Overview

Reforming bankruptcy laws can be difficult for many reasons. In Italy, first of all, attitudes toward bankruptcy made it a difficult subject to generate support for. Secondly, bankruptcy reforms are often complex and lengthy: They require changes not only to the bankruptcy law, but also to other important parts of the legal framework—such as the codes of civil procedures and, in the case of Italy, the penal code. Finally, they require support from those that must implement them. This paper outlines Michele Vietti's experience in leading Italy's Commission for the Reform of the Bankruptcy Law and the lessons he learned from it.

Main Findings

• Before the reform, the Italian bankruptcy law contained a number of unusually harsh measures. Debtors were deprived of the right to vote in elections and their mail was read by the trustee.
• Reform provided distressed firms a set of tools to overcome the crisis, either through out-of-court agreements or through a formal rescue procedure. Claw-back provisions were also mitigated, as they were perceived as creating an obstacle to out-of-court restructurings.
• Although not perfect, the new bankruptcy law in Italy introduces a lot of innovations. More must be done for its implementation to live up to the spirit of the new principles of flexibility, lack of stigma and direct bargaining between the debtor and the creditors.