Cessation or Termination of a Business

A company (Società di Capitali: S.p.A., S.a.p.a. and S.r.l.) may be terminated voluntarily or upon occurrence of events set forth in the law or in the company's articles of incorporation, pursuant to a three-phased procedure:

(i) Preliminary Phase – Upon occurrence of an event of termination, an extraordinary meeting of the shareholders, or a judge if the shareholders' meeting does not adopt the relevant resolution, must appoint one or more receivers that shall be updated on the company's financial/economical situation;

(ii) Liquidation Phase – The receiver(s) may implement all ordinary or extraordinary transactions to wind-up the company's business, pay the company's creditors and distribute the remaining assets to the shareholders;

(iii) Final Phase – Once the assets have been liquidated, the receiver(s) will draft a final balance sheet and, if necessary, a distribution plan. The receiver(s) will distribute the assets to the shareholders and cancel the company from the competent Companies Register. After the cancellation, the unsatisfied creditors may act against the shareholders, within the limit of the sums distributed to them, or against the receiver(s) which acted negligently.

Insolvency/Bankruptcy

The two primary aims of the relevant legislation are to liquidate the debtor's assets for the satisfaction of creditors, ensuring equal treatment to all creditors, and, in particular for large industrial and commercial enterprises, to preserve productive activities and maintain employment levels.

A company may be declared insolvent by a court only. The insolvency occurs when a debtor is no longer able to regularly meet its obligations on a permanent basis. The following alternatives are available:

(i) Restructuring outside of judicial process: Restructuring through a formal judicial process is more favourable for the debtor because informal arrangements are vulnerable to being reviewed by a court in case of a subsequent insolvency. However, if a company is solvent, but is facing financial difficulties, it may be possible to enter into an out-of-court arrangement with its creditors safeguarding the existence of the company;

(ii) Court-supervised pre-bankruptcy composition with creditors: Prior to the declaration of bankruptcy, any company in a distressed situation may propose a composition with its creditors. A relevant application shall be filed with the competent court. Applications for a pre-bankruptcy composition shall contain a composition plan, approved by the majority of the creditors entitled to vote (secured creditors are generally excluded from voting) and shall be accompanied by a report drafted by an eligible professional. If the procedure fails, the company could be declared bankrupt by the court;

(iii) Debt restructuring agreements: Companies may reach an agreement with their creditors representing at least 60% of all claims. Restructuring agreements may include a wide range of provisions, and shall be accompanied by an expert's report regarding its feasibility and its suitability to ensure the regular payment of non-adhering creditors. All adhering creditors are not required to receive the same treatment as each is free to evaluate the debtor's proposals and to autonomously protect its own position. If a restructuring agreement is not implemented, the adhering creditors would be able to terminate it for non-performance;

(iv) Restructuring plans: acts payments and securities/guarantees granted on the debtor's assets, provided they are made in implementation of a plan that appears to be capable of permitting the restructuring of the debtor's indebtedness and ensure the rebalancing of its financial condition, are exempt from bankruptcy “claw-back”. Restructuring plans are not under judicial control or approval. An expert's reasonableness attestation is required. Adhering creditors are not required to receive equal treatment;

(v) Extraordinary administration for large companies: Large industrial and commercial enterprises may avail themselves of special administration proceedings. The purpose of the administration proceedings is to rehabilitate a company in financial distress in light of the significance of the company's technical, commercial, productive and employment value and trying to preserve productive activities and maintain employment levels;

(vi) Bankruptcy proceeding: A request to declare a company bankrupt can be made by the company, the creditor(s) or a public prosecutor. Accordingly, all actions of creditors are stayed and creditors must file claims within a defined period. The administration of the company and of its assets, pass from the debtor to the receiver. The bankruptcy proceeding is carried out and supervised by a court-appointed receiver, a deputy judge and a creditors' committee, with different duties, the “claw-back” actions may result on the revocation of payments and/or transactions or the setting aside of grants of security interests made by the company during a certain period prior to the declaration of bankruptcy.

(vii) Post-bankruptcy composition with creditors: A bankruptcy can be terminated prior to the receiver's liquidation by filing a petition to the insolvency court for a post-bankruptcy composition with creditors. The proposal may provide for the composition of all or part of the creditors and is deemed approved if it receives the favourable vote of the creditors which represent the majority of the claims admitted to vote.