No. 574 - Business continuity in times of distress: debt restructuring agreements and compositions with creditors in Italy

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by Alessandro Danovi, Iacopo Donati, Ilaria Forestieri, Tommaso Orlando and Andrea ZorziJuly 2020

The Italian insolvency framework makes available to firms and their creditors several restructuring tools, so that liquidation can be avoided and business continuity preserved. This paper analyses two such instruments: debt restructuring agreements (DRAs), in which judicial intervention is limited, and compositions with creditors (CCs), characterized by a higher degree of formality. The analysis is based on information on individual agreements collected at Italian courts.

The effectiveness of these instruments - mostly utilized by large firms - in terms of business continuity is limited. Both display large rates of firm extinction, DRAs in particular. Firms that survive display only partial recovery, generally stronger in CCs. However, the apparently superior performance of CCs is overshadowed by the long time required to implement the restructuring plan.