By Order No. 22933/2026, published on 8 July 2026, the First Civil Division of the Italian Supreme Court of Cassation addressed the question of whether an insolvent enterprise may reach debt restructuring agreements with its creditors.
The Italian Supreme Court, ruling in relation to proceedings governed by the former Italian Bankruptcy Law, clarified that “a state of insolvency does not preclude access to debt restructuring agreements, having regard to the combined effect of Article 182-bis(1) of the former Italian Bankruptcy Law, which refers to an entrepreneur in a state of crisis, and Article 160(3) of the same law, pursuant to which ‘a state of crisis also includes a state of insolvency’. This principle has become well established in case law and has been expressed even more explicitly in the Italian Code of Business Crisis and Insolvency (Codice della crisi d’impresa e dell’insolvenza – CCII), where Article 57 expressly authorises entrepreneurs in a ‘state of crisis or insolvency’ to enter into debt restructuring agreements”.
Legislative Decree No. 14 of 2019 introduced separate definitions of the concepts of “crisis” and “insolvency”. Under Article 2(1)(a) of the CCII, a state of crisis is defined as “the debtor’s condition in which insolvency is likely and which manifests itself through the inadequacy of projected cash flows to meet obligations falling due over the following twelve months”. By contrast, Article 2(1)(b) of the CCII defines insolvency as “the debtor’s condition manifested by defaults or other external circumstances demonstrating that the debtor is no longer able to satisfy its obligations on a regular basis”.
Under the current regulatory framework, a state of crisis no longer constitutes a broader category encompassing insolvency as one of its manifestations. Unlike the position under the former Italian Bankruptcy Law, Legislative Decree No. 14 of 2019 draws a clear distinction between the two concepts. Accordingly, the commencement of liquidazione giudiziale (judicial liquidation proceedings) requires the existence of insolvency, as a debtor experiencing only a state of crisis is not eligible to be subjected to those proceedings.
The concept of insolvency had already been extensively examined by the Italian Supreme Court of Cassation before the CCII entered into force. The Court first clarified that the insolvency required for a declaration of bankruptcy does not refer to an isolated event but rather to “a condition, namely a situation possessing a certain degree of stability” (Italian Supreme Court, First Civil Division, 20 November 2018, No. 29913). More specifically, insolvency consists of “a state of financial and economic incapacity depriving the debtor of the ability to meet its obligations by ordinary means” (Italian Supreme Court, Joint Divisions, 11 February 2003, No. 1997). This condition of structural financial incapacity is evidenced “not by the relationship between assets and liabilities, but by the impossibility of the undertaking continuing to operate profitably in the market” (Italian Supreme Court, First Civil Division, 3 March 2022, No. 7087).
As regards the circumstances relevant to establishing a state of insolvency, the Italian Supreme Court has held that “external indicators of insolvency consist of those objective factors demonstrating the undertaking’s functional and non-temporary inability to satisfy its obligations, according to patterns typically identifiable through economic experience, revealing its inability to generate goods or services with sufficient profitability to meet its business requirements - first and foremost the discharge of its debts - as well as its inability to obtain credit on normal commercial terms without seriously jeopardising its assets” (Italian Supreme Court, First Civil Division, 11 March 2019, No. 6978).