Negotiated crisis resolution: how it works and its benefits

The Negotiated Composition of the Crisis (NCC) was introduced by Legislative Decree No. 118/2021 and subsequently integrated into the Italian Corporate Crisis and Insolvency Code (CCII). This represents an out-of-court and voluntary instrument aimed at facilitating the restructuring of businesses that, despite facing a financial or economic challenge, demonstrate good prospects for recovery. The primary objective is to foster constructive dialogue between the entrepreneur and their creditors. This occurs under the guidance of an independent expert, with the aim of identifying an agreed solution that avoids the initiation of judicial insolvency proceedings and preserves business continuity.

CONTENTS

1. Negotiated Composition of the Crisis: How it Works
2. Conditions for Access and Grounds for Inadmissibility
3. The Centrality of the Restructuring Plan
4. Advantages of the Negotiated Composition of the Crisis
5. Disadvantages and Limitations of the Instrument
6. Comparison with Other Instruments of the Crisis Code
7. A Strategic Fiscal Instrument

1. NEGOTIATED COMPOSITION OF THE CRISIS: HOW IT WORKS ↑

The NCC is configured as a confidential and non-judicial process. The Court does not intervene in the restructuring process, except for the confirmation of protective measures or upon request for specific authorisations. An entrepreneur who identifies the conditions for access applies via the online platform managed by Unioncamere, uploading a set of documents including an economic-financial plan that demonstrates the potential for business recovery. At the same time of the application, the business requests the appointment of a registered independent expert. The expert is not a commissioner or a liquidator, but rather a facilitator tasked with easing negotiations, analysing the coherence of the restructuring plan, and proposing possible solutions.

The entrepreneur retains ordinary and extraordinary management of the business but has a duty to inform the expert of any extraordinary acts of administration or acts that could prejudice the interests of creditors. The entire process is based on the principles of fairness and good faith, the observance of which is attested by the expert in their final report.

Purpose of Business Continuity and Outcomes of the Procedure

The fundamental prerequisite and intrinsic purpose of the NCC lie in “safeguarding business continuity”. The instrument is designed for businesses whose crisis is considered reversible and whose business value can be preserved. Continuity can be pursued in two forms:

• Direct continuity: The entrepreneur, following negotiations and debt restructuring, continues to manage the restructured business activity.
• Indirect continuity: This occurs when the business or an autonomous branch of it is transferred to a third party who continues its operation. This form is explicitly contemplated by legislators and jurisprudence as a valid mode of restructuring. Indirect continuity can occur through the “transfer of the going concern”, its contribution to a new company, or even through a business lease agreement that precedes a future sale. The qualifying element is that the object of the transfer must be an organised economic entity, capable of maintaining its operations, thereby preserving the intrinsic value of the business, such as goodwill and jobs. A way often used to achieve indirect continuity is provided for by Article 22 of the CCII. The provision allows the entrepreneur to ask the court for authorisation to sell the business or a branch thereof, during the negotiated composition. The procedure stipulates that, once a buyer has been identified, the entrepreneur applies to the court. The expert is required to provide an opinion on the adequacy of the consideration and the absence of prejudice to creditors. The court, having verified the regularity of any competitive procedure activated, may authorise the transfer. This transfer then takes place in a protected context, with the buyer being released from any prior debts, within legal limits. This instrument accelerates the restructuring process, ensuring legal certainty for the operation and maximising the value realised for the benefit of all stakeholders.

Formalisation of the Agreement

At the end of successful negotiations, Article 23 of the CCII provides that the parties may formalise the agreement reached through one of the following solutions:

• The stipulation of a contract with one or more creditors, which produces the effects of the restructuring and ensures business continuity for at least two years;
• The conclusion of a moratorium agreement with creditors;
• The signing of an agreement by adhering creditors and any other parties interested in the restructuring operation, as well as by the expert, who thereby certifies that the restructuring plan appears consistent with the regulation of crisis and insolvency.

It should be noted that the stipulated contracts, although they provide important legal effects (non-revocability of payments, exemption from bankruptcy offences, incentive measures regarding the reduction of default interest), are private in nature and can include numerous types of agreements, including settlements and write-offs of prior debts.

2. CONDITIONS FOR ACCESS AND GROUNDS FOR INADMISSIBILITY ↑

Access to the NCC is reserved for commercial and agricultural entrepreneurs registered in the Companies Register. The objective condition is not a way of overt insolvency, but rather a condition of “financial or economic challenge that makes crisis or insolvency probable”. The law emphasises the reversibility of the crisis and the existence of “concrete prospects for recovery”. This clearly distinguishes the NCC from insolvency regulation instruments. As clarified by jurisprudence, the NCC is not an instrument for entrepreneurs already irreversibly insolvent. A state of insolvency, defined as the inability to regularly meet one’s obligations, if structural and not transitory, precludes access to this process.

3. THE CENTRALITY OF THE RESTRUCTURING PLAN ↑

One of the first checks the expert must perform during the assigned engagement is to verify the feasibility of the restructuring plan. This plan, in fact, remains the core and compass for the activities and objectives the business aims to achieve to return to economic and financial equilibrium.

CARAVATI PAGANI is able to support businesses in the implementation of the restructuring plan during this highly delicate phase of corporate life.

4. ADVANTAGES OF THE NEGOTIATED COMPOSITION OF THE CRISIS ↑

The NCC offers numerous advantages to the struggling entrepreneur:

• Confidentiality: The entire procedure takes place in a private setting, avoiding the reputational damage that often results from the publicity of insolvency proceedings. It should be noted, however, that the conduct of negotiations with creditors and the requirement of good faith from the entrepreneur will likely make it difficult to keep the activation of the procedure entirely confidential.
• Retention of Management: The entrepreneur is not dispossessed of business management, thus ensuring operational continuity.
• Protective Measures: At the entrepreneur’s request, the court can grant protective measures for the assets, suspending enforcement and precautionary actions by creditors for a determined period (Article 54 CCII). This “shield” provides the necessary time to conduct negotiations without the risk of a potential judicial liquidation order or enforcement and precautionary actions by creditors against the company’s assets.
• Access to Simplified Composition: If negotiations, despite being conducted with fairness and good faith, do not lead to a solution but the expert certifies the practicability of a liquidation, the entrepreneur has the option to access the “simplified composition for asset liquidation” (Article 25-sexies CCII). This is a significant advantage, as this instrument, accessible only at the end of an NCC, presents less stringent requirements than ordinary liquidating compositions. The only constraint for the approval of the simplified composition is that the proposal does not prejudice creditors compared to the alternative of judicial liquidation and ensures a benefit to each of them.
• Possibility of Tax and Social Security Settlements: The NCC can be the venue for negotiating agreements with the Tax Agency (Agenzia delle Entrate) and social security institutions.

5. DISADVANTAGES AND LIMITATIONS OF THE INSTRUMENT ↑

Despite its benefits, the NCC also presents some limitations:

• Voluntary Nature: The success of the process depends entirely on the willingness of the parties to reach an agreement. The expert has no coercive powers and cannot impose a solution on dissenting creditors.
• Limits to Debtor’s Power: The entrepreneur cannot unilaterally modify the terms of pending contracts. Any modification requires the consent of the counterparty, respecting contractual autonomy.
• Risk of Negotiation Failure: If negotiations fail and the expert does not attest to the debtor’s fairness and good faith, the latter loses access to the simplified composition and is exposed to creditors’ initiatives, including the request for judicial liquidation.
• Costs: The procedure involves costs related to the expert’s fees and those of other professionals involved, which add to the company’s already precarious financial situation.

6. COMPARISON WITH OTHER INSTRUMENTS OF THE CRISIS CODE ↑

The NCC holds a unique position within the CCII, clearly distinguishing itself from the judicial instruments we analyse below.

• Court-Approved Restructuring Plans (PRO) and Pre-Insolvency Arrangement (Concordato Preventivo): These are judicial, public, and more complex instruments. Unlike the NCC, they can impose a solution even on dissenting creditors (through the mechanism of majorities and cram-down). The NCC is a preliminary and “lighter” process, specifically aimed at avoiding the complexity and publicity of these procedures. The simplified composition, as mentioned, represents a bridge between the two worlds, being a judicial procedure but accessible only as the outcome of a “virtuously failed” NCC.
• Judicial Liquidation: This is the extreme solution for irreversible insolvency, leading to the disposal of corporate assets to satisfy creditors. The NCC has an opposite purpose, as it is a preventive and restructuring tool aimed at averting a liquidation outcome.
• Over-indebtedness Procedures: Governed by Law 3/2012 (now integrated into the CCII, such as the consumer debt restructuring plan or the minor composition), these are intended for different subjects (consumers, professionals, small entrepreneurs, etc.). Although they share the aim of resolving a debt situation, they apply to categories of debtors not subject to judicial liquidation, unlike the entrepreneur who accesses the NCC.

7. A STRATEGIC INSTRUMENT TO PRESERVE CONTINUITY ↑

In conclusion, the Negotiated Composition of the Crisis is a flexible and strategic instrument, designed for the prudent entrepreneur who intends to address the first signs of crisis in a protected and confidential environment. Its success is linked to the real recoverability of the business and the willingness of the parties to collaborate. Its main strength lies both in the possibility of reaching an out-of-court agreement and in offering a facilitated “way out” (the simplified composition) should negotiations fail. This rewards the correct and transparent behaviour of the entrepreneur.

CARAVATI PAGANI is able to assist businesses in the implementation of the restructuring plan and in submitting the application for the Negotiated Composition of the Crisis. We support entrepreneurs during the delicate phases of interaction with the expert and negotiation with creditors.