Imminent amendment of the revised text of the Insolvency Act

The agreement of the Council of Ministers on 3 August sets in motion the process of transposition of Directive 2019/1023 which will entail substantial changes in the pre-bankruptcy mechanisms and in the “second chance law”.

On 3 August 2021, the Council of Ministers agreed to open for public hearing the Preliminary Draft Bill on insolvency reform, which, once approved, will transpose the Insolvency Directive 2019/1023.

Directive 2019/1023 aims to ensure that viable companies and entrepreneurs in financial difficulties have access to effective national preventive restructuring frameworks that allow them to continue their activity; that insolvent bona fide natural person debtors can enjoy full discharge of their debts after a reasonable period of time, which would provide them with a second chance; and that the effectiveness of restructuring, insolvency and debt discharge proceedings is improved, in particular with a view to reducing their duration.

The text of the Government’s draft bill already envisages substantial changes to pre-insolvency institutions, including, among others, the following:

• The replacement of the current refinancing agreements with Restructuring Plans. The planned amendments are intended to establish a more flexible and agile mechanism than the current refinancing agreements, which provide for the possibility of dragging in dissenting creditors who do not vote in favour of the restructuring plan.
• The introduction of an insolvency procedure for self-employed and micro-enterprises with less than 10 employees, which is intended to be faster and less costly.
• The reform of the second chance procedure for individuals and the self-employed.

Within this reform of the “second chance” it is worth highlighting positively the possibility of achieving exoneration without prior liquidation of the debtor’s assets and with a payment plan to creditors, allowing the debtor, under certain conditions, to maintain their habitual residence and, if they are self-employed, to continue with their activity.

In the current Preliminary Draft, the Government maintains its position of granting public law debts the status of non-dischargeable debts, and which, therefore, would not be affected by the benefit of exoneration, a circumstance that will make the practical application of the second chance difficult and which, in our opinion, clashes with the purpose pursued by Directive 2019/1023.

The preliminary draft approved by the Government still has some way to go before its final approval and during the parliamentary process it may undergo significant changes with respect to the text we now know.

However, given that the insolvency moratorium (obligation to file for insolvency proceedings) remains in force until 31 December 2021, the decision to avail of any preinsolvency or insolvency institution should be made taking into account the possible amendments that are likely to come into force once the current draft bill sees the light of day.