Invest in distressed companies: the post-bankruptcy composition with creditors



The concordato fallimentare (CF), a composition with creditors achievable after the bankruptcy declaration, is governed by section 124 and subs. of the Italian Bankruptcy law (IBL). It is an institute for the closure of a bankruptcy proceedings, and it may be an instrument for business opportunities, in so far as it allows an investor to take over the assets of the insolvent company, limiting the price up to a certain fixed amount or offering to the creditors a fixed recovery ratio for their claims.

The CF can be proposed not only by the bankrupt (recurring some conditions) but also by creditors and third parties.

The content of the proposal to the creditors can be wide, and it can vary upon many circumstances. Generally, the third party/investor who files for the CF, may either (i) propose to the creditors to assume all the bankrupt’s liabilities and pay them up to the agreed percentage, or (ii) manage on its own the liquidation process of the bankrupt’s assets and pay to creditors the relative proceeds, assuring the payment of a minimum ratio of their claims. The proposal may provide for different classes of creditors and different recovery ratios.

Generally, therefore, the proposal specifies the percentage (recovery ratio) offered to creditors (divided into different categories according to their priority ranking), the timing of payments and the relative collaterals, if any.

The overall offer to creditors shall be more advantageous than the recovery that they can achieve through the liquidation of the assets and distribution of the relative proceeds through the ordinary bankruptcy. Better conditions not only consist in offering a better return, but they can also relate to the timing: usually, in the CF creditors are paid within a year from the court approval of the proposal, whereas it takes years for them to be paid in the ordinary bankruptcy.

In the CF also secured claims can be written off, but the offered recovery shall be at least equal to the liquidation value of the assets securing the privilege, such value to be confirmed by an independent appraiser appointed by the court.

The CF can be proposed by the investor immediately after the bankruptcy declaration of the debtor, provided that the company’s accountings are standard and the trustee can draft a list of the creditors. However, it is advisable to file for the CF after the finalization by the court of the first list of the bankrupt’s liabilities, since in such case the investor can limit its commitments to the creditors who, at the date of the filing for the CF, have already (i) lodged their claims against the estate; (ii) proposed opposition in case of rejection of their claims; (iii) filed for the late admission of their claims.

The proposal shall be approved by the creditors who represent the majority of the credits (and also by the majority of the classes of creditors, if any), getting advantage of the principle of tacit approval, whereby creditors who do not vote are considered as voting in favour of the proposal, and it shall also be “homologated” (approved) by the court (who verifies the general compliance with law of both the proposal and the proceeding). Creditors or any other interested party may challenge the homologation of the CF.

After the homologation of the proposal, the obligations undertaken toward the creditors shall be fulfilled.

Raffaele Buono


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