Debt Collection in Italy

• In Italy, companies’ payment behaviour is low and the average DSO is high, while late payment laws are more stringent than the existing EU rules.

• Procedural delays and high costs can prove to be a real challenge when executing court decisions. It is therefore unfair to launch legal action without first setting up a pre-legal settlement.

1. Summary

1.1. General financial information

1.1.1. Reliable financial information on Italian companies may be difficult to obtain since the legal framework does not give businesses any incentives to do so.

1.2. Key legal structures

1.2.1. Corporate debt liability is determined by legal structures, which can be described as follows:

• Sole proprietorship is available for individually managed small businesses for which no commercial structure is required. In this scenario, the claimant shall be held responsible for all contractual debts. Several or more people may also decide to share responsibility and obligations by Partnerships (società in nome collettivo, s.n.c.), in which case the partners may collectively and separately be responsible for the other couples ' acts. Instead, the limited liability agreements (società in accomandita semplice, s.a.s) give the parties limited liability.

• There are also registered companies (Società de Capitali). Limited liability corporations (società a responsabilità limata, Srl) are the most preferred legal entities in operation since they need a reasonable minimum amount of capital (EUR 10,000), while the responsibility of the shareholders is limited to their allocation. Joint-Stock Corporations (Società per azioni, SpA) are used for larger structures which require a minimum sum of EUR 120,000 in capital to be split into tradable securities. The owners ' interest in those companies is limited to the valuation of their stock.

• Foreign companies can settle in Italy by Branch Offices (sede secondaria), but these bodies are not independent from the legal structure of the parent company and therefore do not give any restrictions on liability. It is for this purpose that branches continue to be formed across Srl business structures. Joint ventures may also be entered into through arrangement or collaborations.

1.3. Regulatory framework

1.3.1. Italy has a Civil Law system that codifies the rules and binds the courts. Consequently, unlike common law countries, case law only has a limited impact on the judiciary. Business transactions are regulated by the Civil Code (Codice Civile), while arbitration is controlled by the Code of Civil Procedure (Codice di procedimiento Civile).

1.3.2. All business claims fall under ordinary court (Tribunale) jurisdiction sometimes organized in specialized divisions depending on their size. There are also district courts and a Supreme Court of Cassation

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2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. Late payment processing in Italy appears to be challenging following a gradual improvement in payment behavior, with DSO in the private sector within 90 days in 2016 (85 days compared to 88 days in the previous year) and six months to a year while working with a public agency.

2.1.2. This may be considered an issue insofar as the law stipulates that payment will take place within 30 days, although this can also be explained by the fact that, as a consequence of the economic crisis, firms continue to use delays as a workaround for cash control. In fact, the latest revision of the insolvency legislation aimed at limiting the damage caused by the lack of funding from the banking industry also allowed debtors to get more time to pay with more favorable terms. In addition, debtors tend to become ever more untraceable.

2.2. Late interests

2.2.1. The debtor in Italy may be charged interest on the late payment. Recast Directive 2011/7/EU, which stipulates that payments must be made in the EU within 60 days, has been transposed into domestic law (Decreto Legislativo 9 November 2012, n.192), but Italy's rules are more stringent than the EU's requirements: as a general rule, business-to-business transactions must be paid within 30 calendar days of the debtor's receipt.

2.2.2. Beyond this point, investors are entitled to claim interest at a rate set out in the contractual agreement, without getting a dunning note. Without such an agreement, the European Central Bank's reference rate (reviewed every January and July), which increased by at least 8 percentage points, may be applied.

2.3. Costs of debt collection

2.3.1. Though legally authorized, these arrangements also represent major negotiation resources, but should be ratified by both sides, otherwise they could be deemed "unfair terms." However, the Directive entitles borrowers to collect (without requesting) a fixed sum of EUR 40 to account for their recovery costs plus reimbursement for any recovery costs that reach that number. By fact, Italian debtors never agree to pay interest on late payments, which is then used simply as a negotiating tool. Again it's necessary to have both parties sign every contract.

2.4. Protecting ownership

2.4.1. Retention of Title (RoT) arrangements aimed at retaining ownership of merchandise after full payment of the relevant invoice is permitted under Italian law, but is rare for several purposes. Firstly, RoT provisions would only be enforceable if they were registered at a verifiable date before a notary(' data security' as provided for in Article 1524 of the Civil Code and Article 11(3) of Legislative Decree 231/2002 implementing Directive 2000/35/EC on combating late payment in commercial transactions).

2.4.2. Having said that, the need for publicity can be explained by the fact that RoT in Italy was initially linked to insolvency proceedings and aimed at preventing collaboration between a defaulting debtor and a borrower to the detriment of other creditors.

2.4.3. Furthermore, it is unclear if Italian courts will consider expanded RoT aimed at retaining control of assets amid the buyer's transformation. In fact, applying RoT regulations is complicated because the process is expensive and appears to be sporadic due to a lack of relevant case law in recent times.

2.5. Payments. The most common methods of payment are as follows:

• Sepa bank transfers are among the most important means of payment, as they are quick, safe and sponsored internationally and domestically by an increasingly integrated banking network.

• Conversely, Standby Letters of Credit (a bank guarantees the debtor's credit rating and recovery capabilities) and Guarantee Bonds are secure assurances that can be interpreted as a sign of good faith since they can be activated as a' payment of last resort' if the borrower fails to fulfill a contractual obligation.

• Additionally, it may be known that verified Documentary Letters of Credit (a debtor promises that a certain amount of money will be made available to a borrower through a bank once certain conditions specifically agreed upon by the parties have been met).

• Exchange bills (cambiali) are commonly used as loan identification securities, rather than as payment instruments. When left unpaid, these are enforceable instruments that can be used against the debtor without Transaction Injunctions.

• Reports (assegni) are also widely used in this manner because, although left overdue, they are enforceable within a fixed duration of six months from the date of the due date. However, outstanding checks must be registered with the Centrale d'Allarme Interbancaria after 2006 (in which case the debtor would be removed from the banking system for six months).

• Transaction will take place through RID services that allow debtor's bank to obtain receivables on the basis of a buyer's authorisation and require their bank to approve debit orders. Additionally, bank receipt (also known as RI.BA) is a financial instrument used for business management, available to all, allowing borrowers to collect a sum of money equivalent to a given invoice from the debtor's bank (by providing supporting documents) However, it is always best to negotiate down payments.

3. Collecting payments

3.1. Amicable action

3.1.1. Negotiating arrangements for amicable settlement (transazione) should always be viewed as an option to lengthy and costly formal legal proceedings. Once taking formal legal proceedings, securing a settlement instalment arrangement or, at least, a clear debt identification title is always important, as if the debtor fails to pay, this will enable the borrower to receive an enforceable restraining order through a fast-track process.

3.1.2. Therefore, it is prudent to verify that the debtor is not listed in the Official Registry of Bankruptcies (Pubblico Registro dei Falliti) until beginning legal proceedings against a debtor, as this requires assurance as to whether the business is still operating and whether the chances of recovery are at best. Therefore, it is important to be mindful of the solvency position of the debtor: once insolvency proceedings have been started, prosecution of a loan is difficult.

3.2. Legal proceedings

3.2.1. Ordinary proceedings. Mediation is no longer a requirement for pre-judicial action. However, legal dunning will begin with a registered letter of demand (Lettera Monitoria) remembering the duty of the debtor to pay the principal together with late payment interest (as decided in the contract or as a guide to a legal rate).

3.2.2. If the debt remains unchallenged, fast-track hearings can enable debt-related lawsuits to be resolved with limited court intervention. Secondly, injunction proceedings for receiving a Payment Decree(' decreto ingiuntivo' under Law No. 69/2009) may be launched if the borrower shows that the debt is certain and uncontested (i.e. by presenting a bad check or a dishonored bill of trade, contracts, invoices and evidence of delivery demonstrating that the products were obtained by the debtor). The court issues an Order to Pay within 40 days and, if disregarded, causes a Writ of Execution (Atto di precetto) to be executed by a bailiff (ufficiali giudiziari) by taking the debtor's belongings.

3.2.3. Therefore, the declaration provides a legal title for the registry of a judicial mortgage against the debtor's property which can be caused when the sum at risk becomes appropriate to be cost-effective for the operation. However, objection takes the claim to ordinary formal proceedings. Instead, other summary trials require the acknowledgment of the interests of investors (procedimento sommario di cognizione), given that undisputed proof may be presented. The decision may be challenged within 30 days, then the allegation progresses to a formal lawsuit). A European Transaction Order mechanism enabling the restitution of undisputed debts (under Regulation EC No 1896/2006) may be activated where the delinquent business has properties in other EU Member States. In this situation, the claimant party may order a domestic court to issue an Order to Pay which will then be enforceable without exequatur proceedings in all European Union countries (except Denmark).

3.2.4. If the option remains to commence formal legal proceedings, the claimant must first file a claim with the court (citazione) and serve the debtor's summons. The debtor can, through a preliminary hearing, file a defense (comparsa di costituzione e risposta) within 90 days. The parties are then asked to provide the court with documents and facts, but the hearings take place in different, time-consuming stages. If a defense is not brought by the debtor, the creditor is entitled to apply for a default judgment, but this does not necessarily shorten the proceedings. Italian courts usually issue relief in the form of declaratory judgments (recognizing, for example, the nature of a right), constitutive judgments (altering the bond between the parties), relevant results and compensatory damages, but can not offer damages which have not been obtained by the parties. There are no possible punitive damages. Overall, where debt collection disputes arise, formal litigation is unsatisfactory and pre-legal action efforts should always be favored.

3.2.5. Required documents:

• Notarial power of attorney
• Copies of order sheets
• Copies of invoices
• Relevant shipping papers/proof of receipt signed by either the courier or the claimant
• Original overview of the accountancy book of the borrower, where the unpaid invoices are identified (must be approved by a notary public for Italian creditor companies)
• Title and biography of the legal representative/co-company.

3.2.6. Time limits. However it is necessary to circumvent the limitation period by delivering a dunning letter via registered mail. In this situation the limitation period will resume when the dunning letter is issued. Claims related to damaged products must be made within one year from the date of delivery but within eight days from the date of disclosure.

3.2.7. Provisional measures. While there is an ordinary case going on, the plaintiff may ask the judge to provisionally implement the word. Provisional interventions can also help preserve the rights of the borrower until a definitive decision is reached, insofar as the courts may require the immediate attachment of the debtor's properties. The claimant holds control of their properties in this situation, but lacks the right to dispose of them as long as the proceedings begin. These interim directions would only be issued if the applicant had shown the urgent need to do so. The court can make its judgment ex parte in emergency situations (i.e., in the absence of the debtor), as it considers necessary.

3.2.8. Appeal lodging. Decision in the first instance proceedings may be brought before the parties for appeal within 30 days of their delivery. Since the entry into force of Legislative Decree 38/2012, the applicant must obtain a permit from the court specifying that the application for appeal is admissible.

3.2.9. Decisions made in the second instance may be taken before the Supreme Court, which has exclusive authority to find defects of law (such as inability to specify purposes, loss of control, misinterpretation of the statute, etc.).

3.2.10. Enforcing court decisions. A verdict shall be enforceable as long as it becomes official (i.e. when all the areas of appeal are exhausted). If the debtor fails to comply with the decision, the court may be required to impose mandatory corrective action (processo di esecuzione) in the form of an attachment of the debtor's properties or a garnishee order (permitting payment of the debt due to the debtor from a third party). For reality, debtor-due recuperation against a third party will prove to be more cost-effective.

3.2.11. The executive order (titolo esecutivo) must be delivered to the debtor in accordance with a formal request for reimbursement within ten days (precetto) before beginning the execution process. It offers the debtor a chance to bring another protection, thus further slowing compliance. If the court denies the appeal, an order may be lodged with the bailiff's court (ufficiali giudiziari) to continue with the involuntary execution. Given the length of the lawsuit as a whole, it is highly advisable to ask about the debtor's ability to pay the debt before starting a lawsuit.

3.2.12. Duration of legal action. Uncontested cases can be resolved in four months but the timetable for securing an enforceable court order will rely on the jurisdiction, the area and the scope of the dispute. In total, the pending legal proceedings may take an average of three years. Consequently, legal action might not always be feasible and pre-legal collection actions should be given priority. Enforcement can also last for years, as it may rely on delays in auctioning, and is also very costly. Legal action in debt collection is the same for Italian and foreign creditors, so court decisions on disputes filed by foreign creditors don't require more time.

3.2.13. Costs of legal action. As a general rule (under Articles 91-92 of the Code of Civil Procedure), the courts would order the defeated party to compensate the winning party for all or part of its costs for the litigation.

3.2.14. The government has noticeably increased court fees in Italy in the last few years and legal representation continues to be costly.

3.3. Alternatives to legal action

3.3.1. Alternative Dispute Resolution Methods (ADR). Alternative Dispute Resolution Procedures, such as consultation or arbitration, may be an effective means of avoiding protracted litigation before the courts of general jurisdiction; however, it is seldom used in Italy in regards to debt collection.

3.3.2. Foreign forums. Given the difficulty of receiving prompt rulings from domestic courts, the parties may recommend resolving conflicts under the auspices of an international tribunal (i.e. an international court or a foreign law) as this may help to avoid the possibility of any debtor's exemption during the litigation. Italy is a signatory of the Rome I Regulation on the law applicable to contractual obligations, which specifies that the parties to a contract which, by mutual agreement, select the law applicable to that contract and choose the court which will have jurisdiction over the disputes. Italy is also a signatory of the Hague Convention of 15 June 1955, the law applicable to the international sale of goods which specifies that contracts be regulated by the law preferred by the parties, the general nature of the agreement and the circumstances of the case.

3.3.3. Foreign awards enforcement. In fact, the idea of resolving debt through foreign courts is reasonable as foreign decisions can be enforced in Italy, even if patience may be required. Different circumstances may apply. On the one side, decisions made in an EU country will profit from the especially favorable requirements for compliance.

3.3.4. Apart from EU enforcement judgments usually enforceable immediately in domestic courts, the two primary ways of imposing an EU judgment in Italy are the use of a European Compliance Order (EEO, as provided for in Regulation EC No 805/2004) where the allegation is unchallenged or the declaration of the judgment under the terms of the Brussels I Regulation (44/2001). If the judgment applies as an uncontested assertion, it can be freely implemented (i.e. without registration) through the use of an EEO given the debtor has established properties in the region. Likewise, a European Small Claims Process (as provided for in Regulation EC 861/2007) which seeks to abolish intermediate steps can be counted on while applying decisions up to EUR 2,000.

3.3.5. The process for filing an EU decision with domestic courts is relatively simple, if the argument is contested. To order for the judgment to be recognized, the judgment holder will appeal to the court involved and provide the court with, among other records, an approved copy of the judgment, a validated transcript and, if interest is asserted, a letter stating the amount and interest rate at the time of the application and forwards. Once the judgment has been registered, it can be enforced as if it were issued by domestic courts (such an exequatur procedure is no longer required from January 2015, according to Recast Regulation EC 1215/2012).

3.3.7. On the other hand, decisions of foreign countries outside the EU will generally be recognised and applied on a mutual basis, given that the originating country is a party to a bilateral or multilateral arrangement with Italy drawn up for that reason. In the absence of reciprocal arrangements, the exequatur proceedings would be brought before the domestic courts. As a general rule, international rulings can not be challenged on the merits of the case, but the courts can reject admissibility for a number of reasons, for example: where a foreign ruling is neither definitive nor enforceable in the issuing region, is deemed inconsistent with Italian public policy or with decisions taken by Italian courts, unless the applicant has benefited from due process of law;

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4. Managing insolvent debtors

4.1. Insolvency in Italy

4.1.1. In Italy insolvency may be described as a debtor's inability to pay his debts. Italian law on bankruptcy is based on various laws, the main one being Royal Decree No 267 of 16 March 1942, recently amended by Law Decree No 83 of 22 June 2012 (Decreto Crescita). The insolvency framework places considerable emphasis on debt restructuring as an alternative to liquidation, but bankruptcy remains the default procedure in practice, so that attempts to rescue companies are not widespread. In reality, it is possible to find several rescue procedures which render the process complicated.

4.2. Insolvency procedures

4.2.1. Out-of-Court proceedings. A debtor facing financial problems is allowed to lodge an out - of-court filing for incorporation by preparation (pre-concordato/concordato in bianco) in 2012 Reform law first. Accordingly, negotiations on a composition agreement (accordo di ristrutturazione dei debiti) would begin 60 to 120 days before the initiation of formal debt restructuring proceedings before the court (Concordato Preventivo, see below) as a means of anticipating the continuation of the enforcement proceedings against the firm. Both execution proceedings are preventively frozen during this time until the court confirms the company's admission to Concordato Preventivo. Under the 2012 Act, the debtor retains control of the properties and operations of the company (under a supervisor's supervision).

Instead, a revised pre-agreed structure scheme (ristrutturazione del debito) may also be decided upon with the consent of shareholders comprising at least 60 percent of the debt of the debtor firm.

4.2.2. Debt restructuring. Restructuring the Concordato Preventivo debt process is a way to avoid getting pushed into bankruptcy by a severely insolvent corporation. The debtor submits an agreement to the court to refund the total outstanding balance to the secured creditors and a defined proportion to the unsecured creditors.

4.2.3. Current Italian legislation Decree 132/2015 established minimum amounts for unsecured creditors (40% for' concordato liquidatorio,' which aims to shut the firm, and 30% for' concordato in continuità,' which aims to keep the company trading). If the court decides to refer the claimant to the Concordato Preventivo proceedings, a Commissioner Trustee shall be named and the creditors' conference shall be set on a date decided. You will cast your vote within 20 days from the date of the trial. A lost vote according to Decree 132/2015 is equal to a negative vote. The court will officially validate the proceedings (omologazione) if the majority of the credit outstanding is accepted.

4.2.4. The Accordo di ristrutturazione del debito, as an option, seeks to restructure the debt in order to save the delinquent corporation from bankruptcy proceedings. A debtor and their creditors (Comitato dei creditori) can enter into an agreement while pursuing the company. Under the oversight of a judicial officer, directors remain in charge of the day-to-day operations and may propose numerous agreements in the form of debt settlement, redistribution of the company's assets to the accepting group (assuntore), separation of shareholders into different classes according to their legal status and similar economic statements. From the beginning of the out-of-court composition phase, enforcement actions against the debtor may be stayed earlier since 2012. Therefore, during the transition process, the 2012 law offers better incentives to access fresh money.

4.2.5. Specific processes may also begin based on the scale and extent of the company's indebtedness: the extraordinary administrative proceedings of Prodi (amministrazione straordinaria) are controlled by the Ministry of Industry which refer to firms with at least 200 workers and that their debt is equivalent to two thirds of their assets; the extraordinary administrative proceedings of Marzano (amministrazione)

4.2.6. Winding up proceedings. Winding up proceedings (fallimento) are the normal court process until insolvent debtors are met in action. The request must come from the debtor, their creditors or the public prosecutor, but different thresholds apply: the debtor company must be a commercial company with investments exceeding EUR 200,000 (as per their latest annual account) and insolvency exceeding EUR 30 000. Upon approval by the court of the liquidation order, creditors are granted roughly two months to report their debts and goals (the timeline is to be established by the judge). A court-nominated receiver (curatore) is responsible for setting the list of creditors and takes over the management and management of the company in place of the directors until the assets of the company are sold and the proceeds are distributed among the creditors.

4.2.7. Nevertheless, a bankruptcy arrangement (concordato fallimentare) may be reached during the liquidation process if the parties have agreed on a scheme for (among other matters) debt restructuring, transfer payments, redistribution of the debtor's properties to an assignor, composition / payment of a creditors ' class, etc. The bankruptcy judge must check the agreement's conformity with the applicable rules of procedure and get consent from both the trustee and the creditors ' committee.

4.2.8. The Compulsory Regulatory Liquidation (liquidazione coatta amministrativa) process applies to companies that are not allowed to go bankrupt by statute for purposes of public interest (for example, banks and major insurance firms). Liquidazione voluntaria' happens when a corporation intentionally decides to stop its economic activity, but such actions are governed by civil law and not by insolvency laws.

4.2.9. Priority Rules. The laws of priority normally apply while the profits are allocated to the creditors. Priority claims (links to movable and immovable property) would be settled before preferred mortgage or contract demands and charges.

4.2.10. New capital provided to the debtor during the turnaround process and deemed essential for the sustainability of the business would also be considered a priority demand under the 2012 Act.

4.2.11. Cancelation of suspicious transactions. Insolvency legislation (Articles 64 to 70) authorizes managers and receivers to inspect and revoke all payments made by the debtor during a' suspicious time' starting within six months and two years before the start of the insolvency proceedings. Accordingly, dealings benefiting one borrower over the others or reducing the value of the assets (fraudulent deeds, undervalued or gratuitous activities, etc.) may usually be invalid.

4.2.12. Duration of insolvency process.  On average, the bankruptcy proceedings could stretch over five to ten years, although in the more complex cases it took 20 years.

4.2.13. Required documents:

• Proof of debt (for insolvency proceedings and exceptional regulation,' amministrazione straordinaria ')
• Copies of order sheets
• Copies of invoices
• Relevant shipping documents/evidence of receipt signed either by the courier or the claimant Initial pending invoices (must be allowed by a Legal invoice)

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