1. FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE AND COMMODITIES TRANSPORT TECHNOLOGY Out of court restructuring options in Italy Mario Lisanti Partner Norton Rose Studio Legale (Milan office) Presentation at the TMA European Conference 2010 European Turnaround: New tools, new approaches, new problems 10 – 11 June 2010, Berlin Mario Lisanti Partner Norton Rose Studio Legale (Milan office) Presentation at the TMA European Conference 2010 European Turnaround: New tools, new approaches, new problems 10 – 11 June 2010, Berlin

2. 2 Agenda Out-of-court restructuring options Other legal issues Case study

3. 3 Reorganisation Plan (Piano di Risanamento) Legal basis Who prepares it and when? Who can certify the soundness of the plan? Who appoints the expert that will certify the plan? Pro’s and Con’s of the reorganisation plan ex Art. 67, para. (3), sub-para. (d), of the Bankruptcy Act Widespread use of this instrument by practitioners (eg Ferretti, Koelliker, ACC, Aicon and many others)

4. 4 Legal Basis Art. 67(3)(d) of the B.A. –“certain transactions, payments and security over the debtor’s assets cannot be subject to claw back action to the extent they were carried out to implement a plan that seems suitable to ensure the restructuring of the debtor’s indebtedness and the stabilization of its financial position and whose soundness is certified by an expert registered in the roll of auditors and meeting the requirements set out under Art. 28, paragraphs (a) and (b) pursuant to Art. 2501 bis, paragraph (4), of the Civil Code”

5. 5 Who prepares it and when? The reorganisation plan is prepared by any company facing a moderately distressed situation, often based on the advice provided by consultants specialized in the turnaround of troubled businesses It is market practice to hold an informal consultation of the company’s main creditors (eg banks) in the drafting phase of the plan, also in order to verify their potential support for the plan (eg new loans) The plan as a legal instrument bearing a certain date (notarisation of the plan)

6. 6 Eligibility criteria of the expert The soundness of the reorganisation plan must be certified by a professional who is: –enrolled in the register of auditors (revisori contabili) and –belongs to one of the following groups: lawyers, accountants (dottore commercialista, ragioniere, ragioniere commercialista) or professional partnerships (studi professionali associati) or firms of professionals (società fra professionisti) to the extent that the partners of the same fall under any of these groups

7. 7 The role (and risks) of the expert The expert must evaluate: –the accuracy of the financial data on which the plan is based and –the soundness and feasibility of the projections/forecasts set out in the plan The certification wording must be clear and unambiguous (there are no specific rules or statutory requirements on this matter) In case of negligent or fraudulent certification of an unreasonable plan, the expert will be liable and will be required to compensate all damaged parties

8. 8 Appointment of the expert The appointment of the expert is made by the company facing financial issues and there is no involvement of the court (some lower courts require to be involved, but the lower court of Milan does not) The work of the expert is not subject to any check or approval by the court Wholly-private nature of the reorganisation plan (pro’s and con’s)

9. 9 Pro’s & Con’s of the Reorganisation Plan Pro’s –exemption from claw back for all transactions “carried out to implement the plan” –speed –relatively low cost –confidentiality Con’s –does not create a moratorium on the potential attachments by creditors over the assets of the company –if the company is subsequently subject to insolvency proceedings, the plan can be challenged ex post and any new loans advanced in the context of the plan cannot benefit from the “super-senior” regime (prededuzione) set out under Art. 111 of the Bankruptcy Act

10. 10 Restructuring Agreement Legal basis Main steps Strengths Weaknesses Little use of this instrument by practitioners so far (eg Risanamento, Pininfarina and very few others)

11. 11 Legal Basis Art. 182 bis of the B.A.: –“Any entrepreneur facing a state of crisis may, by filing the documentation set out under Art. 161 of the B.A., apply for the court ratification of a restructuring agreement entered into with a number of creditors representing at least 60% of the claims, together with a report drawn up by an expert meeting the requirements set out under Art. 67(3)(d) of the B.A. on the feasibility of the agreement, with particular reference to whether it is suitable to ensure the punctual payment of the other creditors”

12. 12 Main steps Agreement between the company and its creditors (most likely: some of its creditors) Publication of the agreement in the Company Register, with consequent moratorium, for the following 60 days, on the potential attachments by the existing creditors over the assets of the company Possible opposition by interested parties Ratification (omologazione) by the court (and simultaneous decision regarding any opposition filed)

13. 13 Strengths (boosted by recent legislation) Express and automatic exemption from claw back If the company is later subject to insolvency proceedings, any new loans (now even shareholder loans up to 80% of their amount) advanced in the context of the agreement (now even before the signing date in the case of bank loans) can benefit from the prededuzione regime Very strong defence against lender liability charges Moratorium on potential attachments by creditors (now applicable even during the negotiations phase) Special tax regime

14. 14 Weaknesses Need to obtain prior consent of quite a high percentage of creditors (rectius: claims) Need to ensure the punctual payment of all creditors that do not enter into the agreement Moratorium on attachments is only temporary Court involvement may slow down the process Distressed situation becomes public

15. 15 ProceedingsAimWho initiatesWho controlsWho approves Pre-insolvencyReorganisazion plan under Art. 67 of the Bankruptcy Act Restructuring of debt to bring stability to financial position Directors – they instruct an expert to certify the feasibility of the plan Directors + expertNo approval by creditors nor by Court Restructuring agreement under Art. 182 bis of the Bankruptcy Act Restructuring of debtDirectors – they instruct an expert to certify the feasibility of the agreement Directors + Court supervision Creditors (≥ 60% of claims, with rest to be assumed punctual payment) New Concordato Preventivo Restructuring of debt and payment of creditors (no minimum percentage required) Directors – they instruct an expert to certify the feasibility of the plan and the accuracy of the company’s information Trustee (commissiario giudiziale) + Bankruptcy judge Majority (51% binds all creditors) Restructuring options – Pre-insolvency

16. 16 ProceedingsAimWho initiatesWho controlsWho approves Post-insolvencyNew Concordato Fallimentare Satisfaction of creditorsDirectors + creditors + third parties Trustee (curatore) + Bankruptcy judge + Creditors committee Majority (51% binds all creditors) Extraordinary Administration of Large Insolvent Companies Restructuring of large companies and/or sale of the company’s assets DirectorsTrustee (commissiario straordinario) + Ministry of Industry + Court Majority (51% binds all creditors) Restructuring options – Post-insolvency

17. 17 Other legal issues Lender liability (new loans) Mezzanine/junior lending it still unknown to most Italian insolvency judges and practitioners (eg receivers) LBO debt packages are sometimes very complex (eg so-called fronting or IBLOR structures) Tax issues (eg stamp duty on re-registration of security, or withholding tax triggered by sale of the loan to a foreign entity)

18. 18 Case study Debtor: manufacturing group with annual sales of more than € 500 million Bank creditors: 9 banks (Italian and foreign) Total bank debt: around € 100 million, of which nearly € 70 million in the form of a long term syndicated secured loan and the remainder in the form of uncommitted bilateral unsecured loans “Problematic” overdue bills of suppliers: around € 10 million in total Distressed situation mainly due to global economic crisis and overstocking

19. 19 Reorganisation Plan under art. 67 Change of the repayment schedule of the syndicated loan (moratorium on repayment of the principal amount for 24 months) Confirmation of all uncommitted credit facilities for the entire duration of the plan Granting of a new guarantee facility of around USD 8 million (the bond was issued to a broker that then allowed release of substantial cash to the company) Payment of all “problematic” overdue bills of suppliers

20. 20 Mario Lisanti Partner Norton Rose Studio Legale Piazza Diaz, 1 20123 Milan +39 02 8635 941 +39 335 5782435 (mobile) mario.lisanti@nortonrose.com Contact details

21. 21 Our international practice

22. 22 Regions - Europe

23. 23 Regions – Asia Pacific

24. 24 Regions – Middle East

25. 25 Presentation 1No individual who is a member, partner, shareholder, employee or consultant of, in or to any constituent part of Norton Rose Group (whether or not such individual is described as a “partner”) accepts or assumes responsibility, or has any liability, to any person in respect of this presentation. 2Any reference to a partner means a member of Norton Rose LLP or Norton Rose Australia or a consultant or employee of Norton Rose LLP or one of its respective affiliates with equivalent standing and qualifications. 3This presentation contains information confidential to Norton Rose Group. Copyright in the materials is owned by Norton Rose Group and the materials should not be copied or disclosed to any other person without the express authorisation of Norton Rose Group 4This presentation is not intended to give legal advice and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. Readers must take specific legal advice on any particular matter which concerns them. If you require any advice or information, please speak to your usual contact at Norton Rose Group.

26. FINANCIAL INSTITUTIONS ENERGY INFRASTRUCTURE AND COMMODITIES TRANSPORT TECHNOLOGY