Italy: Debt Collection In Italy

Regulations in Italy stipulate that business-to-business transactions must be paid within 30 days from the invoice date, and any extension beyond the period gives the creditor the right to claim interest without a dunning letter, as per the rate agreed upon on the agreement contract. If there is no agreement in place, then the European Central Bank interest rate, which is reviewed in January and July, increased by at least 8% points, is applied. Although the rates are authorised by law, proper negotiation should be engaged in, including signatories from both parties, to avoid the terms being considered unfair. This particular regulation in Italy is more constricting than the original European Union Recast Directive 2011/7/EU, which is now included in Italian domestic law (Decreto Legislative 9 novembre 2012, n.192).

Days Sales Outstanding

However most businesses in Italy fail to submit payments within the required 30 day period which makes collection of late payments more problematic. The average payment period for the private sector is around 100 days, whilst in the public sector, the period of payment can range up to 1 year.

Debt Collection Costs

As well as interest charges on late payments, creditors are entitled to receive a flat fee of €40 to recover collection costs. However Italian debtors rarely pay recovery costs and it is often used as a negotiation tool instead.

Ownership Protection

Under Italian law, Retention of Title (RoT) agreements aimed at preserving the goods till the invoice in question is paid in full is allowed, although the enforcement of such a regulation is uncommon.

The RoT provisions can only be enforced if registered before a notary at a date that is verifiable (data certa' as provided under Article 1524 of the Civil Code, and under Article 11(3) of Legislative Decree 231/2002 implementing Directive 2005/35/EC on combating late payment in commercial transactions). In Italy the RoT was originally formed to address insolvency proceedings with an aim of preventing collusion between the defaulting debtor and creditor putting other creditors at a disadvantage.

While this procedure is costly, lack of relevant case law makes the enforcement of RoT provisions sporadic due to a lack of relevant case law.

PAYMENT PROCEDURE

Ownership Protection

Under Italian law, Retention of Title (RoT) agreements aimed at preserving the goods till the invoice in question is paid in full is allowed, although the enforcement of such a regulation is uncommon.

The RoT provisions can only be enforced if registered before a notary at a date that is verifiable (data certa' as provided under Article 1524 of the Civil Code, and under Article 11(3) of Legislative Decree 231/2002 implementing Directive 2005/35/EC on combating late payment in commercial transactions). In Italy the RoT was originally formed to address insolvency proceedings with an aim of preventing collusion between the defaulting debtor and creditor putting other creditors at a disadvantage. While this procedure is costly, lack of relevant case law makes the enforcement of RoT provisions sporadic due to a lack of relevant case law.

Payments Options

Below are the most common methods of payments:

  • Sepa bank transfer is a fast and secure method.
  • Standby Letters of Credit repayment ability and credit quality of debtor guaranteed by bank.
  • Guarantee bonds debtors fail to fulfil contractual agreement.
  • Documentary Letters of Credit debtor agrees specific amount to be paid to beneficiary through bank once terms agreed.
  • Bills of Exchange (cambiali) used as debt recognition titles rather then to affect payment.
  • Cheques (assegni) used as form of payment, failure to pay within six months may lead to debtor being excluded from the banking system for a period of six months.
  • RID is the best way of getting paid. It is where the debtor directs and authorises the bank to accept debit orders on their behalf.
  • RI.BA is a financial instrument that allows creditors to receive payment from the debtor's bank if the collecting party is able to supply the required supporting documents.

Amicable Action

Giambrone can engage in negotiating alternative ways to formal legal proceedings, which are often lengthy and very costly. Before commencing formal legal action, the creditor is encouraged to set up a payment instalment agreement or a formal debt recognition title from the debtor. This entitles the creditors to obtain an Enforceable Junction Order if the debtor fails to pay. Proper verifications to ensure the debtor company is not listed on the official registrar of bankruptcies (Pubblico Registro dei Falliti) are done before legal proceedings are initiated. This verification helps with ascertaining how probable debt recovery chances are, as recovering the debt is almost impossible if insolvency proceedings have been initiated.

Legal Action Ordinary Proceedings

The process of initiating legal actions begins with a registered Demand Letter (Letterra Monitoria), which informs the debtor of the obligation to pay the principal amount of the debt alongside accrued interest for late payment as agreed or according to the current legal rate. If the debt is undisputed then proceedings are initiated through a fast-track route that allows the settlement of the debt with minimum involvement of the courts.

Once the creditor proves that the debt is undisputed, Injunction proceedings are taken to obtain a Payment Decree ('decreto ingiuntivo' under law no. 69/2009). Documents that will be beneficial in this process include bad cheques, invoices, proof of delivery, dishonoured bills of exchange etc.

The court can then grants an Order to Pay, which the debtors needs to honour within 40 days. If this order is disregarded a Writ of Execution (Atto di precetto) is allowed which is enforceable by a bailiff (ufficialli giudiziari) and a seizure of the debtor's assets can be obtained. At this point the creditor can also register a judicial mortgage against any property owned by the debtor. Any objection to this action results in the claim being taken to formal ordinary proceedings.

Alternatively the creditor can seek recognition under the creditor's rights (procedimento sommario di cognizione) provided that relevant and undisputed evidence can be provided.

FORMS OF COLLECTION

Amicable Action, Legal Action and Alternatives to Legal Action

An appeal against the order can be done within 30 days after which the case leads to a formal lawsuit. Under the regulation EC No 1896/2006, a creditor can trigger a European Payment Order procedure that will help him recoup debts if the debtor company has assets in any other European State. A request to pay issued by a domestic court is enforceable in all countries of the European Union (except Denmark) without the need for exequatur proceedings.

If formal legal proceedings begin, the creditor is required to file a claim with the court (citazione) and arrange to serve the debtor with a summons. The debtor is allowed a period of 90 days to file a defence (comparsa di costituzione e risposta) through a preliminary hearing. Both parties are then required to file briefs and give evidence to the court. Failure to bring a defence by the debtor gives the creditor an opportunity to request for default. Resulting in declaratory judgments, constitutive judgements and specific performance and compensatory damages. The Italian courts cannot however award damages which were not requested or exert punitive damages.

Time Limitations

Under Article 2946 of the Civil Code (prescrizione), business claims must be brought to court within a period of 10 years although there are various rules that may apply. If the creditor sends a dunning letter through registered mail, the limitation period is restarted from receipt of such letter.

Giambrone advises their clients that it is always preferable that collection attempts are made prior to taking legal action as this helps in maximizing chances for successful collection and also avoids unnecessary legal costs and delays. The suggested route is to initiate various strategies that have successfully worked with out-of-court dealings such as sending a series of letters, emails and phone calls and engaging in conversation with the debtor in their preferred language.

Giambrone has an International network of Italian and International debt collection experts that assists individuals and commercial entities across the globe with the recovery of all types of debts.

The team consist of experts who can handle debt collection and negotiation without the need to strain important customer relationships.

Provisional Measures

The creditor can request the judge for execution of the title on a provisional basis during the ordinary lawsuit. Provisional measures help in preserving the creditor's interest and can be done while waiting for the final decision. The court may order for an attachment of the debtor's assets where the debtor is prohibited from disposing of his assets as long as the proceedings are ongoing. The provisional orders can only be granted when the creditor demonstrates the immediate necessity to do so. An ex parte (in absence of the debtor) decision is also possible in emergency cases and when it is deemed appropriate.

Lodging an Appeal

Appeal on the decisions rendered in the first instance may be lodged within 30 days from the date of delivery to the respective parties. Since the enforcement of the Legislative decree 38/2012, the claimant is required to obtain a leave from the court stating that the appeal claim is admissible.

The decisions rendered in the second instance may also be appealed against before the Supreme Court. This court however is only competent in considering errors in law while delivering the decisions such as lack of jurisdiction, failures to state reasons and wrong interpretation of the law.

Enforcing Court

A judgement is enforceable when all appeal avenues have been exhausted making it final. Failure by the debtor to satisfy the judgement may warrant for compulsory enforcement measures (processo di esecuzione) in the form of having the debtor's assets attached or arranging for payment to be obtained from a third party owing the debtor money (garnishee order). This is usually a costeffective way of collecting debts. Before starting off the execution proceedings, the debtor should be served with the executive order (titolo esecutivo) and an accompanying formal request to make payment within a period of ten days (precetto).

At this stage the debtor gets an opportunity to bring forward another defence. If the court rejects this defence, an application to proceed with forced execution may be filed with the bailiff's court (ufficiali giudiziari). It is always advisable to make an inquiry on the debtor's ability to pay the debt before commencing a lawsuit.

How long could a legal action be?

Claims that are undisputed can last for a period of four months but the time it takes to obtain an enforceable court order depends on the complexity of the case, the region and ultimately on the court. On average, disputed legal proceedings would take three years. Enforcement of the decisions may last for years depending on the costs involved and auction delays. For this reason it is always advisable to collect debt through a pre-legal collection effort.

The same legal action in debt collection applies for both Italian and foreign creditors and the courts do not require extra time to decide on disputes that are filed by foreign creditors.

GIAMBRONE COLLECTIONS

Dispute Resolution Methods (ADR)

Although available, the Alternate Dispute Settlement is rarely used in Italy for debt collection. This method includes meditation and arbitration and can be instrumental in avoiding the lengthy court proceedings before general jurisdiction courts.

Foreign Forums

Given the difficult process involved when it comes to obtaining timely decisions from domestic courts, parties involved may consider settling their disputes in a foreign forum (i.e. a foreign court or foreign law). This may be preferred as it may help in avoiding the risk of the debtor's exception during the lawsuit. Italy is a signatory to the 'Rome I' Regulation on the law applicable to contractual obligations. The law stipulates that parties in a given contract may decide by mutual agreement which court can have jurisdiction over their disputes. Italy is also a signatory to the Hague Convention of 15 June 1955 (international sale of goods) which states that contracts shall be governed by the law chosen by the parties, the general spirit of the agreement and the circumstances of the case.

Enforcing foreign awards

Decisions handed down by foreign courts can be enforced in Italy although this may take time. Decisions rendered within an EU country result in advantageous enforcement conditions. The two methods of enforcing an EU decision in Italy are done through European Enforcement Order (EEO, as provided under Regulation EC No. 805/2004) if the claim is undisputed, or by registering the judgement under the provisions of the 'Brussels I' Regulations (44/2001). If the debtor identifies assets within the said country, the judgement qualifies as an uncontested claim and enforcement can be done directly without registration, by the use of an EEO.

Regulation EC861/2007 can be used for enforcing decisions of up to Eur2,000 through a European Small Claims Procedure which eliminates intermediary steps. Registering an EU judgement for a disputed claim is very straight forward. The judgement holder is required to make an application to the respective court together with specific documents including an authorised copy of the judgement, a certified interpretation of the judgement, the rate and amount of interest if any, and the date of application. According to the Recast Regulations EC1215/2012, once the judgement is registered, enforcement procedure follows just like in the domestic court. Today an exequatur procedure is no longer required. In foreign countries outside the EU, judgements are usually recognized and enforced on a reciprocity basis as long as the issuing country is a party to either multilateral or bilateral agreement drafted by Italy to handle such cases. If there are no reciprocal arrangements between the two countries, then exequatur proceedings would take place before domestic courts.

If the final decision is not compatible with Italian Policy or Italian Courts the Italian Courts would deny admissibility. This also happens when the foreign court fails to deliver a final or enforceable decision in the issuing country.

Handling Insolvent Debtors

The inability of a debtor to pay its debts is defined as insolvency in Italy. The insolvency framework focuses on debt restructuring as an alternative to liquidation. The Italian bankruptcy law is built upon various regulations with the main one being the Royal Decree No 267 of 16 March 1942, which has been recently amended by the law Decree No. 83 of 22 June 2012 (Decreto Crestica). Company Rescue attempts are not favoured and the process is very complex due to the many procedures that may be adopted. For this reason bankruptcy remains the default proceedings.

Insolvency Proceedings

Out of Court Proceedings

In accordance to the 2012 law reform, a debtor facing financial challenges is entitled to file an out-of-court application for composition by anticipation (pre-concordato/concordato in bianco).

Negotiation and agreement on the composition can be initiated between 60 to 120 days before submitting to the court the formal debt restructuring proceedings (concordato preventivo) as a means to prevent the enforcement proceedings against the company. All execution proceedings are frozen during this period until the admission of the company to Concordato Preventivo is declared by court. During this period, the debtor retains control over the company's assets although this is done under the control of a supervisor.

Another option is to draw up a new pre-agreed composition plan (ristrutturazione del debito) with the approval of creditors representing 60% of the company's debt.

Restructuring the debt

A seriously insolvent company can use Concordato Preventivo proceedings as a way of avoiding being forced into bankruptcy. The debtor's company drafts a proposal to the court stating to repay the outstanding total amount to the creditors. If the court admits the debtor into the Concordato Preventivo proceedings then a meeting is fixed with creditors and a Commissioner Trustee appointed to handle the issue. If most of the outstanding credit is accepted then the court officially validates the proceedings.

Winding up Proceedings

Although winding up proceedings (fallimento) is a bankruptcy procedure, the request should emanate either from the debtor, the public prosecutor, or from its creditor, taking into consideration that various thresholds apply. One of the conditions is that the debtor company should be a commercial enterprise with investments which are in excess of €200,000 as per the latest annual account and should be in a state of insolvency of €30,000.

Once the liquidation process is admitted by the court, the creditors are given a period of around two months (period is decided by court) to register their priorities and debts.

INSOLVENT DEBTORS

A court nominated receiver (curatore) is then given a charge to verify the creditors list and takes over the entire administration and management of the company until the company assets are sold with proceeds distributed to the creditors.

If the parties agree on a plan regarding the restructuring of debt, the assignment of the debtor's assets and the payment of credit, a bankruptcy agreement (concordato fallimentare) may be concluded during the liquidation proceedings. The approval of both the receiver and the creditor's committee should be obtained and the bankruptcy judge would need to verify compliance of this agreement with the relevant rules of procedure.

Companies that are not allowed to go bankrupt due to public interest, like insurance companies and banks, are served with a Compulsory Administrative Liquidation (liquidazione coatta amministrattiva) procedure. When a company decides to voluntary stop its economic activities a 'Liquidiazone volontaria' is applied.

Priority Rules

Priority rules are applicable when distributing proceeds to creditors. Priority claims (liens over moveable and immovable property) are repaid before settling preferential claims and claims secured by pledge or mortgage. Under the 2012 reform, any new money received by the debtor during restructuration proceedings, and which are essential for the company's survival, are considered as priority claims.

Clawback - Cancellation of suspect transactions

As per the insolvency law (Articles 64 to 70), administrators and receivers are entitled to review and cancel any payment made within the suspect period which is between six months and two years before the initiation of the insolvency procedure. Transactions favouring a creditor over others, or transactions that reduce the estate's (undervaluation, gratuitous acts, fraudulent acts) value should therefore be avoided.

Insolvency proceedings period

On average, bankruptcy proceedings last for a period of five to ten years, with complex cases lasting for up to 20 years.

Necessary Documents

  • Notarised Power of Attorney
  • Copies of order sheets
  • Copies of Invoices
  • Relevant forwarding papers including proof of delivery
  • Original Outstanding Invoices legalised by a Public Notary
  • Legal representative's name and designation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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