High Court Tightens Section 546(e) Safe Harbor for Securities Transaction Payments

International Legislative Update: Italian Bankruptcy Reforms

On January 10, 2019, the Italian government approved the Code for Distress and Insolvency (Codice della Crisi d’Impresa e dell’Insolvenza—the "CDI" ) as part of Legislative Decree No. 14 of 2019, to replace the Italian Bankruptcy Law of 1942. With certain exceptions, the CDI will enter into force on August 14, 2020, unless amended by the Italian Parliament prior to the effective date.

The CDI does not supersede the rules applying to the insolvency of large companies (depending on the law involved, generally enterprises with more than either 200 or 500 employees, with at least €300 million in debt), which are subject to "extraordinary administration" in accordance with: (i) the "Prodi-bis law" enacted in the wake of the 1970s industrial crisis and amended in 1999 to be compatible with European law; and (ii) the "Marzano law," which was enacted in 2003 to address some of the inadequacies of the Prodi-bis law. A detailed discussion of Italy’s extraordinary administration procedures is available here.

For companies not subject to extraordinary administration, the principal purpose of the CDI is to establish "safeguard procedures" for identifying financially distressed businesses at the earliest opportunity, with the goal of preventing insolvency and liquidation (fallimenti), and, in cases where insolvency cannot be avoided, to promote renewed profitability by means of restructuring and reorganization. In service of that goal, the CDI, among other things:

  • Limits the use of judicial compositions with creditors (concordato preventivo) to going-concern restructurings, as distinguished from liquidations;
  • Puts in place measures to ensure that companies implement organizational structures designed to identify and remedy financial crises at the earliest opportunity;
  • Modifies existing rules governing out-of-court and in-court restructurings and insolvencies to establish a consistent set of procedures applicable to all restructuring and insolvency mechanisms;
  • Changes certain rules governing the obligations of company directors to disclose financial distress and to appoint a board of statutory auditors and provides incentives for taking prompt action to remedy a crisis;
  • Simplifies court proceedings by, among other things, implementing online procedures for creditors to approve a concordato preventive;
  • Makes it easier to bind dissenting creditors to the terms of debt restructuring agreements by means of "cramdown";
  • Reformulates several provisions governing the ability of a corporate debtor to obtain new financing during a restructuring;
  • Amends existing procedures and introduces new ones for governing and coordinating group company insolvency proceedings, standstill agreements with nonfinancial creditors, and early-warning mechanisms; and
  • Attempts to harmonize Italian insolvency procedures with the Recast Insolvency Regulation (EU) 2015/848, which became effective in the European Union in July 2018.
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