Italy: The extraordinary administration of large enterprises in crisis

published on 7 October 2024 | reading time approx. 6 minutes

Extraordinary administration is the insolvent large commercial enterprise's insolvency procedure with the aim of conserving its productive assets through the continuation, reactivation or conversion of its business activities.

In other words, companies that, due to their significant size, are important for the national economy and contribute to the maintenance of Italian employment levels, in the presence of prospects of economic and financial recovery, may be subject to this type of procedure aimed at their rescue. The objective of the company's continuation is pursued according to certain procedures and within time limits established by law, after which, if there is no concrete possibility of recovery, the procedure is converted into judicial liquidation.

Admission to the extraordinary administration procedure therefore preempts and prevents the declaration of the opening of judicial liquidation, or - if the conditions provided for by law are met - may be opened even if judicial liquidation has been declared in advance.

The reference legislation is contained in the so-called Prodi bis Decree (Legislative Decree 70/99 and subsequent amendments). Then in 2004 came the so-called Marzano Decree (Law 39/2004), which introduced special rules for larger companies. The last year also saw the enactment of the provisions contained in the Law converting Decree-Law 4/2024, also applied by recent court rulings on.

Thus, companies that carry on a commercial activity and that jointly meet the following requirements may be admitted to the ‘common’ extraordinary administration procedure:

a state of insolvency that presents concrete prospects of recovering economic equilibrium and business activities;
size and indebtedness values such as to qualify the entity as a large enterprise (no fewer than 200 employees in the last calendar year and debts totalling no less than 2/3 of both the total assets and the balance sheet, and of the revenues from sales and services in the last financial year) or as a very large enterprise, a case in which the Marzano Decree applies (no fewer than 500 employees and debts totalling no less than EUR 300 million).

The procedure consists of two phases.

In the first phase (i) the state of insolvency of the company is ascertained and the presence of the requirements required by law, in the second phase (ii) the actual procedure is carried out, during which the programme approved by the Court and the administrative authority is implemented through the appointment of one or more extraordinary commissioners, who manage the company under the supervision of the MIMIT (Ministry of Enterprises and Made in Italy, formerly MISE). During the admission phase, there is a continuous exchange with the Ministry and also with the trade unions, which fully enter into the analysis process.

The assessment of the prospects for recovery must include the possibility of achieving recovery within certain time limits in one of the following ways: within 1 year through a programme for the sale of business units for companies operating in essential public services; within 2 years through an economic and financial restructuring programme for companies operating in a sector of strategic national interest.

The duration of the programmes can be authorised by MIMIT up to a maximum of 4 years.

During the ascertainment procedure, the Business Court may issue conservative measures (conservative seizure), injunctive measures (prohibition of alienation of assets), anticipatory measures (e.g. suspension of executive actions) and innovative measures (e.g. replacement of administrators with judicial administrators), as well as appoint the commissioner(s) in agreement with MIMIT, who will draw up a detailed report on the causes of the company's failure and the prospects for its recovery.

Subsequently, the Court will order the opening of the procedure by decree when it considers reorganisation to be possible, also establishing whether the continuation of the activity will be entrusted to the judicial commissioner or to the entrepreneur.

The second phase then opens.

Following the measure of admission to the procedure, the two final bodies of the procedure, which operate under the supervision of MIMIT, are invested with their functions: the extraordinary commissioner who manages the procedure and the supervisory committee with inspection and advisory powers.

From this moment onwards, therefore, MIMIT takes over from the delegated Judge in the powers of control and authorisation of the acts of the procedure and has the task of supervising it: it authorises the most important acts carried out by the Extraordinary Commissioner and can ask for clarification of the individual acts carried out by the latter.

On the other hand, the Extraordinary Commissioner takes over the management of the company from the entrepreneur or the judicial commissioner and becomes solely responsible for the proceedings. The Commissioner, with the Ministry's authorisation, may sell or lease the company or its branches; sell and lease real estate, establish rights in rem over it, create pledges and enter into transactions. He prepares the programme under the supervision of the Ministry, indicating the business activities to be continued and those to be divested, as well as the possible plan to liquidate the assets, the economic and financial forecasts and the specific costs estimated for the implementation of the procedure, if the programme is for restructuring and the forecasts are for recapitalisation of the company; in both cases, the timing and manner of payment of creditors must be indicated.

The Supervisory Committee monitors the Commissioner's activities and the progress of the procedure. It has powers of inspection and control, being able to request at any time the accounting records and documents.

As mentioned above, access to the procedure may be requested by the entrepreneur, by one or more creditors or by the public prosecutor. Article 1 of Law Decree 207/2012 converted with amendments into Law 231/2012 also provides that the request may come from the shareholder or shareholders holding at least 30 per cent of the share capital, as happened in the case of Acciaierie Italia (formerly Ilva), perhaps the most recently observed procedure in our country.

Finally, hereunder, are the effects of the opening of the procedure:

from the moment of admission to the procedure, the Extraordinary Commissioner may dissolve ongoing contracts;
employment relationships cannot be terminated by the mere fact of the opening of the procedure;
where the staff reduction procedure has been implemented by means of collective redundancies, exemption from contribution payments is provided for in all cases in which the extraordinary commissioner has verified the impossibility of continuing the business activity due to the exuberance of employment levels. The protection was reinforced by the Law converting Decree-Law No. 4/2024, which again introduced the possibility of recourse to the CIG for companies operating an industrial plant of strategic interest and which have ongoing business reorganisation plans that have not yet been completed due to their complexity.
for proceedings commenced after 26th May 2021, creditors may issue vat variation notes as of the date of the opening decree;
the rules on revocatory actions do not apply in the case of a restructuring plan (except for very large companies);
the continuation of contracts concerning leases of real estate is provided for, unless otherwise agreed;
deductibility of claims arising after admission to the proceedings is provided for.

When a company is part of a group, extraordinary administration may also be extended to the other undertakings of the group, i.e. those which, although legally autonomous from the one admitted to extraordinary administration, are linked to it in such a way as to constitute a unitary economic phenomenon.

More precisely, these are companies that directly or indirectly control the one undergoing the parent procedure or are directly or indirectly controlled by those undergoing the parent procedure, or are subject to a common management with the company undergoing the parent procedure due to the composition of its administrative bodies or other elements.

It is therefore evident how the extension of the extraordinary administration procedure to all the companies of the group allows creditors to enjoy the protections provided for also with respect to the companies that would not individually satisfy the conditions provided for by the legislation and at the same time allows the companies of the group to implement a recovery program with the consequent protection of employment levels.