Scheme of Arrangement in Italy

A scheme of arrangement in Italy is a court-supervised restructuring mechanism that allows a distressed company to reorganise its debts and obligations with binding effect on creditors. Italy';s insolvency framework was substantially reformed by the Codice della Crisi d';Impresa e dell';Insolvenza (Legislative Decree 14/2019, as subsequently amended), which aligned Italian law more closely with the EU Restructuring Directive. For international investors, creditors and business owners, understanding how the Italian scheme of arrangement works - its procedures, thresholds, timelines and costs - is essential before entering or restructuring a position in an Italian company. This guide covers the legal framework, the main restructuring tools available, the procedural steps, creditor rights, costs and common pitfalls.

Italy';s current insolvency code, the Codice della Crisi d';Impresa e dell';Insolvenza (CCII), replaced the previous Legge Fallimentare and introduced a comprehensive restructuring architecture. The CCII distinguishes between preventive tools - designed to address financial distress before insolvency becomes irreversible - and liquidation procedures. The concept closest to an Anglo-Saxon scheme of arrangement in Italy is the concordato preventivo, or composition with creditors, supplemented by accordi di ristrutturazione dei debiti (debt restructuring agreements) and the newer piano di ristrutturazione soggetto a omologazione (PRO), introduced to implement the EU Directive 2019/1023.

The concordato preventivo is the primary court-supervised procedure. It allows a debtor to propose a restructuring or partial repayment plan to creditors, which, if approved by the required majority and confirmed by the court, binds all creditors in the relevant class. The accordi di ristrutturazione dei debiti are out-of-court agreements with a subset of creditors that are then homologated by the court, making them enforceable against dissenting creditors under certain conditions. The PRO is a newer instrument that allows cross-class cram-down, meaning a plan can be imposed on dissenting creditor classes if specific fairness conditions are met.

Each tool has a different threshold, voting requirement and degree of court involvement. The choice between them depends on the company';s financial situation, the composition of its creditor base, and the urgency of the restructuring.

The concordato preventivo is the Italian procedure most analogous to a scheme of arrangement. It is initiated by the debtor filing a petition with the competent tribunal. The debtor must present a restructuring plan, supported by an independent expert';s attestation confirming the plan';s feasibility and the accuracy of the company';s financial data. The plan can propose full or partial repayment of creditors, conversion of debt to equity, asset sales, or a combination of these measures.

Creditors are divided into classes based on their legal position and economic interests. Each class votes separately. The plan is approved if creditors representing the majority of the total debt vote in favour. Under the CCII, the court can confirm the plan even if some classes dissent, provided the plan satisfies the absolute priority rule - meaning dissenting creditors must receive at least as much as they would in liquidation. This cross-class cram-down mechanism is a significant departure from the pre-reform framework and brings Italian law into line with European standards.

A practical distinction exists between concordato in continuità aziendale (going-concern concordato) and concordato liquidatorio (liquidating concordato). The going-concern variant preserves the business as a whole and typically requires that unsecured creditors receive at least 20% of their claims. The liquidating variant involves asset disposal and has historically been subject to stricter scrutiny.

Debt restructuring agreements under the CCII are negotiated directly between the debtor and creditors representing at least 60% of total debt. Once signed, the agreement is filed with the tribunal for homologation. During the negotiation phase, the debtor can request a stay of enforcement actions, protecting it from creditor pressure while discussions proceed.

A significant feature introduced by the CCII is the estensione degli effetti, or extension of effects. Under certain conditions, the homologated agreement can be made binding on dissenting creditors who are not party to the agreement, provided they belong to the same category as consenting creditors and the court confirms that the terms are fair. This mechanism narrows the gap between the accordi and a full scheme of arrangement.

The PRO is Italy';s most recent restructuring instrument, directly transposing the EU Restructuring Directive. It is available to debtors who are in financial distress but not yet insolvent. The PRO allows the debtor to propose a plan to creditors divided into classes, with the possibility of cross-class cram-down if the plan meets the best-interest-of-creditors test and the relative priority rule. Unlike the concordato, the PRO does not require a minimum payment threshold for unsecured creditors, giving the debtor greater flexibility in designing the plan.

The PRO requires court confirmation and the appointment of a judicial commissioner in certain circumstances. It is particularly suited to complex restructurings involving multiple creditor classes, including financial creditors, trade creditors and bondholders.

The CCII introduced a system of early warning obligations (allerta) requiring directors to monitor financial indicators and take action when signs of crisis emerge. Directors who fail to act promptly risk personal liability. In practice, a restructuring typically begins with the company engaging financial and legal advisers to assess the situation, model restructuring scenarios and identify the most appropriate procedure.

Before filing, the debtor should prepare a detailed financial analysis, a draft restructuring plan and the documentation required for the independent expert';s attestation. This preparatory phase typically takes several weeks to a few months, depending on the complexity of the company';s balance sheet and creditor structure.

The debtor files the restructuring petition with the tribunal of the district where the company has its registered office or principal place of business. Upon filing, the court can grant a stay of enforcement actions (sospensione delle azioni esecutive), protecting the debtor from creditor claims while the procedure is pending. The stay is a critical protection, particularly for companies facing imminent enforcement by secured creditors or tax authorities.

For the concordato preventivo, the debtor can file a preliminary petition (domanda con riserva) to obtain an immediate stay while the full plan is being prepared. This preliminary filing gives the debtor up to 120 days to submit the complete plan, extendable by the court in justified circumstances.

All major Italian restructuring procedures require an independent expert (attestatore) to certify the accuracy of the company';s financial data and the feasibility of the proposed plan. The attestatore must be a qualified professional - typically an accountant or auditor - with no conflict of interest. The attestation is a substantive document, not a formality. Courts scrutinise it carefully, and a weak or superficial attestation is a common reason for plan rejection.

A common mistake made by foreign founders and investors is underestimating the time and cost required to produce a credible attestation. The process involves detailed due diligence, financial modelling and legal analysis. Engaging an experienced attestatore early in the process is essential.

Once the plan is filed and the court admits the procedure, creditors are notified and given the opportunity to vote. The CCII requires the debtor to divide creditors into homogeneous classes based on their legal position and economic interests. Secured creditors, preferential creditors and unsecured creditors must be placed in separate classes. Bondholders and financial creditors may form their own classes.

Voting thresholds vary by procedure. For the concordato preventivo, approval requires a majority of the total debt across all voting classes. For the PRO, each class votes separately, and cross-class cram-down is available if the plan satisfies the statutory conditions. Creditors who do not vote are treated as abstaining and do not count against the majority.

After the creditor vote, the court reviews the plan and, if satisfied that the legal requirements are met, issues a homologation decree (decreto di omologazione). The court';s role is not merely administrative - it conducts a substantive review of the plan';s compliance with the CCII, the fairness of the treatment of dissenting creditors and the feasibility of the projections.

The homologation decree makes the plan binding on all creditors, including those who voted against it or did not participate in the vote. This binding effect is the central feature that distinguishes a court-supervised restructuring from a purely contractual workout.

Homologation typically takes several months from the filing of the complete plan. In complex cases involving large creditor bases or contested proceedings, the process can extend further. Courts in major commercial centres such as Milan, Rome and Turin generally have more experience with complex restructurings and tend to process cases more efficiently.

If you are navigating a restructuring in Italy and need guidance on procedure selection or plan design, contact info@vlolawfirm.com. We can help structure the setup correctly the first time.

Secured creditors in Italy hold a privileged position. The CCII preserves the principle that secured creditors must receive at least the liquidation value of their collateral. A plan that proposes to pay secured creditors less than the value of their security interest will not be homologated unless the secured creditors consent or the cross-class cram-down conditions are met.

Secured creditors retain the right to challenge the attestatore';s valuation of their collateral. In practice, disputes over collateral valuation are a frequent source of litigation in Italian restructuring proceedings. Foreign creditors holding security over Italian assets should obtain independent valuations early in the process.

Unsecured creditors have the right to vote on the plan and to challenge homologation if they believe the plan does not satisfy the best-interest-of-creditors test. Under the CCII, unsecured creditors must receive at least as much as they would in liquidation. In a going-concern concordato, the minimum payment threshold for unsecured creditors is set at 20% of their claims.

A non-obvious requirement is that creditors who are also shareholders or related parties of the debtor may be excluded from voting or placed in a separate class. This prevents insiders from using their creditor position to influence the outcome of the vote in a way that prejudices external creditors.

Employee claims in Italy enjoy super-priority status under the CCII. Wages, severance pay (TFR) and social security contributions owed to employees rank ahead of most other creditors in the distribution waterfall. Any restructuring plan must address employee claims in full or obtain the consent of the relevant labour authorities. Failure to do so is a ground for plan rejection.

In practice, restructurings involving significant workforce reductions must be coordinated with the relevant trade unions and, in some cases, with the Ministry of Labour. This adds a layer of complexity that is often underestimated by foreign investors.

The costs of a scheme of arrangement in Italy fall into several categories. Professional fees - covering legal advisers, financial advisers and the attestatore - are typically the largest component. For a mid-size company, professional fees usually start from the low tens of thousands of euros and can reach several hundred thousand euros for complex restructurings involving multiple creditor classes or cross-border elements.

Court fees and administrative charges are relatively modest compared to professional fees. The appointment of a judicial commissioner (commissario giudiziale) in concordato proceedings adds a further cost, as the commissioner';s fees are paid from the estate.

Hidden costs that frequently surface include the cost of maintaining the stay of enforcement while the plan is being prepared, the cost of managing creditor relations during the procedure, and the cost of post-homologation monitoring and reporting obligations.

Italian restructuring proceedings are not fast by international standards. A concordato preventivo from filing to homologation typically takes between 12 and 24 months in straightforward cases. Complex cases can take longer. The preliminary filing (domanda con riserva) allows the debtor to obtain a stay quickly - often within days of filing - but the full procedure then runs its course.

Accordi di ristrutturazione dei debiti can be faster if the creditor base is concentrated and negotiations proceed smoothly. In practice, the negotiation phase alone can take several months, particularly when financial creditors and tax authorities are involved.

Italy is a signatory to the EU Insolvency Regulation (Regulation 2015/848), which governs jurisdiction and recognition of insolvency proceedings across EU member states. The centre of main interests (COMI) of the debtor determines which member state has jurisdiction to open main proceedings. For Italian companies with operations in multiple jurisdictions, COMI analysis is a critical early step.

Foreign creditors holding claims against Italian debtors have the right to participate in Italian proceedings on equal terms with domestic creditors, subject to the rules on class formation and voting. In practice, foreign creditors often face challenges in navigating Italian procedural requirements, particularly the tight deadlines for filing proofs of claim and objections.

A practical scenario: a German bank holding a syndicated loan secured over Italian real estate will need to engage Italian legal counsel to protect its position in a concordato proceeding, file a proof of claim within the statutory deadline, and monitor the attestatore';s valuation of the collateral. Failure to act promptly can result in the creditor being bound by a plan it did not have the opportunity to challenge.

A second scenario: a private equity fund holding equity in an Italian operating company facing financial distress will need to assess whether to support a going-concern concordato or push for a liquidating procedure, depending on the residual value of the business and the fund';s position in the capital structure. The PRO may offer greater flexibility if the fund is willing to negotiate a debt-to-equity conversion with financial creditors.

For assistance with cross-border restructuring matters involving Italian entities, contact info@vlolawfirm.com. We can assist with documents, filings and creditor negotiations.

The principal risk for a foreign creditor is missing procedural deadlines. Italian restructuring proceedings operate under strict timelines set by the CCII and the court';s procedural orders. Creditors who fail to file proofs of claim or objections within the prescribed periods may lose the right to challenge the plan or to participate in distributions. A further risk is the cross-class cram-down mechanism: if the court confirms a plan over the objection of a dissenting class, that class is bound by the plan even if it voted against it, provided the statutory fairness conditions are met. Foreign creditors should engage Italian legal counsel immediately upon receiving notice of proceedings.

A concordato preventivo from the initial filing to the homologation decree typically takes between 12 and 24 months for a mid-size company, though complex cases can extend beyond this range. The preliminary filing stage can secure a stay of enforcement within days, but the full procedure then follows its statutory course. Professional fees - covering legal, financial and attestation work - usually start from the low tens of thousands of euros for straightforward cases and rise significantly for complex restructurings. Court and commissioner fees are additional. Debtors should budget for ongoing professional support throughout the procedure, including post-homologation compliance obligations.

The PRO is generally preferable when the debtor needs maximum flexibility in designing the treatment of different creditor classes and does not want to be constrained by the 20% minimum payment threshold applicable to unsecured creditors in a going-concern concordato. The PRO is also better suited to restructurings that require cross-class cram-down, where one or more creditor classes are expected to dissent. However, the PRO is only available to debtors who are in financial distress but not yet insolvent - a company that has already crossed the insolvency threshold must use the concordato or another procedure. The choice between tools requires careful analysis of the company';s financial position, the creditor composition and the desired restructuring outcome.

Italy';s restructuring framework provides a range of court-supervised tools that function as a scheme of arrangement, adapted to the Italian legal tradition and aligned with EU standards. The concordato preventivo, accordi di ristrutturazione and PRO each serve different situations, and selecting the right instrument is a critical early decision. Procedural compliance, creditor class design and the quality of the independent expert';s attestation are the factors that most often determine success or failure.

VLO Law Firms advises international clients on bankruptcy and restructuring matters in Italy. We can assist with procedure selection, plan design, creditor negotiations, attestation coordination and court filings. To request a consultation, contact: info@vlolawfirm.com