Contribution by Giampaolo Provaggi – Certified Public Accountant in Milan and Genoa – Founding Partner of Gemma Provaggi De André.

The article was published in IPSOA Quotidiano.

The Code of Business Crisis and Insolvency, following the amendments introduced by the corrective decree, revises the simplified composition for asset liquidation. The new provision maintains the distinctive characteristics of the absence of preliminary judicial assessment at the admission stage, the absence of creditor voting, and the centrality of the Court. Even in the “new” version of the regulation, the simplified composition institute is distinguished by being a possible outcome of the out-of-court procedure, thus activable exclusively as the final result of the failure to complete the same. However, there are new developments.
Article 25-sexies of the Code of Business Crisis and Insolvency (hereinafter also CCII), located in Chapter II of Title II, introduced following the amendments made by Legislative Decree No. 83/2022, deals with the “Simplified Composition for Asset Liquidation”. This provision replaces, with modifications, the repealed Article 18 of Decree-Law No. 118/2021, maintaining the distinctive characteristics of the absence of preliminary judicial assessment at the admission stage, the absence of creditor voting, and the centrality of the Court.
Article 25-septies therefore regulates the executive liquidation phase of the new institute.
Negotiated Composition and Simplified Composition
Like the provision of Article 18 of Decree-Law No. 118/2021, even in the “new” version of the regulation, the “Simplified Composition” institute is distinguished by being a possible outcome of the out-of-court procedure of “negotiated composition for the resolution of business crisis”, thus activable exclusively as the final result of the failure to complete the same, as indicated by Article 23, paragraph 2, letter c), of the CCII. This provision is based on the premise that the expert, appointed pursuant to Article 12 et seq. of Legislative Decree No. 14/2019, who assists the entrepreneur in seeking a solution to resolve problems of asset or economic-financial imbalance, declares in his final report, referred to in Article 17, paragraph 8, of the CCII, that:

• – the negotiations were conducted in accordance with fairness and good faith (thus introducing a sort of assessment of the debtor’s worthiness, albeit limited to said phase);
• – they did not have a positive outcome;
• – the different solutions provided for in Article 23, paragraphs 1 and 2 letter b) are not practicable. Access to said institute is therefore not possible if the expert expresses a negative judgment, or if he considers, pursuant to Article 17 paragraph 5 of the CCII, that there are no concrete prospects for recovery, with consequent dismissal of the negotiated composition request.
  Eligible Subjects and Effects of Simplified Composition
  The proposal for simplified composition may be presented by a commercial or agricultural entrepreneur of any size (and therefore also by enterprises below the bankruptcy thresholds, pursuant to Article 25-quater, paragraphs 4 and 5, of the CCII), to the court “of the place where the enterprise has its principal center of interests” (the reference is therefore no longer to “the principal seat”, as in Article 18 of Decree-Law No. 118/2021), within 60 days following the communication of the expert’s final report, accompanied by a liquidation plan and the documents indicated in Article 39 of the CCII.
  It should be noted that attestation of the plan is not required, while the possibility of dividing creditors into classes is provided for (in the absence of regulation, the relative ordinary rules provided for by the CCII should apply).
  From the date of publication in the business register of the petition for homologation of the simplified composition proposal, by the clerk, which must occur within the day following filing, the typical effects of preventive composition are produced, as referred to in Articles 6 (pre-deductibility of credits), 46 (effects of the application for access to preventive composition), 94 (effects of the presentation of the composition application), and 96 (rules applicable from the date of filing of the application for access to preventive composition) CCII. The clerk communicates the proposal to the public prosecutor.
  Peculiar Elements of Simplified Composition
  As stated, simplified composition does not provide for:
• – the “filter” phase of admission,
• – creditor voting.
  Nor is the presence of the delegated judge and the figure of the judicial commissioner provided for, although for the latter, the auxiliary referred to below is entrusted with many of the related functions. Another significant element is the absence of the need for external contributions and minimum satisfaction thresholds referred to in Article 84 CCII (composition with liquidation). This provision is replaced by the condition for homologability, that the proposal does not cause “prejudice to creditors compared to the alternative of judicial liquidation and in any case ensures a benefit to each creditor” (see Article 25-sexies, paragraph 5).
  It is evident how the rationale for these simplifications is to be attributed to the intention to favor the possible achievement of the result of enterprise liquidation in the quickest manner (and therefore with an enterprise still “alive”) and less costly compared to judicial liquidation.
  Court and Decree of Admission to the Procedure
  The Court, pursuant to paragraph 3 of Article 25-sexies CCII, must conduct an assessment of the formality of the proposal and acquire:
• – the expert’s final report (governed by Article 14 of the Ministerial Directive of the Ministry of Justice of September 28, 2021, also “ministerial directive”) and a further opinion rendered by the same (which will be requested by the Court itself, as indicated in Article 13.2 of the ministerial directive, it is believed establishing its timing), relating to the presumed results of liquidation (and therefore, it would seem logical, on the feasibility of the plan and on the truthfulness of its content). With regard to the estimation of liquidation resources and the evaluation of the guarantees offered, see also Articles 13.1, 13.2, and 14.8 of the referred ministerial directive).
  If the formal regularity of the proposal is found (and, it is presumed, the expert’s positive opinion) the Court issues a decree admitting the entrepreneur to the procedure, also appointing the auxiliary pursuant to Article 68 c.p.c., to which the provisions on incompatibilities provided for judicial administrators of the Anti-Mafia Code apply, replacing the figure of the Judicial Commissioner, while the intervention of the Delegated Judge is not provided for.
  The decree must provide for the relative timing for the various activities to be carried out and therefore:
• – the appointment of the auxiliary, who has 3 days to accept the assignment;
• – the assignment to the same of a deadline within which he must file the opinion he is called to prepare pursuant to paragraph 4;
• – the setting of the date of the hearing for homologation, which must take place at least 45 days after the expiration of the deadline granted to the auxiliary for filing the opinion.
  The auxiliary, as anticipated, is called to prepare an opinion, pursuant to Article 25-sexies paragraph 4 of the CCII, which, presumably, but the content seems plausible to be specified at the appointment, could contain a judgment on the feasibility of the proposal and the liquidation plan, as well as an assessment of the truthfulness of the data.
  If this is the content of the auxiliary’s opinion, there is a risk that it may differ from that of the expert on the same subject, with consequent difficulties affecting the Court’s assessments and the determinations of creditors for possible opposition to homologation.
  In fact, by order of the Court, creditors must be communicated by the debtor the auxiliary’s opinion and the expert’s report and opinion, in addition to the composition proposal.
  The Court’s decree may, also considering the provision of Article 25-sexies paragraph 5 CCII, assign to the auxiliary the task of assessing the absence of prejudice to the creditor class of the composition solution in place of judicial liquidation and compliance with causes of preference.
  Furthermore, the same subject must report to the Court if he identifies any of the conduct referred to in Article 106 CCII and supervise the performance of the composition once homologated, pursuant to Article 118 CCII.
  Possible Intervention of Creditors
  Creditors, and any interested party, may oppose the homologation of the composition by appearing within the peremptory deadline of 10 days before the homologation hearing; as, likewise, it is permitted to the parties to file an appeal to the court of appeal against the homologation decree, pursuant to Article 247 CCII and a cassation appeal against the related judgment (the deadline in these two cases is 30 days).
  Communications to Creditors
  As anticipated, the debtor must proceed to communicate to the creditors, of which in the list filed pursuant to Article 39, paragraph 1, by means of certified email or registered mail with return receipt, the proposal, the auxiliary’s opinion, and the expert’s final report and opinion “(…) specifying where the data for its evaluation can be found”.
  Liquidation Phase
  The Court, at the conclusion of the specific hearing, having carried out the verifications incumbent upon it, pursuant to paragraph 5 of Article 25-sexies, may homologate the simplified composition with a reasoned decree immediately enforceable. In such case, it appoints, with the same measure, pursuant to Article 25-septies of the CCII, the liquidator and a creditors’ committee, by virtue of what is provided for in Article 114 CCII. Article 25-septies in paragraph 2 also concerns the regulation of the case in which the liquidation plan, pursuant to Article 25-sexies, already considers an offer to purchase the enterprise, one or more branches or specific assets, by a specific subject.
  It is evident the purpose, in such case, of safeguarding indirect continuity, consistent with the previous phase of negotiated composition. In such case, the liquidator (if post-homologation) or the auxiliary (if pre-homologation, and in such case with prior authorization from the Court), having verified only the absence on the market of better solutions (with evident operational streamlining), may proceed with the transfer. It seems plausible that the subject dealing with the transfer, although no reference to Article 91 of the CCII is provided, may nonetheless refer to such provision.
  Regarding the nature of credits, it should be noted the pre-deductibility, pursuant to Article 6 of the CCII for only credits, originated in the phase of negotiated composition, authorized pursuant to Article 22, as established by the subsequent Article 24, paragraph 1, and for the expert’s compensation, ex Article 25-ter paragraph 12.
  The last paragraph of Article 25-sexies provides for the application to simplified composition of Articles 106 (fraudulent acts and opening of judicial liquidation during the procedure), 117 (effects of composition for creditors), 118 (execution of composition), 119 (resolution of composition), 324 (exemptions from bankruptcy crimes) and 341 (criminal provisions relating to preventive composition and restructuring agreement with financial intermediaries and moratorium agreement) and the presence in place of the judicial commissioner, of the auxiliary.
  Possible Tax Implications of Simplified Composition
  With regard to relations with the tax authority, it should be specified that for simplified composition the obligation, or the possibility, to access the tax settlement institute was not provided for, from which the entrepreneur will be free to identify the relative offer, always in compliance with causes of preference.
  Another aspect that the regulation does not clarify is the applicability or not to this new instrument of Article 88 paragraph 4-ter of the TUIR (in this case the exclusion from taxation referred to in the first period should be of interest), Article 101, paragraph 5, of the TUIR and, for VAT, Article 26, paragraph 3 bis and paragraph 5, of Presidential Decree No. 633/1972.
  The Legislator has not even made explicit reference to the discipline of capital gains referred to in Article 86, paragraph 5 of the TUIR. Since the rule applies to transfers to third parties of assets, in execution of the homologated preventive composition (as clarified by the jurisprudence of the Court of Cassation Judgment of June 4, 1996 No. 5112 and of October 16, 2006 No. 22168) and therefore by the practice of the Revenue Agency (Resolution March 1, 2004, No. 29), it should also be applicable in the case in question, given the nature of the procedure.
  On this topic as well, as for the application of the other tax provisions mentioned above, it will be necessary to await the support of the Financial Administration. However, in favor of the extended applicability of the exclusion from taxability of contingent liabilities from debt reduction “also to other composition cases”, the Resolution of March 22, 2002, No. 26/E is noted. In this sense also appears to be the answer to the tax ruling No. 100 of March 9, 2022 on the applicability of Article 26 VAT to various types of administrative liquidation, specifying that the absence of practice references to more recent models does not undermine their applicability since said documents “could obviously not take into account regulations that occurred at a later time”.