Italy: Debt Restructuring Agreements Entered Into By Real Estate Funds

Last Updated: 20 January 2016
Article by Federico Sutti and Eriprando Guerritore

According to recent Italian case law Real Estate Funds may now enter as debtors into the debt restructuring agreements (so called "accordi di ristrutturazione dei debiti") provided for by the Italian bankruptcy law.1 Reference is made to Milan Court Decrees 6 November 2015 and 3 December 2015 (the "Case Law").2

Generally speaking under a debt restructuring agreement scenario a debtor undergoing a financial crisis may restructure its debts with the positive agreement of at least 60% of its creditors provided that the agreement's feasibility is confirmed by a professional together with the truthfulness of any debtor's data (so called "situazione aziendale"). The debt restructuring agreement becomes effective from the day it is published on the competent company's register and starting from publication day creditors whose claims arose prior to publication day cannot start or proceed with restraining actions or enforcement proceedings over the debtor assets nor acquire non-agreed pre-emption rights.3

Case Law broadens the rights which a Real Estate Fund may enjoy to handle a financial crisis under a pre-liquidation scenario and is of material relevance for the Real Estate Funds industry taking into account that according to Italian bankruptcy law the measures on bankruptcy and pre-bankruptcy agreement composition (so called "concordato preventivo") apply to commercial entrepreneurs (so called "imprenditori commerciali")4 only. Real Estate Funds do not qualify as commercial entrepreneurs and therefore they do not bankrupt. Before Case Law issuance it was therefore arguable whether Real Estate Funds could enjoy the rights to enter into a debt restructuring agreement per Italian bankruptcy law taking into account that:

  1. They do not bankrupt; and
  2. The measures on debts restructuring agreements are pointed out under the Italian bankruptcy law.

One may argue that the measures on debt restructuring agreements differ from the measures on bankruptcy and pre-bankruptcy agreement composition for a number of issues. As instance under a debt restructuring agreement scenario an entrepreneur may continue to hold and manage its assets differently from a bankruptcy scenario under which the entrepreneur assets and their management is transferred to the competent bankruptcy bodies pursuant to the terms and conditions pointed out under the Italian bankruptcy law.

Case Law extends the provisions on debt restructuring agreements provided for commercial entrepreneurs to Real Estate Funds as well confirming de facto the envisaged differences between bankruptcy measures and debt restructuring agreements and the agreements extension to entities, other than commercial entrepreneurs, who may not bankrupt.

Up to nowadays Italian Real Estate Funds have been formed pursuant to contract law via the alternative investment fund manager (so called "SGR") / Real Estate Fund scheme5.

According to contract law Real Estate Funds assets:

  1. Are legally separated from the assets of their alternative investment fund manager, from those of other real estate investment funds managed by the alternative investment fund manager and from those of the real estate fund investors (the "Segregation Principle"); and
  2. Are managed by the SGR in the name and on the Real Estate Fund behalf.

In light of the Segregation Principle any management act duly and professionally carried out by an SGR - in its capacity as Real Estate Fund manager - will impact the Real Estate Fund assets only and not the SGR ones.

Notwithstanding the contractual form of Real Estate Funds and the Segregation Principle, according to Case Law:

  1. SGRs may now enter into debt restructuring agreements in the name and on the Real Estate Fund behalf pursuant to the terms and conditions pointed out under the Italian bankruptcy law; and
  2. The entering by an SGR into a debt restructuring agreement in the name and on behalf of a Real Estate Fund it manages does not affect neither the debts / management of any other Real Estate Funds managed by the SGR nor any other debts undertaken by the SGR on its own name and behalf (such as instance a facility line undertaken by an SGR to refurbish its offices).

Case Law fully complies with the Segregation Principle and according to Case Law under the negotiation of a debt restructuring agreement by a Real Estate Fund per the terms and conditions pointed out under the Italian bankruptcy law "Real Estate Fund's creditors are forbidden from starting or continuing carrying out restraining actions or enforcement proceedings over the Real Estate Fund assets nor may not acquire any pre-emption rights on the Real Estate Fund assets not previously agreed".

Further Case Law is in line with other previous Italian law measures which may apply to Real Estate Funds only and not to their SGRs as well. Reference is made to the compulsory liquidation procedure (so called "liquidazione coatta amministrativa") provided for under the Unified Financial Act6 - as recently modified to implement the BRRD7 into Italy - which may refer to a Real Estate Fund only and not to its SGR as well.

Real Estate Funds will continue to be safe harbored from bankruptcy provisions. Anyway they:

  1. May take advantage of the debt restructuring agreement instrument provided for by the Italian bankruptcy law to handle a financial crisis under a pre-liquidation scenario; and
  2. Will be subject to the liquidation procedure provided for under their management rules or to the compulsory liquidation procedure provided for under the Unified Financial Act - carrying out features different from bankruptcy procedure - if they may not handle their financial crisis under a pre-liquidation scenario.

Although Case Law has been issued by an important Italian Court - as is the Milan Court - rather than by the Italian Supreme Court (so called "Corte di Cassazione") - which is the Italian highest Court - Case Law grants for the first time to Real Estate Funds the right to enter as debtors into debt restructuring agreements and constitutes an important starting point for the application of debt restructuring agreements to the Real Estate Fund's industry.


1. Please make reference to Article 182-bis ("Accordo di ristrutturazione dei debiti") of Royal Decree 16 March 1942 no. 267, as from time to time amended.

2. Ms. Alida Paluchowski chaired the Milan courts issuing the Decrees and Mr. Guido Macripo' acted as reporting judge (so called "giudice relatore").

3. A debtor may request envisaged stay mechanisms during the negotiation phase of a debt restructuring agreement pursuant to the terms and conditions pointed out under the Italian bankruptcy law.

4. Commercial entrepreneurs are those entrepreneurs carrying out the activities pointed out under Article 2195 of the Italian Civil Code.

5. Italy recently introduced a new type of alternative investment fund of a corporate nature in the past months via the transposition of Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers. Any considerations pointed out under this paper apply to Real Estate Funds formed pursuant to contract law only notwithstanding new alternative investment funds of a corporate nature.

6. Please make reference to Article 57, paragraph 6-bis of Legislative Decree 24 February 1998 no. 58.

7. Reference is made to Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms.

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