The Pandemic as a Chance to Modernise Italian Insolvency and Restructuring Law

The pandemic exerted a profound influence on Italian insolvency and restructuring law. In 2020, after several years of preparation, a wide-ranging reform, whose focus was to enhance the judicial management of distress, was about to enter into force in Italy. In that context, there were two events inducing a radical rethinking of that reform: the pandemic and the duty to transpose Directive (EU) 2019/1023 (which the Italian legislature had largely overlooked while devising the project for reform). The result of the rethinking has been a set of rules more restructuring-friendly, partly and initially conceived as a response to the Covid-19 emergency, but largely preserved also in the post-pandemic framework. Difficult challenges lie ahead, the main one being the heavy legacy of State-guaranteed corporate loans, for which an ad hoc scheme has been developed. A significant and lasting consequence of the legislation enacted during the pandemic is the suspension of the ‘recapitalise or liquidate’ rule, on which the Italian corporate law system has traditionally relied for crisis detection purposes. This paradigm shift comes at the same time as an increased emphasis on early detection of financial distress and an increase in directors’ responsibility in this regard.