The Italian government continues to extend measures to provide businesses with relief and support to address the economic impact of COVID-19 in order to avoid compelled liquidations that would harm companies and their stakeholders in the current environment.

The government recently approved an amendment to Legislative Decree No. 228 of December 30, 2021 (known as the Milleproroghe Decree), converted into Law No. 15 of February 25, 2022, which is aimed at extending and expanding relief to Italian companies in crisis.

Specifically, the amendment extended certain provisions enacted during the COVID-19 pandemic that relaxed and waived certain Debt to Equity Ratio Rules for Italian companies.


There are various rules and remedies under Italian law that apply to companies that suffer losses affecting the "integrity of the corporate capital of the company", depending on the severity of the losses.

For example, the normal and applicable relevant debt-to-equity ratio rules (Debt to Equity Ratio Rules) are as follows:

  • The Italian Civil Code (article 2446, paragraphs 2 and 3, and article 2482-bis, paragraphs 4, 5 and 6) provides that:
  • If, as a result of the losses, the corporate capital decreases by more than one third, but is still not less than the minimum legal requirement, then the directors of the company (and, in the event of their inaction, the board of statutory auditors of the company), must promptly call a shareholders' meeting to pass appropriate resolutions and measures.
  • Moreover, if, by the end of the next financial year, the corporate capital decrease has not been improved such that it is less than one third, then, at the ordinary shareholders' meeting to approve the financial statements for that subsequent year, a resolution must be made to reduce the corporate capital in proportion to the losses ascertained.
  • In the event that this is not accomplished at the ordinary shareholders meeting, it is the duty of the directors and auditors of the company to obtain a court order to reduce the corporate capital in proportion to the losses indicated in the company's financial statements.
  • The Italian Civil Code (article 2447 and article 2482-ter) provides that:
  • If, as a result of the losses, the corporate capital decreases by more than one third, and also results in the corporate capital falling under the minimum legal requirement, then the directors of the company must promptly call a shareholders' meeting to resolve the reduction of the corporate capital and simultaneously either (i) increase the corporate capital to an amount not less than the minimum required by law or (ii) change the legal form of the company.
  • Finally, the Italian Civil Code (article 2484, paragraph 1, no. 4) and article 2545-duodecies) sets out the circumstances that give rise to an obligation to liquidate a company because of a reduction or loss of corporate capital.

The 2020 Liquidity Decree

On April 8, 2020, in response to the business crisis created by the COVID-19 pandemic, the Italian government passed the Liquidity Decree (Law Decree no. 23 of April 8, 2020, Decreto Liquidità). The Liquidity Decree temporarily suspended the Debt to Equity Ratio Rules for all joint stock companies, regardless of whether the company was subject to a bankruptcy or insolvency proceeding.

This important legislative intervention was designed to address two problems that would arise from the application of the Debt to Equity Ratio Rules. First, the Liquidity Decree served to prevent the compelled liquidation of companies that were in situations of capital deficit due to extraordinary and unforeseeable losses suffered, at least in part, due to the COVID-19 pandemic. Second, it helped shield company directors from exposure to claims for damage caused to the company, the shareholders, the company's creditors and/or third parties, as a result of continuing the operation of the business in the face of causes for the liquidation of the company under the Debt to Equity Ratio Rules.

The wording in the Liquidity Decree, however, was unclear and raised numerous interpretative questions regarding which losses creating the capital deficit were to be considered subject to the relaxation of the Debt to Equity Ratio Rules.

In that regard, article 6 provides for the suspension of the application of the Debt-to-Equity Ratio Rules, starting from the date of the entry into force of the Liquidity Decree (i.e., April 9, 2020) through December 31, 2020, for the situations (fattispecie) that occurred during the financial year ending on December 31, 2020. Questions were raised as to whether the suspension provided by the Liquidity Decree could cover those situations where the losses may have accrued before April 9, 2020, but were not recognized until after such date, or whether only losses that accrued between April 9 and December 31, 2020, could be considered. The prevailing interpretation was that losses accrued prior to the April 9, 2020 date could also be considered.

Budget Law 2021 provides additional runway to remedy the losses

Budget Law 2021 (article 1, paragraph 266, of Law no. 178 of December 30, 2020) further extended the timeline to recoup the capital loss for several years.

  • In the situations referred to in articles 2446 and 2482-bis of the Italian Civil Code, the deadline by which the losses must have been reduced to less than one third of the corporate capital has been extended to the 2025 financial year;
  • In the situations referred to in articles 2447 or 2482-ter of the Italian Civil Code, the shareholders' meeting may resolve to postpone the decisions to reduce the corporate capital (and simultaneously increase the same) until the relevant shareholders' meeting for the 2025 financial year;
  • Until the date of the shareholders' meetings for the 2025 financial year, the rules regarding the obligatory liquidation of the company due to a reduction or loss of corporate capital, as set out in articles 2484 and 2545-duodecies of the Italian Civil Code, do not apply.

Moreover, Budget Law 2021 specified that "losses emerging in the financial year in progress as of December 31, 2020" should refer to all losses in the 2020 financial statements (including also those losses accrued in previous financial years, provided that they are recognized during the 2020 financial year). Therefore, the losses that are subject to the suspension may be: (i) losses in the 2020 financial year, (ii) losses deriving from financial years prior to 2020 and carried forward, as well as (iii) certain losses accrued after December 31, 2020, provided that they emerge during the months preceding the approval of the financial statements for the year ending December 31, 2020.

In addition, a specific correlation between the COVID-19 pandemic and the generation of losses is not required. Apparently, the Italian government intended to take into consideration overall market difficulties, even those unrelated to the COVID-19 pandemic.

Finally, it is important to note that while the Liquidity Decree provides important relief, it does not suspend certain relevant legal obligations. In particular: (i) the directors still must promptly identify the losses and call a shareholders' meeting without delay; (ii) the directors still must present to the shareholders' meeting the report on the company's financial situation; and (iii) for the purposes of applying the favorable regulations provided in the Budget Law 2021, the notes to the financial statements must contain a specific indication of the origin of the losses incurred.

Further relief in 2022

Most experts believed that that Italian government would take a break from further relief heading into 2022. Surprisingly, however, Budget Law 2022 introduces a new, special extension of the terms regarding the coverage of losses of joint-stock companies.

In particular, the government provided that, the Debt-to-Equity Ratio Rules and the requirement to liquidate companies due to reduction or loss of corporate capital pursuant to articles 2484, paragraph 1, number 4) and 2545-duodecies do not apply to joint stock companies in relation to losses accrued in the financial year ending as of December 31, 2021.

These 2021 losses must be recovered in the 2026 financial statements (again providing an approximate five year remedy period).

It should be noted that while the 2020 losses must be recovered with 2025 financial statements (and therefore by the spring of 2026), the 2021 losses shall be reduced to less than one third of the capital with approval of the 2026 financial statements, and therefore in the spring of 2027.


As demonstrated by its actions, the Italian government remains in favor of continuing to support companies in crisis by suspending the legal obligations established by Italian law that follow the well-known (and sometimes harsh) principle of "recapitalize or liquidate".

Moreover, the new rules demonstrate that the Italian government is prepared to give companies in crisis the time necessary to effectively carry out a reorganization/recapitalization plan to successfully overcome a temporary state of crisis brought on, at least in part, by the COVID-19 pandemic. In fact, five years is about the same time horizon that generally is envisaged in the context of corporate reorganization plans or, in any case, by composition plans, debt restructuring agreements and certified plans.

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