Extraordinary Administration

Extraordinary Administration (EA) is an insolvency procedure that is specifically aimed at the restructuring process of the company - supervised by the Ministry for Productive Activities (Ministry) - and applicable to large scale entities with significant indebtedness.

Topic

Summary
What is the nature of the procedure?

The EA is a restructuring procedure aimed at satisfying the creditors, on the one side, and safeguarding business and employees’ rights, on the other side. It may be implemented through (i) the sale of the company's going concern, on the basis of a business plan having a duration of not longer than one year (Sale Plan), introduced in 1999 under Legislative Decree 270/1999 (Prodi-bis procedures) or (ii) the restructuring the company’s debt on the basis of a business plan having a maximum duration of two years (Restructuring Plan), regulated by Legislative Decree 347/2003 (Marzano procedures) and Law 39/2004.

Who can commence the procedure?

Prodi-bis: Pursuant to article 2 of the Prodi-bis Law, the EA applies exclusively to companies (or groups): (i) having at least 200 or more employees for at least one year; and (ii) have debts for an amount not lower than 2/3 of both the net equity and the total revenues of theprevious financial year.

: Pursuant to article 2 of the Law, the EA applies exclusively to companies (or groups): (i) having at least 200 or more employees for at least one year; and (ii) have debts for an amount not lower than 2/3 of both the net equity and the total revenues of theprevious financial year.

 

Prodi-bis procedures can be started by: a creditor; the debtor; the public prosecutor; or the court.

procedures can be started by: a creditor; the debtor; the public prosecutor; or the court.

 

*****

 

Marzano: pursuant to article 1 of Law 39/2004, the EA applies exclusively to companies (or groups): (i) having at least 500 or more employees for at least one year; and (ii) which have debts for an amount not lower than €300,000,000.00.

: pursuant to article 1 of Law 39/2004, the EA applies exclusively to companies (or groups): (i) having at least 500 or more employees for at least one year; and (ii) which have debts for an amount not lower than €300,000,000.00.

 

Only the debtor can initiate the Marzano procedure.

Are there any corporate thresholds?

See above.

 

Is there a moratorium?

An automatic stay prevents creditors from taking further action against the debtor and its assets to enforce security or collect their debts.

Who is in charge?

The Ministry appoints a judicial trustee to control the company and act as the representative of the insolvent estate. During the Prodi-bis procedure, there can be up to three commissioners.

How are they selected, including voting thresholds?

N/A

Is there a plan? Who votes and what are the thresholds?

There is a liquidation or restructuring programme. The Ministry must approve the proposed liquidation or restructuring programme.

 

Creditors cannot vote on or challenge the plan. During the Marzano procedure, the commissioner can propose a settlement to creditors which, if accepted, concludes the procedures. This is the only time that creditor consent is required. In this case, majority consent from the creditors is required.

What can the plan do?

The commissioner draws up a plan to repay the debtor’s creditors. This takes the form of a liquidation programme or a restructuring programme. The commissioner can convert a liquidation programme into a restructuring programme and vice versa, provided that the Ministry approves this change within one year of having approved the initial plan.

If not approved by the necessary majorities, can the plan still be approved?

Yes, the plan can still be approved. According to article 4 bis of Law 39/2004, notwithstanding the disagreement of one or more categories of creditors, the court is also entitled to approve the settlement in the event that: (i) the majority of the categories has approved the proposal of settlement; and (ii) the creditors belonging to the dissenting categories might be satisfied with an amount not lower than possible amount(s) recoverable by means of other feasible procedures.

What is the exit route?

The procedures end when the commissioner completes the liquidating or restructuring programme. During the Marzano procedure, the procedures can conclude earlier, if creditors accept a settlement proposed by the commissioner. If the programme does not succeed, extraordinary administration procedures can be converted into insolvency procedures.

What is the priority of payments?

N/A

Is there a creditors committee?

Yes there is a creditors’ committee, but the committee’s opinions are not binding on the commissioner, the court or the Ministry.

How involved is the court?

As far as the procedure is concerned, the declaration of insolvency of the company is mandatory for admission to the EA, in particular: (i) a petition for the declaration of the insolvency status is filed with the bankruptcy court (of the venue where the company is domiciled or has its registered office) by: (i) the company itself (i.e., the directors); (ii) the public prosecutor; (iii) one or more creditors; and (iv) the same bankruptcy court; it is understood that the above petition may be filed only in the event that the relevant company meets the requirements provided for by article 2 of the Prodi bis Decree.

(ii) within fifteen days of filing the above petition, the bankruptcy court may declare the status of insolvency (Declaration of Insolvency)

(iii) the bankruptcy court ascertaining the insolvency status also appoints the delegated judge and one or more judicial trustee(s) - in accordance with the Ministry instructions -(Judicial Trustee) (1). The bankruptcy court also schedules the term (maximum 120 days) for the creditors to file their motion indicating the amount of their respective claims

(iv) within thirty days of the Declaration of Insolvency, the Judicial Trustee shall file with the bankruptcy court a preliminary recovering report aimed at showing: (a) the ground of the insolvency; and (b) the existence of a possibility to recover the company, pursuant to article 27 of the Prodibis Decree (2)

(v) within the same thirty day term, the Judicial Trustee shall send a copy of the above recovering report to the Ministry; the latter is entitled - within ten days of receiving such report to file its comments with the bankruptcy court

(vi) within thirty days of the Judicial Trustee filing the above recovering report, the bankruptcy court may: (i) admit – by means of a decree - the company to the EA (provided that the conditions required by article 27 of the Prodibis Decree are met) and therefore declare the opening of the EA procedure (EA Commencement Date); or (ii) should the above conditions not be met, declare the company bankrupt

(vii) within five days of the EA Commencement Date, the Ministry appoints a number of Extraordinary Trustee(s) (from one to three) (Extraordinary Trustee) (3), simultaneously granting them a formal mandate to prepare the final draft of the Sale Plan or the Restructuring Plan (as the case may be)

(viii) the Extraordinary Trustee – in accordance with the instructions of the Ministry – shall prepare the Liquidation or the Restructuring Plan to be implemented for the recovery of the company (Recovery Plan)

(ix) within sixty days of the EA Commencement Date, the Extraordinary Trustee shall propose the Recovery Plan to Ministry, and

(x) within thirty days of making the above proposal, the Ministry approves (4) the Recovery Plan and grants the Extraordinary Trustee a formal mandate to implement it under its supervision.

Extraordinary administration procedures cannot last longer than:

• 1 year, in the case of a liquidation programme;

• 2 years, in the case of a restructuring programme.

How is the liquidator paid?

According to article 47 of Prodi bis Law, the costs of extraordinary procedures are borne by the company experiencing the financial difficulties.

Are there any general comments on the use of this procedure?

Extraordinary procedures were introduced with the aim of protecting employees, so they are often started under a degree of pressure by trade unions or employees. Therefore, employees typically play a key role in this type of procedure. 

 

1 The Judicial Trustee is in charge for the management of the procedure and of the company from the Declaration of Insolvency until the company is admitted to the EA.

2 Pursuant to said article 27, a company is entitled to be admitted to the EA procedure only if there is a real possibility that it can be recovered through a sale plan or a restructuring plan.

3 Quite often, the Extraordinary Trustee is the same person of the Judicial Trustee.

4 Such term may postponed for a further thirty days if the Ministry requires clarification/amendments on the Recovery Plan.

 

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.