Vol 5 (2008) - Issue 3

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The 'Counter-Reform' of the Italian Bankruptcy Law

Following the drastic changes made to the Italian bankruptcy legislation by Law No. 5 dated 9 January 2006 (the ‘Reform’), the new rules have encountered some difficulties in their application to the Italian economic system, which is mainly composed of small and medium firms. Consequently, there has been a call for new legislative intervention on this matter.

Therefore, on 7 September 2007, The Italian Government finally approved Legislative Decree no. 169 (‘Counter-Reform’), including further provisions supplementing and amending the Bankruptcy Law.

The Counter-Reform, which came into force on 1 January 2008, addresses various regulatory matters relating to the bankruptcy procedure and also contains some amendments relating to preventive arrangement with creditors and debt-restructuring agreements.

The main amendments can be divided into three groups:
a) those relating to the identification of entrepreneurs subject to bankruptcy by the introduction of new bankruptcy thresholds;
b) those relating to the harmonisation of provisions on preventive arrangement with creditors (‘Concordato Preventivo’)3 and provisions on composition in bankruptcy (‘Concordato Fallimentare’); and
c) those regulating judicial debt restructurings.

Entrepreneurs subject to bankruptcy and new bankruptcy thresholds

The first and most substantial amendment to the Bankruptcy Law relates to the new definition of entrepreneurs subject to bankruptcy which has been introduced for the purpose of extending the range of eligibility for bankruptcy.

As a result of the Reform, a situation had arisen where even highly indebted large business owners were prevented from going bankrupt, which not only affected many creditors, but also damaged the economic system in general.

In order to address this problem, the Counter-Reform has set new boundaries with regard to those subjects exempted from bankruptcy. It no longer refers to the concept of ‘small entrepreneur’, but rather to a series of thresholds which, on the whole, entrepreneurs must not exceed in order to avoid declaration of bankruptcy and preventive arrangement with creditors.

To avoid a declaration of bankruptcy, the relevant entrepreneur must now prove that it:

-had assets not exceeding EUR 300,000 over the three financial years before the filing date of the application for bankruptcy or before the starting date of its activity (if shorter);
– had achieved gross annual revenues no higher than EUR 200,000; and
– had a total indebtedness not exceeding EUR 500,000 (including non-overdue debts).

The definition of ‘small entrepreneur’ has effectively been replaced by a new definition.