Italy: New Crisis And Insolvency Code: What Will It Mean For Insurance?

Last Updated: 3 July 2019
Article by DLA Piper

A look at the new code, which replaces the Italian Bankruptcy Law and modifies elements of the Italian Civil Code, and comes into force in August 2020.
We focus on key questions such as:

  • What's new in the code?
  • Who is concerned and how?
  • What are the consequences for insurance?
  • What opportunities does it create?

Legislative Decree no. no. 14/2019 implements the Crisis and Insolvency Code, applying to crisis and insolvency situations of large companies.

The code, which replaces the Italian Bankruptcy Law and modifies certain provisions of the Italian Civil Code, will enter into force on 14 August 2020 with the exception of the amendments to articles 2086, 2257, 2486 and 2477 of the Italian Civil Code, which entered into force since 16 May 2019.

What's new?

The code creates early warning mechanisms to detect companies' crises, that are aimed at preventing insolvency and liquidation.

The main goal is to make bankruptcy, now called judicial liquidation (liquidazione giudiziale as the word fallimento has been repealed) applied for only when no viable alternative is possible (i.e. when the company's insolvency/liquidation cannot be prevented as the going concern of the business cannot be safeguarded by means of any other procedure of composition with creditors).

For this purpose, the code:

a) introduces the new concept of crisis, defined as "a state of financial difficulty which is likely to result in the company's insolvency"

b) identifies warning signs of companies' crisis

c) provides for alert duties in case of detection of such warning signs

d) creates an out-of-court confidential procedure, presided over by new bodies to be created within the competent Chambers of Commerce (Organismo di Conciliazione della Crisi (OCRI)), to assist companies in finding the more suitable solution to emerge from the crisis. The members of the OCRI will be appointed within a register (established by the Minister of Justice) accessible, inter alia, by lawyers, accountants and labour consultants.

Who is concerned and how?

New obligations and duties are imposed on companies' D&Os and supervisory bodies. Further, the quantification of damages is now regulated in favour of the claimant.

D&Os must now adopt appropriate organizational models – commensurate with the company's size and business – aimed at, inter alia, detecting the company's crisis at the earliest opportunity in order to promptly take action and safeguard the going concern of the business.

Supervisory bodies (i.e. statutory auditors, auditors and auditing firms) are now under a duty to:

a) constantly monitor over the suitability of the organizational models adopted by D&Os

b) promptly inform D&Os in case of detection of warning signs of the company's crisis. In case of failure by D&Os to respond and/or take action within 60 days, supervisory bodies shall alert the OCRI in a timely manner. Compliance with such alert rule implies exemption from liability in relation to the prejudice caused to the company and its creditors by D&Os' failures.

According to new article 2486 of the Italian Civil Code, damages shall now be quantified – unless contrary evidence is provided by D&Os – based on the criterion of the incremental loss rule (i.e. the difference between the company's net assets at the time it was to be wound up and the company's net assets at the insolvency declaration date).

So far, the incremental loss rule has been applied by courts only when the identification of the defendants' unlawful actions is impossible.

Besides the OCRI members, D&Os and supervisory bodies, are there other subjects involved in the early warning mechanisms?

Specific alert duties are imposed on subjects typically coming into contact with companies: 

  • tax and pension authorities (so-called qualified creditors) are under a duty to inform D&Os about companies' outstanding liabilities exceeding certain thresholds provided by law; failure by the company to pay the debt and/or apply for crisis resolution proceedings within 90 days shall be promptly reported by qualified creditors to OCRI
  • banks and financial intermediaries shall inform companies' statutory auditors whenever loans are withdrawn and/or the relevant terms and conditions revised.

Consequences for insurance?

Greater responsibilities involve greater risks.

The new set of duties on D&Os and supervisory bodies increases the risk of claims under D&O policies and/or PI policies providing coverage to directors, statutory auditors and auditing firms. In addition, damages quantified on the basis of the incremental loss rule might greatly impact policies' limits.

Legislative changes also affect risk assessment as underwriters should be interested in learning whether an insured takes/took a role in a company where the code early warning mechanisms have somehow been triggered.

Appropriate questions should be included in proposal forms with a view to better defining the scope of coverage: as known, according to certain Italian court precedents, proposal forms mirror the scope of coverage. Thus, should the proposal form not contain questions relating to the new early warning mechanisms, failure by the insured to report them at the inception of the policy would not be relevant for the purpose of prior knowledge/non-disclosure.

Further, it will be necessary to adapt policies' wording to the new language introduced by the code (as said, the word fallimento has been replaced with liquidazione giudiziale), with particular reference to coverage exclusions concerning companies' insolvency. In this respect, underwriters should consider the opportunity to expressly rule out claims deriving from companies in crisis.

New insurance opportunities?

The code creates new liabilities which might result in new risks.

Insurance coverage in relation to claims deriving from the office as a member of the OCRI might be requested in the future. The answer might be given by creating tailor-made insurance products or by offering a specific coverage extension in PI policies for lawyers, accountants and labour consultants.

"New" liabilities might also be faced by qualified creditors, banks and financial intermediaries for failure to comply with the alert duties imposed on them by the code. Reviewing the relevant policies might then be needed in order to clarify whether they intend to provide coverage in relation to such claims or not.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions