NEGOTIATED SETTLEMENT FOR THE SOLUTION OF ENTERPRISE CRISIS: POSSIBLE RESOLUTION OUTCOMES

In the previous article, https://bit.ly/3UzQLXF, an introduction was provided of the facilitative measures granted in favor of the entrepreneur by the new instrument of "Negotiated Settlement for the Solution of Business Crisis", introduced by the innovated "Code of Business Crisis and Insolvency", which finally came into force on July 15, 2022.

Here, however, in-depth discussion is provided on the set of concluding arrangements for negotiations with corporate creditors. 

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THE POSSIBLE OUTCOMES OF THE NEGOTIATED SETTLEMENT

The legislation has provided for:

• the introduction of new tools for crisis resolution, such as:

(a) agreements aimed at business continuity. There is the possibility of entering into an agreement with 1 or more creditors, providing for a more or less complex agreement or a simple reduction in the amount of the claim: the only condition expressly required by the norm is that the agreement is aimed at ensuring a continuity of at least 2 years; the probability of this condition occurring must be attested by means of the final report of the expert. Consequently, this option seems to be more prospective for a temporary business crisis that can be overcome through such a solution: if the identified continuity is not resolving and definitive, the expert must also indicate the hypothesized means of making the business continuity continue over time; 

(b) the moratorium agreement. The possibility of applying to all creditors the discipline originally reserved for banks and financial intermediaries is provided for: the entrepreneur may enter into an agreement with creditors "aimed at temporarily regulating the effects of the crisis"; the object of the stipulation may concern only the maturities of credits, the waiver of deeds, the suspension of executive and conservative actions and any other measure that does not involve waiver of credit. The peculiarity of the legislation is that, by way of derogation from Articles 1372 and 1411 of the Civil Code, the agreement is also effective against non-adhering creditors as long as they belong to the same class, provided that the adherents make up at least 75 percent of it. However, it is necessary to specify that the content of the agreement that can be extended to nonadherents is limited: in fact, covenants involving a total or partial waiver of claims are not admissible against them. Moreover, in order for the agreement to be valid, the non-adhering creditors of the same category must not be prejudiced and the stipulation must be suitable to stem the effects of the crisis; what has been said must be attested by a qualified professional ex. art. 67 L.F., who must also certify whether this solution is resolutive or provisional and if so, whether other means of intervention are necessary;

(c) the agreement countersigned by the expert. This is an agreement signed by the entrepreneur, the creditors and the expert himself that produces exemption from revocation of the acts, payments and guarantees made. This is a revisiting of the attested plan, which introduces the need to have 1 or more agreements with creditors: the agreement devised must appear "suitable to allow the rehabilitation of the company's debt position and ensure the rebalancing of its financial situation." In this case, the attestation of the qualified professional is not required, however, with the participation and signing of the agreement also by the expert, the company's data and the feasibility of reorganization are ratified as true. The rule does not specify the quorum of creditors, so it is assumed to be plebiscite, making this institution almost unusable;

• "traditional" resolution tools, some of them revisited:

• the debt restructuring agreement can be used, to which two options are added as further possibilities:
• the extended-effect restructuring agreement, which provides for the extension to all categories of creditors of the rules provided for banks and financial intermediaries, thus guaranteeing the possibility of extending the agreement to non-member creditors of the same category, provided there is at least 75 percent original consent;
• the facilitated restructuring agreement, which provides for a 50 percent reduction in the rate of the amount of total claims that adhering creditors must bear in order for there to be validity of the agreement, which can then be reached with only 30 percent of the creditors, provided that no moratorium is proposed on the payment of creditors outside the agreements.

In addition, an additional benefit is reserved for the entrepreneur that makes the debt restructuring agreement easier: the percentage of adhesions required for there to be extension to the minority of the agreement entered into with the majority is reduced to 60 percentwhen "the achievement of the agreement results from the final report of the expert," i.e., when the solution adopted has matured within the scope of the negotiations and not after the conclusion of the negotiations and thus is essentially sponsored and shared by the expert;

• access to other ordinary bankruptcy procedures. Compared to their normal use, the passage through the Negotiated Settlement presupposes an incentive from the legislature, since it is possible to apply the reward measures contained in the legislation, as indicated in the previous article. Moreover, in addition to the ordinary resolution tools, such as the attested plan, debt restructuring agreements, arrangement with creditors, bankruptcy (which does not guarantee the above-mentioned benefits), compulsory liquidation, common and special extraordinary administration, there is an additional, newly established option:
  • the simplified arrangement for the liquidation of assets. In it, the constraints constituted by the need to ensure the satisfaction of unsecured creditors at least to the extent of 20 percent and to increase the value of the assets by at least 10 percent with external contributions are eliminated; the opportunities for the court to intervene are also reduced, whose assessment of the proposal's merits from the point of view of feasibility is reserved for approval and whose power to dictate the manner of liquidation is severely limited in the case of purchase offers; moreover, the will of creditors is not relevant, whose approval is not required: they can only oppose the approval to argue that the bankruptcy is more convenient than the liquidation plan. There is provision for a specific statement by the expert in the final report, who must certify that the arrangement in question can be proposed when "the negotiations have been carried out in accordance with fairness and good faith, but have not been successful and that the solutions identified pursuant to Article 11, paragraphs 1 and 2, are not feasible." The attestation of the qualified professional is not expressly provided for in this type of arrangement; however, for the protection of creditors, there is provision for the appointment of auxiliary to prepare an opinion on the feasibility of the plan and the possibility of satisfaction. Instead, the court must ex officio ascertain that "the proposal does not prejudice creditors with respect to the alternative of bankruptcy liquidation and in any case ensures a benefit to each creditor."

Finally, a separate section is devoted to:

• outcomes for sub-threshold companies. A partly derogatory regulation extends also to sub-threshold commercial and agricultural enterprises the possibility of access to the Negotiated Settlement in cases of situations of asset or economic-financial imbalance that make their crisis or insolvency likely, when it appears reasonably feasible to pursue the rehabilitation of the enterprise; regarding possible solutions between the parties: one can proceed through an agreement that makes business continuity persist; conclude an agreement signed by the entrepreneur, creditors and the expert, without the need for attestation; propose debt restructuring agreement; apply for liquidation of assets; propose simplified arrangement for liquidation of assets;
• possible outcomes for the agricultural entrepreneur. Regarding the Negotiated Settlement for agricultural enterprises, the distinction is between below- and above-threshold enterprises: regarding those below-threshold, please refer to the previous description; regarding above-threshold agricultural enterprises, the crisis resolution possibilities are extended to debt restructuring agreements and their variants; agreements with creditors and liquidation of assets. Jurisprudential debate opens for the use of the instrument of simplified arrangement for the liquidation of assets also for above-threshold agricultural enterprises: as a rule it should be excluded since the arrangement with creditors both under the F.L. and the c.c. is reserved for commercial enterprises, however, for below-threshold agricultural enterprises this is allowed.

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FINAL CONSIDERATIONS

The legislation presented undoubtedly requires further study, given the complexity and breadth of the subject matter; however, it is undoubtedly possible to highlight how a different interpretative perspective has been provided by the legislature: moving from a bankruptcy or liquidation view to one of business continuity and reorganization.

 

Edited by: Luigi Alfredo Carunchio, Chartered Accountant and Statutory Auditor

You can download the article in PDF here

For more information:

luigicarunchio@valoreassociati.it