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Crisis and Insolvency

A glimpse on the changes to the Italian companies’ law following the recent approval of the new code of crisis and insolvency (formerly bankruptcy law)

On 12th January 2019 the new “code of crisis and insolvency” has been published on Italian Official Gazette (legislative decree 14/2019), which has completely reformed the Italian bankruptcy law and has also introduced changes to the Italian civil code and, in particular, to some companies’ law articles.

I will focus here on such latter changes not with the aim of being exhaustive but rather to draw the attention of foreign readers on the most relevant changes in order to allow him/her to seize news opportunities and, why not, prevent the occurrence of problems.

In the first place, starting from now entrepreneurs have new liabilities.

Due to the new paragraph of article 2086 of Italian civil code, introduced by the new code of crisis and insolvency, entrepreneurs shall set up administrative, organizational and accounting structures which are adequate for the nature of the company and, in particular, for a timely detection of the crisis (if any) and of the risk of losing the continuity of the business.

It will therefore “mandatory” to equip the company with a suitable and appropriate structure in order to guarantee business continuity, considering not only its dimension, but also the market in which it operates and the typical risks to which it may be exposed, considering these parameters as a whole and not each of them individually and separately.

Such a structure should, evidently, include adequate control (management) tools, which will allow the entrepreneur and the directors – who now have a specific obligation to do so according to article 2086, 2nd paragraph of the Italian civil code – to timely adopt and implement one of the instruments provided for by the code of crisis and insolvency in order to overcome the crisis and to maintain/recover the business continuity.

The newly introduced 2nd paragraph of article 2086 of the Italian civil code shall be regarded to, from now on, as a criterion generically applicable to all the companies (whether they are small business or large corporations) and as a rule which the entrepreneurs have to comply with in order to organize their businesses, the managers in order to manage the companies and the judge in order to evaluate the lawfulness and appropriateness of the conducts of the above mentioned individuals in the running of the business, thus, it might be said, mitigating the well-known principle of the so-called business judgement rule. One can argue that this criterion is similar, with all the due differences, to the one (“privacy by design”) introduced by the well-known GDPR, by which the personal-data holder has been charged with the responsibility to adopt the right instruments for preventing any personal-data breach.

In the second place, the directors are now held accountable to the creditors of the company according to the general duty imposed to them to properly run the business of the company with the aim to fulfil the corporate purpose by complying with the obligation to preserve the whole of the assets of the company, now expressly declined in the newly introduced paragraph of article 2476 of the Italian civil code. Should the company’s assets be insufficient to fully satisfy the creditors of the company as consequence of the activities carried out by the directors, such creditors – and in case of bankruptcy of the company, the receiver – may act directly against the directors pursuant to such new paragraph and the directors shall, therefore, be held liable for any mis-management of the company (not “covered”, if at all possible, by the so called business judgement rule) which triggered a substantial and illegitimate loss in the company’s assets.

With regards to the responsibility of the directors, the newly introduced 2nd paragraph of article 2086 of the Italian civil code states that when their responsibility is ascertained, without prejudice to prove a different amount, the damages the directors are liable for are presumed to be equal to the difference between the net assets value as on the date on which they ceased to hold office (or, in the event of an insolvency procedure, on the date of the starting of such procedure) and the net assets value on the date on which a cause for dissolution of the company occurred and until the liquidation has been completed.

In the light of the above it is apparent that all the elements mentioned recommend to entrepreneurs and directors to carry a very careful daily analysis of the company’s situation in order to immediately spot any issue relevant to the code of crisis and insolvency.

In the third (and last, for the purpose of this short article) place, an amendment to article 2477 of the Italian civil code has been also introduced, according to which also the Italian limited liabilities companies (società a responsabilità limitata or, in short, S.r.l.) shall be obliged to appoint a statutory auditor body (made up by one individual or by a board) and/or a chartered accountant more likely than in the past. The newly adopted article 2477 of the Italian civil code, in fact, has considerably lowered the thresholds (of the assets value, of the revenues and of the number of the employees employed on average during the year), whose overcoming triggers the mandatory appointment of the statutory auditor body or chartered accountant.

Furthermore, in the event of inaction of the company in their appointment once those thresholds are overcome, the Court will appoint them upon request from any interested party and now also, specifically, from the registrar of companies’ registry.

As far as the effectiveness of the changes to the Italian civil code articles by the code of crisis and insolvency, those mentioned above came into force as early as March 16, 2019 (as to the changes to article 2477 of the Italian civil code, it shall be noted that the deadline for the appointment of statutory auditors and/or chartered accountants has been set on December 16, 2019). With reference to other provisions (not subject of this short article), the date of their effectiveness is set for August 15, 2020, since it was decided to allow more time to adopt the needed organizational measures. In light of the above, it is clear that Italian companies shall have to take prompt action in order to check whether or not it is necessary for them to make changes to their structures or even to approve changes to their by-laws, such checking to be conducted on a case by case basis.

Alberto PREDIERI
Partner
Magnocavallo e associate

If you are interested to invest in Italy or if you need any legal advice in connection with Italy, do not hesitate to contact us and we put you in touch with Alberto PREDIERI from Magnocavallo e associate.

Alberto PREDIERI carries out his activities in the area of civil and commercial law, both out-of-court – providing advices, drafting legal opinions and agreements also in the context of extraordinary transactions (M&A) of significant value and complexity – and in-court. He has concentrated his activities in editorial (print, web, TV), energy, chemical, food, facility management and sports sectors. Alberto PREDIERI became partner of Magnocavallo e associate in 2005. The firm was founded at the end of 19th century and is based in Milan.

rothpartners collaborates with Alberto PREDIERI in the context of IR GLOBAL, the world’s largest group of advisers featured exclusively by practice area expertise.