It should further be noted that, effective 1 September 2021, the current Italian insolvency law (“IIL”) Royal Decree No. 267/1942 will be replaced by the new code of crisis and insolvency (enacted through Decree No. 14/2019). The new provisions regulating the interaction between arbitration and insolvency are substantially the same as the current IIL.

If a party in an arbitration is declared insolvent, according to the prevailing opinion the proceedings are automatically stayed.

Under Article 83-bis IIL, if the arbitration relates to an agreement that has not yet been fully performed by either contracting party (“pending agreement”) and that has been terminated ex lege or by the insolvency administrator pursuant to Articles 72 et seq. IIL as a result of the commencement of an insolvency procedure, the arbitration would be terminated.

On the contrary, if the relevant pending agreement is not terminated as per the above or the arbitration relates to non-pending agreements (on arbitration clauses included in such kind of agreements, see, among others, judgments rendered in Supreme Court Case Nos. 4956/2020, 24444/2019 and 6165/2004), the arbitration may proceed if, inter alia:

• the relevant arbitration agreement is enforceable vis-à-vis the insolvency procedure and its insolvency administrator: to this end, all relevant formalities required by Italian law (including documentary evidence of the agreement bearing the so-called “date certain-at-law” – data certa) must have been completed prior to the insolvency declaration;

• the arbitration relates, or is subsequently limited, to matters not falling under the insolvency court’s exclusive and reserved jurisdiction (the latter including, for instance, asset-restitution and monetary claims vis-à-vis the insolvency estate, issues relating to the distribution to creditors of the winding-up proceeds, insolvency claw-back actions, and other insolvency procedure-related matters). If brought in the pending arbitration, such claims must be amended or waived. In addition, if a party wishes to challenge a pre-insolvency transaction in the arbitration (usually through a claw-back action), the insolvency administrator is required to commence parallel court proceedings. Any pending arbitration may be stayed to avoid a potential conflict of decisions; and

• the insolvency administrator (acting in lieu of the insolvent party and on behalf of the insolvency estate) and/or any of the other parties decides to continue the arbitration (even if the insolvency administrator decides not to step into the arbitration, which does not generally exempt him/her from payment of the arbitration costs). A specific prosecution or resumption brief of appearance would, inter alia, would be filed in the arbitration within the relevant time-limit. If not, a new arbitration – if allowed by the requirements above – would be commenced.

Scholars debate if arbitrators appointed before the commencement of insolvency proceedings may be revoked by the insolvency administrator and also resign for duly justified reason.

In any event, the receiver is required to obtain permission from the insolvency court or the insolvency creditors’ committee in order to address certain procedural issues. For example, the insolvency court would be competent to appoint a new arbitrator, upon the insolvency administrator’s proposal.

Can one initiate arbitration against an insolvent entity?

If a dispute arises out of a pending agreement that has not been terminated as a result of the insolvency procedure, or out of a non-pending agreement, arbitration may be commenced against the insolvent party (rectius estate, represented by the insolvency administrator). This can be done if the arbitration agreement is enforceable vis-à-vis the insolvency procedure and its insolvency administrator (see above) and the underlying claims do not fall within the insolvency court’s exclusive and reserved jurisdiction.

Matters for which the insolvency court has exclusive jurisdiction are often the core of disputes arising out of or in connection with the relevant contract. They, inter alia, include (i) claims for asset-restitution and/or payment of money against the insolvency estate (that may derive from the insolvent party’s obligations under the contract); (ii) challenges – mainly through claw-back actions (azioni revocatorie) – to certain pre-insolvency transactions prejudicial to the insolvency estate and its creditors; (iii) issues relating to the insolvency administrator's activities, including his/her decisions to terminate or fulfil pending agreements; and (iv) decisions on the inclusion or exclusion of assets, liabilities, rights, legal relationships, etc. from the insolvency estate.

Procedurally, once an arbitration is commenced, the claimant is required to seek permission from the competent insolvency court authorising the insolvency administrator to appear before the arbitral tribunal and be a party to the proceedings. Any arbitrator appointment would also be made by the competent insolvency court, on the insolvency administrator’s proposal.

If the arbitration agreement is valid and enforceable vis-à-vis the insolvency procedure, the insolvency administrator, in an attempt to avoid an arbitration, may not initiate domestic court proceedings to hear claims that fall under the arbitration agreement, except for matters for which the insolvency court has exclusive jurisdiction. In such an event, the court seized would decline jurisdiction and refer the case to arbitration.

As for the arbitration costs, a party’s insolvency and its inability to fund the proceedings does not affect the arbitration. The claim to such costs would represent a super-senior (prededucibile) claim vis-à-vis the insolvency estate (at least in the part accrued after the start of the relevant insolvency procedure).

Can an insolvent entity commence arbitration?

With the exception of certain matters for which the insolvency court has exclusive jurisdiction, the insolvency administrator can initiate arbitration under an arbitration agreement enforceable vis-à-vis the insolvency estate.

In order to do so, the insolvency administrator is required to seek permission from the competent insolvency court. Any arbitrator appointment would also be made by the insolvency court, on the receiver’s proposal.

In the absence of a valid and enforceable arbitration agreement, the insolvency administrator may enter into a new arbitration agreement, subject to an ad hoc authorisation from the insolvency creditors’ committee.

For arbitration commenced by the insolvency administrator of an insolvent party, the same principles concerning arbitrations brought against an insolvent party and its insolvency administrator apply mutatis mutandis.

In light of diverging views recently expressed by the Italian Supreme Court, there may be a risk that a set-off objection against a insolvency administrator’s monetary claim would not be upheld if the relevant underlying claim has not previously been notified in the insolvency procedure (see Supreme Court Decision No. 19424/2017, contra the prior majority opinion, see Decision Nos. 19218/2016, 64/202 and 481/2009, according to which the said set-off objection may have been used as a mere defence – and not brought by way of action – solely in order to oppose to the receiver’s claims).

In practice, insolvency administrators in Italy seldom initiate arbitration once an insolvency procedure has commenced. In the rare cases where an insolvency administrator has brought an arbitration, these have mainly concerned claims against the former insolvent entity’s directors under an arbitration clause contained in the entity’s articles of association or by-laws.

In case a claim, falling within the scope of an arbitration agreement enforceable vis-à-vis the insolvency estate (in a matter not reserved to the insolvency court), is brought in the context of insolvency proceedings, the respondent is entitled to raise an objection for lack of jurisdiction.

If the abovementioned requirements are met, the insolvency court – as well as any other court seized – will have to decline jurisdiction and refer the case to arbitration.

An arbitral award rendered prior to the start of the insolvency procedure would be enforceable in the insolvency procedure if all relevant formalities required by Italian law (including documentary evidence of the award bearing the abovementioned “date certain-at-law” – data certa) are completed prior to the insolvency declaration.

Subject to the successful recognition of the award in Italy and, if appropriate, to the filing of proof of claim with the insolvency court, the insolvency procedure and its insolvency administrator would comply with the decision rendered by the arbitral tribunal. The successful creditor would be ranked by the insolvency court based on the nature of and the security interests relating to the claim as it has been awarded by the arbitral tribunal.

Awards rendered in favour of or against an insolvent party may be challenged like any other arbitral award. If the award is or could be subject to setting aside proceedings, the relevant party-creditor would file a “conditional” proof of claim (istanza di ammissione con riserva) with the insolvency court. If all requirements are met, this would lead to the admission of its claim vis-à-vis the insolvency estate subject to the award becoming final.

Proceedings for the recognition of foreign awards in Italy are not affected by the insolvency of one of the parties. However, it is advisable to ensure careful coordination between the proceedings for recognition of the award and the insolvency procedure. For example, in some cases, a “conditional” proof of claim should be filed with the insolvency court pending the final decision recognising the enforceability of the foreign award in Italy.

Among the measures adopted by the Italian authorities in response to the Covid-19 pandemic, there have been a number of statutory provisions allowing the potential insolvency-leading effects of the pandemic to be postponed, e.g.:

• inadmissibility of filings for insolvency for the period 9 March 2020 – 30 June 2020;
• six-months extension of the time-limits for performance of the concordato preventivo restructuring plans, and the opportunity for debtors to file for new concordato preventivo proceedings or debt restructuring arrangements, if approval by the competent court was still pending on 23 February 2020;
• postponement of the impact of – at least certain – pandemic-related losses on companies’ net equity; and
• in certain cases, moratorium on banking debts until 30 June 2021.

Among these exceptional measures, the most widely known rule (i.e., Article 91, para. 1, of Law Decree No. 18/2020) imposes that compliance with Covid-19-related restrictive measures “shall always be taken into consideration” in determining if a party should be held liable for a contractual non-performance. According to certain scholars, a debtor may invoke this provision to try and avoid being declared insolvent as a result of temporary financial difficulties deriving from the impact of these restrictive measures on its business.

In addition, procedurally, in order to proceed with legal action a mandatory mediation procedure has been provided in case of disputes on contractual obligations in which compliance with Covid-19-related restrictive measures may be taken into account in order to excuse a party’s non-performance pursuant to Article 91 above (see Article 3, para. 6-ter, of Law Decree No. 6/2020, added by Article 3, para. 1-quater, of Law Decree No. 28/2020).