Entrepreneurs may be able to avoid bankruptcy by anticipating difficulties - if they keep a close eye on the financial situation of their business.
Italian regulations regarding bankrupcy are subject to constant changes by the legislature.
Bankruptcy is a legal procedure that aims to liquidate the insolvent assets of the entrepreneur and to distribute the proceeds among the creditors, according to the principle of equal treatment. Bankruptcy occurs when the entrepreneur is no longer able to regularly meet his obligations (Article 5 l. Bankruptcy).
The bankruptcy procedure is implemented by the court of the place in which the entrepeneur has his business based. For the purpose of jurisdiction, the transfer of office which occurred in the previous year is not relevant. The court can not declare bankruptcy ex ufficio.
Bankruptcy is declared by a judgment which contains some necessary procedures for the course of procedure: the liquidator's appointment, order for the entrepreneur to deposit the balance sheets for the last three financial years, the economic, capital and financial position, the terms relating to the ascertainment of the liabilities.
The court has inquisitorial powers and can perform all the necessary investigations, without being bound by the initiative of the parties concerned. The court in its judgment may order the temporary operation of the company, even if this is limited to specific branches of the company, when discontinuation may result in a serious damage. It is then up to the committee of creditors to take the decision regarding whether to continue the operation of the company and to set its duration. During the temporary operation all contracts will remain valid, unless the liquidator does not intend to suspend their execution or dissolve them.
The preferred solution in practice is that of the rental of the company, so that the tenant will have to take on the bonds and pay the agreed rent.
Entrepreneurs having experienced bankruptcy should not lose confidence in their ability to embark on a new business.
Bankruptcy can be declared:
- on the application of one or more creditors,
- at the request of the debtor,
- at the request of the prosecutor.
To avoid a declaration of bankruptcy, the relevant business owner must prove that his company possesses all of the following requirements:
- Assets in the total annual balance sheet, over the three financial years preceding the filing date of the application for bankruptcy, must not have exceeded 300,000 euros;
- Gross revenues, over the previous three financial years, must not have exceeded 200,000 euros;
- Debts (including non-overdue debts) must not exceed 555,000 euros.
These values can be updated by the Ministry for Justice by decree on the basis of changes in Istat indexes.
Once bankruptcy is declared, the entrepreneur loses the administration and the volume (but not ownership) of the company's assets, which are administered by an Liquidator. The liquidator shall ensure that seals are affixed and that the inventory is prepared. If the bankrupt entrepreneur owns property or other recorded assets, the liquidator must report an extract of the bankruptcy decision to the competent offices, in order for it to be transcribed. This is important because third parties will be affected by the transcript.
The following are excluded from the implementation of the bankruptcy:
- Assets and rights of a strictly personal nature,
- The allowances of food, stipends, pensions, salaries and what is necessary to maintain himself and his family,
- The benefits arising from the legal usufruct of the children and the assets of the capital fund,
- The things that can not be foreclosed as required by law.
The ascertainment of the liability constitutes the central and most delicate phase of the bankruptcy procedure. It seeks to ascertain which creditors are entitled to participate in the distribution of assets, the amount of credits and the possible causes of pre-emption. On the basis of applications submitted the liquidator provides a liability statement, indicating the allowed credits, those not admitted or admitted conditionally.
Within 60 days of the drawing up of the inventory, the liquidator must submit a liquidation programme, aimed to convert the bankrupt's assets into money. For the sale of assets, the curator may also make use of specialized subjects.
From the outcomes of the liquidation proceedings, the liquidator informs the appointed judge and the committee of creditors, depositing at the registry the relative documentation.
A particular manner of closing the bankruptcy is through the bankruptcy agreement, with which the bankrupt is permanently released of the debts through partial payment to creditors or other form of debt restructuring. The bankruptcy agreement is made obligatory for all creditors, once approved by a qualified majority of creditors. If the agreement is approved, then the bankruptcy court will open the proceedings of approval.
Approval of the agreement can be opposed by creditors and dissenters, the bankrupt and any interested parties, within a time limit fixed by the judge delegate. In the absence of opposition, the court will decide by decree, not subject to appeal. Otherwise it decides to appeal against a decree in the Court of Appeal. When the decree becomes definitive the procedure is closed and the liquidator must render an account of his administration.