvent company while a sale (of either the whole company or separate assets) could be arranged to satisfy creditors.
The Legge Prodi remained unchanged until 1999 when the Legislative Decree No. 270, 8 July 1999 (the ‘New Extraordinary Administration Law’ known as ‘Legge Prodi bis’) established a procedure intended to accomplish the same objective of protecting employees in large distressed companies through a programme of rehabilitation rather than liquidation. This is the Cirio case.
Under the New Extraordinary Administration Law large enterprises or big industrial groups can be admitted to the procedure if:

(a) the company has not less than 200 employees for at least the last trading year;

(b) the company has a total debt of not less than two thirds of the total value of the assets and profits for the last financial year.

Upon satisfaction of both the conditions above, then either the Court, the company itself, one or more creditors, or a public minister can ask the Court to declare the company insolvent with a view to admitting it to the New Extraordinary Administration Procedure. A judge is appointed by the Court to oversee the whole process and, in agreement with the Ministry of Industry, one to three Judicial Commissioners (as in the case of Cirio), depending on the complexity of the case. The Minister of Industry also appoints a supervisory committee composed of three or five members to assist the commissioner. The process can only go ahead if the company can show real prospects of recovering economic stability by either a programme of sale of businesses – which cannot go on for more than one year - or by means of a recovery programme, lasting no more than two years. If the conditions above are not or can no longer be satisfied, then the Court opens insolvency proceedings (‘Fallimento’).

The ‘Decreto Marzano’and the ‘Concordato’

Despite numerous insolvencies being filed under the Legge Prodi bis framework since its introduction, including the case of Cirio, nonetheless this procedure has raised several problems in supporting and rehabilitating insolvent companies and this may have been the reason for the Italian government’s response to the crisis of the Parmalat Group. In order to maintain Parmalat as a going concern, the Italian government had to adjust the Extraordinary Administration framework by means of several changes.