Preventive Liquidation Agreement for insolvent companies or in corporate crisis in Italy

Preventive Liquidation Agreement (Concordato Preventivo Liquidatorio)

 

The Preventive Lliquidation Agreement is a kind of voluntary liquidation done for satisfaction of creditors, it is achieved through the proceeds of the liquidation of the assets of the company in corporate crisis or insolvency.

 

The function of this type of agreement is therefore to procure the satisfaction of creditors as an alternative to judicial liquidation, through a plan that does not provide for the direct or indirect continuity of the business activity, but the liquidation of the assets.

 

The liquidation agreement is admissible if the proposal provides for a contribution of external resources that determines an increase of 10% of the assets available at the time of the application and that ensures a minimum satisfaction of 20% of the total amount of the degraded privileged unsecured credits.

 

The proposal may provide for:

 

- the division of creditors into classes with homogeneous economic interests;

- differentiated treatment between creditors belonging to different classes, provided that the reasons for the different treatments are indicated;

- the restructuring of debts and/or the satisfaction of credits through any forms, including through:

 

• transfer of assets;

• assumption and other extraordinary transactions;

• attribution to creditors of shares, quotas or bonds, including those convertible into shares, other financial instruments and debt securities.

 

The procedure for opening the Preventive Liquidation Abgreement and the effects of the application follows the same rules as those provided for the preventive agreement in business continuity; the content of the plan is also the same.

 

During the opening of the Preventive Liquidation Agreement the Court carries out an assessment of the legal admissibility of the proposal and the economic feasibility of the plan to achieve the objectives set at least the minimum threshold of 20% of the total credit of unsecured and degraded privileged debts.

 

The agreement is approved by the creditors representing the majority of the credits admitted to vote. In the case of division into classes, this majority must also be reached in the greatest number of classes.

 

For the distribution of value, the CCII code provides for the obligation to comply with the rule according to which the lower-ranking creditors cannot be paid if the higher-ranking creditors are not fully satisfied first.

 

The possibility of proceeding with the partial payment of creditors with privilege, pledge or mortgage remains, provided that the amount is not less than that achievable in the event of liquidation, net of procedural costs and general costs certified by an independent professional; the residual portion of the credit is downgraded to unsecured.

 

In the judgment of approval of the liquidation agreement, the Court must verify:

 

- the regularity of the procedure;

- the outcome of the vote;

- the admissibility of the proposal;

- the correct formation of the classes of creditors;

- equal treatment within each class.

 

The Court must assess the feasibility of the plan to achieve the objectives set. This is a different and more incisive form of control than that provided for in the Preventive Agreement in business continuity, in which the Court only verifies that the plan has a chance of success.

 

With the judgment that approves the Preventive Liquidation Agreement he Court appoints one or more liquidators and the creditors' committee. The liquidator has the task of;

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- obtaining the availability of the assets included in the debtor's estate;

- any action aimed at recovering the credits;

- the exercise of the social liability action;

- its continuation, if already pending.