New opportunities for the acquisition of distressed assets in Italy
The global financial crisis, which started in 2008, has been particularly intense in Italy and the very core of the economic value of the peninsula was in danger: the problems faced by small-to-medium size enterprises was principally due to the difficulty of Italian companies in finding adequate financing.
Since 2009, Italy has been frustrated by a continuous increase in the number of bankruptcy procedures.
The Italian government reacted with a substantial change to the regulation of the pre-bankruptcy and bankruptcy procedures with the aim of assisting Italian companies during the possibly temporary emergency and to help them recover their strength.
The main change happened in 2012 with the creation of an accessible pre-bankruptcy procedure, similar to Chapter 11 of the US Bankruptcy Code, that gave Italian companies in crisis the possibility to continue their activities and recover from their serious and critical situation: the “concordato preventivo in continuità”.
Article 186 bis of Italian Bankruptcy Law, regulating such possibility, expressly provides that the business plan required for access to the pre-bankruptcy procedure must provide for the continuation of the business as a going concern.
The continuation of the business, in case of a positive business plan certified by an expert, can be assured by the debtor itself or by a third party, the so called “assuntore” (guarantor).
Article 160 of Italian Bankruptcy law provides that the concordato proposal can provide for the transfer of all assets of the distressed company to the assuntore that will become also responsible for the payments of the debts of the distressed company, reduced in the percentage provided by the concordato proposal.
The assuntore will become liable for the payment of the reduced debts only in case of positive vote of the creditors and approval of the concordato procedure, eliminating the risk of being exposed for the entire amount of the debts and having the possibility to carefully evaluate the pros and cons of the deal.
We have seen that some Italian companies – that have good fundamentals but are experiencing a temporary problem of liquidity and financing – can benefit from such procedure and international investors have the unique possibility to acquire an Italian target with very low risks (the existence of the procedure eliminates the necessity of guarantees for liabilities) and at a very attractive price.
International investors that have an interest in an Italian company in crisis can become, also through a Newco, assuntore of a proposing concordato (with an option agreement, for example) and start, in such role, to take a better look at the company.
Once they have verified the efficacy of the company and when the interest is confirmed they can exercise the option and become assuntore of the concordato also agreeing with the content of the proposal.
When the concordato is approved, the assuntore will acquire all the assets of the target company and the reduced liabilities.
Should you require more information on this you can contact Marco Pistis or Eleanor Fletcher at Abbatescianni Studio Legale e Tributario.