May 6, 2022

The New Insolvency Code: A new era for innovative startups

Thanks to Ugo Pesce for collaborating on this article

As of today, insolvent innovative startups are subject to a special regulation, different from the one generally provided for commercial companies. According to section 31 of Law Decree No. 179/2012 “the innovative startup is not subject to insolvency procedures other than those provided in Section II of Law no. 3/2012.[1]

Nonetheless, the current innovative startup crisis landscape is likely to change with the entry into force of Legislative Decree No. 14/2019 (the “New Insolvency Code” or “NIC”), that expressly includes them within its scope.[2] In particular, NIC firstly defines as “over-indebtedness” the crisis/insolvency situation of specific subjects, including innovative startups, and then provides for specific procedures addressed to these subjects.

Therefore, as of the entry into force of the NIC, the procedures currently regulated by Law No. 3/2012 with respect to startups will cease to be in effect and will be replaced by two new procedures: the minor creditors arrangement (Concordato Minore) and controlled liquidation of over-indebtedness (Liquidazione Controllata del Sovraindebitato). The minor creditors arrangement may be considered similar to the arrangement with creditors of commercial companies, since, amongst others, it allows for a solution of business continuity; while, the controlled liquidation of over-indebtedness may be considered as equivalent to bankruptcy procedure, since its purpose is to liquidate the assets of the innovative startup.

Below there is a summary of the major changes that will be wrought by the entry into force of the above mentioned two procedures, having an impact on innovative startups landscape.

(i) The minor creditors arrangement

This procedure may be proposed when (i) there is a plan that will enable the startup to continue its business; and (ii) there is an external guarantee that the business will remain as a going concern.

The major changes of this procedure from the settlement agreement outlined by Law No. 3/2012, are concerned with:

  1. creditors’ majorities required for approval of the arrangement, that will decrease from 60% of creditors to the majority of the same. The rationale is that it seemed unreasonable to require higher approval percentages in the framework of a procedure intended to settle what are in most cases minor crisis situations;
  2. removal of automatic protective measures for debtors[3]. In the system outlined by Law No. 3/2012, at a specific moment, the judge automatically issued a prohibition on all creditors to start or continue individual executive and precautionary actions on the debtor’s assets. The NIC, instead, provides that the debtor must file a specific instance to ask the judge to issue such prohibition.

Once the arrangement is approved by creditors, the judge must homologate it. The NIC establishes — similarly to what was previously provided by Law No. 3/2012 — that the judge may proceed with homologation even if creditors object, whether or not the judge expects creditors to obtain satisfaction from the execution of the agreement that is no less than the liquidation alternative (known as a cram-down). Moreover, with the enactment of the NIC, the judge will be able to homologate the arrangement even if there is of a complaint from the tax authority.

(ii) Controlled liquidation of over-indebtedness

The NIC will replace the current liquidation of assets procedure provided by Law No. 3/2012, with a more streamlined one: the controlled liquidation of over-indebtedness. The simplification of this procedure is also legitimated by the fact that generally the assets of startups are typically less significant than those of big companies.

The major changes in this context are:

  1. the extension of the categories of subjects that may request the opening of this procedure. While under Law No. 3/2012 the procedure could only be activated by a debtor in a state of over-indebtedness, the NIC allows creditors and the Public Prosecutor to request activation as well, when certain conditions are met (g., creditors may request the opening of the procedure only if the debtor is subject to individual executive procedures);
  2. the automatic application of the discharge of debts’ benefit (Esdebitazione). This is the benefit of discharge residual debts owed to unsatisfied creditors that may be generally granted to the debtor after the liquidation procedures. In the framework outlined by Law No. 3/2012, it is necessary to file a proper application to benefit of this opportunity; with the entry into force of the NIC, it will be applied automatically, unless the debtor has determined the situation of over-indebtedness with gross negligence or fault, or it has been convicted for specific crimes concerning the insolvency procedure. In these last cases such benefit may not be applicable. In any case the esdebitazione may operate only once. The aim is to speed up the procedure and prevent the debtor from being “stuck” in individual actions initiated by creditors.


By including the startup insolvency regulation, the legislator has certainly attempted to implement one of the primary purposes of the NIC i.e., to regulate all insolvency procedures within a single code, with more streamlined, rapid, and effective procedures also in order to avoid possible conflicts of laws, that may arise especially when there are several laws enacted at different times and governing a unitary and very complex environment, as the one of the insolvency procedures. Moreover, the simplification of the procedures, including those concerning the startups, is certainly in line with the general purpose of the NIC i.e., try to overcome a state of crisis immediately and re-enter the market as soon as possible. Finally, worthy of appreciation is the provision of procedures specifically for startups, that certainly have a peculiar situation compared to traditional companies.

[1] The relevant procedures are the settlement agreement and liquidation of assets. For an in-depth analysis of these procedures as regulated by Law No. 3/2012, please refer to our article at the following link:

[2] NIC will enter into force on July 15, 2022, except for section II, part I, that will be effective as of December 31, 2023, that will introduce (i) the so-called “Alert Procedure” (procedura di allerta) i.e., a procedure having the purpose of promptly identifying the symptoms of a crisis and the appropriate measures to overcome it; and, with specific respect to innovative startups (ii) a specific crisis index that, if exceeded, require them to adopt the procedures set forth in the NIC.

[3]Protective measures are defined by the NIC as temporary measures requested by the debtor in order to prevent that certain actions of creditors may negatively affect the successful outcome of the actions taken to regulate the crisis/insolvency.

Tag: Insolvency
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Our enthusiastic and passionate team of professionals will provide newsinsight, and multidisciplinary commentary on the hottest and most recent provisions of law and investment and market and contractual trends in the startup and venture capital sector with an eye not only to the Italian market but to the entire European and international ecosystem.

This blog will be a place for sharing information and experiences related to the launch of new innovative businesses, discussing the different characteristics of investment rounds in the seed, early stage, and growth phases, and looking at trends in venture capital transactions.

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