- The payment behaviour of domestic companies is poor and the average DSO is excessive, even though the regulations on late payments are more constraining than the applicable EU rules.
- Procedural delays and high costs while enforcing court decisions may prove to be a real challenge. Thus, commencing legal action without first establishing a pre-legal collection strategy is unreasonable.
- For insolvent debtors, debt-renegotiation mechanisms have been put into place but they remain mostly unused in practice. Liquidation (bankruptcy) therefore remains the default route, but leaves limited opportunities for unsecured creditors to recover their debt.
Collecting in Italy
Availability of financial information
Relying on its strong territorial organization based on delegations, and a connected internal database, Allianz Trade allocates each company a grade reflecting its financial health and how it conducts business. The grades represent a core of our knowledge and analyses, and help clients identify and avoid risk. Data is continuously monitored to offer the most up-to-date information to support management decisions.
Main corporate structures
Liability for business debts is determined by legal structures, which are described as follows:
- Sole Proprietorship is available for small businesses managed by an individual and for which no commercial structure is necessary.
In this case, the owner is held liable for all business debts. Two or more individuals may also decide to share ownership and responsibilities through Partnerships (società in nome collettivo, s.n.c.), in which case the partners may be jointly and individually liable for the actions of the other partners. Limited Liability Partnerships (società in accomandita semplice, s.a.s) alternatively offer limited liability to the partners.
- Incorporated entities (Società di Capitali) are also available. Limited Liability Companies (società a responsabilità limitata, Srl) are in practice the most favoured legal entities because they require a reasonable minimum capital amount (EUR 10,000) while the partners’ liability is limited to their contribution. Joint-Stock Corporations (società per azioni, SpA) are used for larger structures and require a minimum capital amount of EUR 120,000 which must be divided into tradable shares. In these entities, the shareholders’ liability is limited to the value of their shares.
- Foreign businesses may settle in Italy through Branch Offices (sede secondaria), but these entities are not separate from the parent company’s legal structure and thus offer no liability limitations. For this reason, subsidiaries tend to be set up through Srl business structures. Joint Ventures may also be established by contract or through partnerships.
All business claims fall under the jurisdiction of ordinary courts (Tribunale) sometimes organized in specialized divisions depending on their size. Appeal courts as well as a Supreme Court of Cassation also exist.
Days Sales Outstanding (DSO)
This may be considered an issue insofar as the law stipulates that payment ought to occur within 30 days, but this may also be explained by the fact that, as a result of the economic crisis, businesses tend to use delays as a credit management substitute. Moreover, the recent reform of the insolvency law, aimed at limiting the damage caused by the lack of support from the banking industry, has allowed debtors to obtain more time to pay together with more favourable conditions. Additionally, debtors tend to become increasingly untraceable.
Late payment interest
Although authorized by law, these agreements often constitute significant negotiation tools but they should be signed by both parties, otherwise they could be considered “unfair terms.”
Debt collection costs
Secondly, it is uncertain whether extended RoT aiming at preserving ownership over goods despite transformation by the buyer would be admitted by Italian courts. Enforcing RoT provisions is difficult in practice because the procedure is costly and remains irregular due to a lack of recent relevant case law.
The most common payment methods are as follows:
- Sepa bank transfers are among the most popular payment means as they are fast, secured, and supported by an increasingly developed banking network internationally and domestically.
- Alternatively, Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) and guarantee bonds constitute reliable guarantees which can be interpreted as a sign of good faith since they can be triggered as a ‘payment of last resort’ if the client fails to fulfil a contractual commitment.
- Also, confirmed Documentary Letters of Credit (a debtor guarantees that a certain amount of money is made available to a beneficiary through a bank once certain terms specifically agreed by the parties have been met) may be considered.
- Bills of Exchange (cambiali) are generally used as debt recognition titles rather than as payment tools. If left unpaid, they constitute enforceable instruments which can be used against the debtor without having Payment Injunctions.
- It is also common for checks (assegni) to be used this way and, if left unpaid, they are enforceable within a maximum period of six months from the due date. Since 2006, unpaid checks must furthermore be registered with the Centrale d’Allarme Interbancaria (in which case the debtor would be excluded from the banking system for six months).
- Payment would occur through RID services which allow collecting receivables from the debtor’s bank, based on an authorization granted by the buyer and requesting their bank to accept debit orders. Alternatively, bank receipt (also called RI.BA.) is a financial instrument used for business management, open to all, which allows creditors to receive a sum of money relative to a specific invoice from the debtor’s bank (through production of supporting documents) In addition, it is always advisable to negotiate down payments.
Amicable settlement (transazione) opportunities should always be considered as an alternative to formal legal proceedings which are lengthy and costly.
Prior to commencing formal legal action, obtaining a payment instalment agreement or, at least, a formal debt recognition title is always worthwhile as, if the debtor fails to pay, these will then allow the creditor to obtain an enforceable Injunction Order through a fast-track proceeding. In addition, before starting legal proceedings against a debtor, checking that the debtor is not listed on the Official Register of Bankruptcies (Pubblico Registro dei Falliti) is advisable, as it allows verification as to whether the company is still active and whether recovery chances are at best. In addition, it is essential to be aware of the debtor’s solvency status: if insolvency proceedings have been initiated, it becomes impossible to enforce a debt.
When the debt is undisputed, fast-track proceedings may allow debt-related litigations to be settled with minimum involvement of the courts. First, injunction proceedings to obtain a Payment Decree (‘decreto ingiuntivo’ under Law no. 69/2009) may be commenced provided that the creditor proves that the debt is certain and undisputed (i.e. by providing a bad check or a dishonoured bill of exchange, orders, invoices and proof of delivery showing that the goods have been received by the debtor). The court grants an Order to Pay within 40 days which, if disregarded, allows a Writ of Execution (Atto di precetto) enforceable by a bailiff (ufficiali giudiziari) through a seizure of the debtor’s assets. In addition, the decree constitutes a valid title for the registration of a judicial mortgage against the debtor’s property which may be triggered when the amount at stake is sufficient enough in order for the procedure to be cost-effective. Objection however takes the claim to formal ordinary proceedings. Other summary proceedings alternatively allow the recognition of creditors’ rights (procedimento sommario di cognizione) provided that undisputable evidence may be provided. The order may be appealed within 30 days, in which case the claim then leads to a formal lawsuit).
When the debtor company has assets in other EU Member States, a European Payment Order procedure facilitating the recovery of undisputed debts (under Regulation EC No 1896/2006) may be triggered. In this case, the demanding party may
request a domestic court to issue an Order to Pay which will then be enforceable in all European Union countries (except Denmark) without exequatur proceedings.
When the option of commencing formal legal proceedings remains, the claimant must first file a claim with the court (citazione) and Serve summons to the debtor. The debtor may file a defence (comparsa di costituzione e risposta) within 90 days through a preliminary hearing. The parties are then asked to provide briefs and evidence to the court, but the proceedings take place in various time-consuming phases. If the debtor fails to bring a defence, the creditor is entitled to request a default judgment but this does not necessarily shorten the proceedings. Italian courts normally award remedies in the form of declaratory judgments (acknowledging the existence of a right, for instance), constitutive judgments (altering the parties’ relationship), specific performance and compensatory damages but they cannot award damages which have not been requested by the parties. Punitive damages are not available.
Overall, formal litigation in the case of debt collection disputes is unsatisfactory and pre-legal action efforts should always be favoured.
- Notarized power of attorney
- Copies order sheets
- Copies of invoices
- Relevant forwarding papers/proof of delivery signed by either the carrier or the debtor
- Original abstract of creditor’s accountancy book, where the outstanding invoices are listed (must be legalized by a Notary Public for Italian creditor companies)
- Legal representative’s name and job profile/company position
Lodging an appeal
Decisions rendered in the second instance may be appealed against before the Supreme Court, which is only competent to consider errors of law (such as a failure to state reasons, a lack of jurisdiction, an incorrect interpretation of the law, etc.).
Enforcing court decisions
Prior to commencing execution proceedings, the executive order (titolo esecutivo) must be served to the debtor together with a formal request to make payment within ten days (precetto). This gives the debtor an opportunity to bring another defence, thus delaying enforcement further. If the court rejects the defence, an application to proceed to forced execution may be filed with the bailiff’s court (ufficiali giudiziari).
Given the length of legal proceedings as a whole, it is overall strongly advisable to inquire about the debtor’s capacity to pay the debt prior to commencing a lawsuit.
How long could legal action take?
Legal action in debt collection is the same for Italian and foreign creditors, so the courts do not require more time to decide on disputes filed by foreign creditors.
How much could this cost?
Court fees in Italy have been noticeably increased by the government in recent years and legal representation tends to be costly.
Alternatives to legal action
Alternative Dispute Resolution methods (ADR)
Enforcing foreign awards
Various circumstances may apply. On one hand, decisions rendered in an EU country would benefit from particularly advantageous enforcement conditions. Apart from EU Payment Orders which are normally enforceable directly in domestic courts, the two main methods of enforcing an EU judgment in Italy are by the use of a European Enforcement Order (EEO, as provided under Regulation EC No. 805/2004) when the claim is undisputed, or by registering the judgment under the provisions of the Brussels I Regulation (44/2001).
If the judgment qualifies as an uncontested claim, it can be enforced directly (i.e. without registration) by use of an EEO provided that the debtor has identified assets in the country. A European Small Claims Procedure (as provided by Regulation EC 861/2007) aiming at eliminating intermediate steps may similarly be relied upon while enforcing decisions up to EUR 2,000.
If the claim is disputed, the procedure for registering an EU judgment with domestic courts is relatively simple. The judgment holder must apply to the relevant court for the judgment to be registered and provide the court with, among other documents, an authenticated copy of the judgment, a certified translation and, if interest is claimed, a statement confirming the amount and rate of interest at the date of the application and going forward. Once the judgment has been registered, it can be enforced as if it were issued by domestic courts (according to the Recast Regulation EC 1215/2012, such an exequatur procedure is no longer required from January 2015).
On the other hand, judgments rendered in foreign countries outside of the EU would normally be recognized and enforced on a reciprocity basis provided that the issuing country is party to a bilateral or multilateral agreement with Italy drafted for this purpose. In the absence of reciprocal arrangements, exequatur proceedings would take place before domestic courts. As a general rule, foreign judgments cannot be reviewed on the merits of the case, but the courts would deny admissibility for a number of reasons, for instance: where the foreign decision is neither final nor enforceable in the issuing country, deemed incompatible with Italian public policy or with decisions rendered by Italian courts, if the defendant has not benefited from a due process of law, if the foreign court has awarded punitive damages, etc.
Italy is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, therefore its domestic courts ought to recognize and enforce awards rendered through international arbitration proceedings.
Italian Bankruptcy Law is built upon various regulations, the main of which is the Royal Decree No 267 of 16 March 1942, which has been amended by the Law Decree no. 83 of 22 June 2012 (Decreto Crescita) and the new Code of Crisis and Insolvency.
On 26 June 2019, the EU Directive 2019/1023 on preventive restructuring frameworks was published, to ensure that there are minimum restructuring measures available across Europe to enable debtors in financial distress to solve their problems at an early stage and avoid formal insolvency proceedings. Member States had to implement the Directive by 17 July 2021, but Italy asked an extension of up to May 2022 for the entry into force of the New Code of Crisis and Insolvency, and until December 31, 2023 for the hotly debated out-of-court early warning procedures to be implemented.
The insolvency framework places a significant emphasis on debt restructuring as an alternative to liquidation, however in practice bankruptcy remains the default proceeding so the company rescue attempts are not widespread. In fact, multiple rescue procedures may be found, which makes the process complex.
Alternatively, a new pre-agreed composition plan may also be agreed (ristrutturazione del debito) with the approval of creditors representing at least 60% of the debtor company’s debt.
The Law Decree 118/2021 introduced a procedure to resolve distressed company situations, a quasi-private settlement option that is in line with EU Directive no. 1023/2019 (the Settlement Procedure).
It is an out of Court procedure, followed by an Expert.
In the event that the Expert's final report indicates that the Settlement Procedure has failed (i.e., that the distressed company and the creditors have not reached an agreement), then the law introduced the ability to start a Simplified Composition with Creditors Procedure (the Simplified Procedure). The Simplified Procedure entails the assignment of the assets of the distressed company to the creditors.
No vote is required by the creditors for the Simplified Procedure to be initiated, but creditors have the right to file an opposition if they believe that the liquidation plan creates prejudice to their interests.
Restructuring the debt
Alternatively, the Accordo di ristrutturazione del debito aims at restructuring the debt so as to rescue the debtor company from bankruptcy proceedings. An agreement may be concluded between a debtor and their creditors (Comitato dei creditori) while pursuing business. Directors remain in charge of the daily management under the surveillance of a judicial commissioner, and may present various arrangements in the form of debt restructuring, transfer of assets of the company to an assuming party (assuntore), division of creditors into different classes according their legal status and similar economical claims. Since 2012, enforcement actions against the debtor may be stayed earlier, from the start of the out-of-court composition phase. In addition, the 2012 Reform provides improved opportunities to obtain fresh capital during the restructuration proceedings.
Additional procedures may also start depending on the size and level of indebtedness of the company: Prodi’s extraordinary administration proceedings (amministrazione straordinaria) are supervised by the Ministry of Industry and apply to companies that have at least 200 employees, and that their debt equals two-thirds of their assets; Marzano’s extraordinary administration proceedings (amministrazione straordinaria Marzano) apply to companies with at least 500 employees that have debts amounting to at least EUR 300 million.
Winding up proceedings
A bankruptcy agreement (concordato fallimentare) may, however, be concluded during the liquidation proceedings if the parties have agreed on a plan regarding (among other matters) the restructuring of debts, the payment of credits, the assignment of the debtor’s assets in favour of an assignee, the composition/payment of a class of creditors, etc. The bankruptcy judge would verify the compliance of the agreement with the relevant rules of procedure and obtain the approval of both the receiver and creditors’ committee.
The Compulsory Administrative Liquidation (liquidazione coatta amministrativa) procedure applies in the case of companies that are not allowed to go bankrupt by law on the grounds of public interest (for example, banks and major insurance companies). ‘Liquidazione volontaria’ applies when a company deliberately decides to stop its economic activities, but such proceedings are regulated under civil law, not under insolvency law.
New capital provided to the debtor during restructuration proceedings and deemed essential to the company’s survival would also be considered as a priority claim under the 2012 Reform.
Cancellation of suspect transactions (clawback)
How long could insolvency proceedings take?
- Notarized power of attorney (if claims lodged by external lawyers)Proof of debt (for bankruptcy proceedings and extraordinary administration, ‘amministrazione straordinaria’)
- Copies order sheets
- Copies of invoicesRelevant forwarding papers/proof of delivery signed by either the carrier or the debtor
- Original outstanding invoices (must be legalized by a Public Notary for Italian creditor companies)
- Legal representative’s name and job profile/company position