CRAM DOWN AND DEBT RESTRUCTURING AGREEMENTS: THE NEW PERSPECTIVES OF THE CRISIS CODE

The institution of tax settlement, already introduced by Art. 146 of Legislative Decree 5/2006, provides the possibility for the debtor and for companies in crisis, not only to pay in installments but also to partially pay tax and social security debts, including VAT and unremitted withholding taxes, provided that it is attested, by an independent professional, that the proposed payment is not less than what would be obtained in case of liquidation. The novelty of the Crisis Code (Art. 63 and Art. 88 CCII) is the provision that Restructuring Agreements and Preventive Arrangements can be approved without the agreement of the Revenue Agency and the public social security institution (i.e., when the tax administration does not express its opinion or even when it expresses a contrary vote), even when they provide for the cancellation of tax and social security debts. This is the so-called “Cram down” or “forced dragging,” which, in the CCII, does not currently establish minimum payment thresholds for these debts.

For debtors in crisis, when the major liabilities consist of debts to the Treasury, it was not feasible to conclude Restructuring Agreements and submit proposals for Preventive Arrangements since the agreement of these creditors is crucial for reaching the percentages specified in Art. 57, para 1, and Art. 60, para 1, and in Art. 109 CCII. The need for their agreement becomes unnecessary provided that the “satisfaction of the aforementioned tax administration or mandatory social security or assistance institutions (is) more convenient compared to the liquidation alternative,” subject to the attestation of an independent professional.

This is from a purely civil law perspective, as the potential cram down does not affect the criminal relevance of behaviors (Court of Cassation ruling 30628/2022).

To protect the realization of the public interest, the jurisprudence has rejected the approval in cases of “abuse of rights,” where excessively low and insignificant payment percentages were provided for tax and social security creditors.

Therefore, the legislator is considering making amendments to the Crisis Code, providing that the satisfaction percentage thresholds for public finance, for cram down to be applicable, should be at least 30% (sometimes even 40%) of tax and social security credits, including interests and penalties.