Acquiring a foreign company from an Italian seller in composition with creditors
In the world of M&A transactions, some of the most interesting opportunities arise from crisis situations. When an Italian company enters into an arrangement with creditors — a procedure that allows it to restructure its debts while avoiding judicial liquidation (e.g. bankruptcy) — it may be forced to sell valuable assets to generate liquidity. Among these, shareholdings in controlled foreign companies often represent an attractive opportunity for strategic and financial investors. However, buying from a seller in crisis involves specific complexities that it is wise to understand before starting negotiations.
Why a company in crisis sells foreign shareholdings
The arrangement with creditors is a procedure provided for by the Business Crisis Code that allows a company in difficulty to propose a debt repayment plan to creditors. To finance this plan, the company can dispose of non-strategic assets, including high-value assets. Investments in “performing” (in bonis) foreign subsidiaries — i.e. not involved in the parent company’s crisis — often fall into this category. For the buyer, this means access to operating and profitable companies at potentially advantageous conditions, but with a more complex purchase process than a normal sale.
The particularities of the transaction: due diligence and risks
Due diligence in these transactions requires particular attention. The buyer must verify not only the foreign target company’s position — financial statements, contracts, disputes, employment relationships, solvency (also in relation to the composition status of the Italian parent company) — but also the regularity of the Italian composition procedure. It is essential to confirm that the seller has obtained (or can obtain) the necessary authorisations from the Court to complete the assignment. A transaction concluded without the prescribed authorisations risks being declared ineffective against creditors, with serious consequences for the buyer (clawback actions!). Furthermore, since the target company is foreign, the shares are governed by the law of the country of headquarters (the so-called lex societatis). The purchaser must verify any pre-emption rights, shareholders’ approval or statutory constraints provided for by local law, as well as constraints imposed by regulatory authorities both in Italy and in the country where the target company is headquartered.
The Purchasing Process: Authorisations and Timing
Unlike a normal M&A transaction, in this case the buyer does not negotiate solely with the seller. The directors of the company, in composition with creditors, must obtain the Court’s authorisation to sell the shareholding, as it is an act of extraordinary administration. The buyer must therefore take into account longer timescales, as a rule (except in cases involving the so-called risks of contamination of the foreign company, i.e. the occurrence of the state of insolvency of the target company as a result of the state of insolvency of the seller), and a procedural process that involves the delegated judge and the judicial commissioner. The latter is an independent professional who supervises the procedure and must express a favourable opinion on the transaction, verifying that the price is reasonable and that the sale is in the interest of the creditors.
Contractual guarantees: a critical point
One of the most delicate aspects for the buyer is contractual guarantees. In traditional M&A transactions, the seller issues extensive representations and warranties about the target company and undertakes to indemnify the buyer. When the seller is in an arrangement with creditors, this protection is severely limited. The court may prohibit or restrict the issuance of guarantees that expose the debtor’s assets to further liability. In fact, the buyer may find himself buying “as is, where is“, with little or no guarantee from the seller. To mitigate this risk, it is advisable to negotiate alternative mechanisms: price escrow, warranty and indemnity (W&I) insurance policies, or price adjustment clauses linked to specific contingencies.
Price and competitive procedures
The purchase price is determined in a specific context. If the buyer’s bid is deemed serious and potentially improvable, the Court can order a competitive procedure: a form of auction in which other parties can submit competing bids. The original buyer should be aware of this risk – their bid could trigger a race to the top. The final price is typically anchored to an independent appraisal, but competitive dynamics can push it higher.
Practical advice for the buyer
To successfully manage such an operation, the buyer should follow some rules of thumb:
- First, immediately involve legal advisers who are experts in both Italian insolvency law and the target’s country’s legal system.
- Second, plan for longer than usual, taking into account judicial authorisations and foreign formalities (translations, apostille, resolutions).
- Third, structure the offer to be competitive and sustainable, allowing for a tender from the outset.
- Fourth, negotiate alternative protection mechanisms to traditional guarantees, such as escrow, earn-out or insurance policies.
- Finally, maintain a constructive dialogue with the judicial commissioner, the key interlocutor to the deal’s success.
Purchasing a stake in a “performing” (in bonis) foreign company from an Italian seller, as part of an arrangement with creditors, can be an attractive opportunity: quality assets at potentially attractive prices in a context of a “forced” sale. However, the operation requires specific skills, adequate time and careful structuring. The key to success lies in preparation: a flexible strategy and the support of experienced professionals enable you to turn complexity into a competitive advantage.
