Managing large corporate crisis in Italy: an empirical survey on extraordinary adminstration

Extraordinary Administration (amministrazione straordinaria), a sort of Italian Chapter 11, was introduced into Italian bankruptcy legislation in 1979, in order to manage large corporate crises. Differently from other Italian bankruptcy procedures, Extraordinary Administration is a sort of hybrid since it is under the jurisdiction of both the administrative authority (Ministry of Industry) as well as the Court. Currently there are two distinct phases. During the initial “observation” phase, the company is managed by an extraordinary administrator who has to verify if there is a real possibility for restructuring. According to the restructuring program, prepared by the administrator, in the second phase the company, following a going concern logic, can either be sold to other investors or guided towards a stand alone recovery. As often happens with bankruptcy laws, there is ample theoretical framework and a very large number of studies have been carried out, focused on the legal aspects (for a general overview in English see Panzani, 2009) while economic issues have not been thoroughly investigated. Among the few we refer to Floreani,1997; Leogrande, 2003; Danovi, 2003; Falini 2008. In such a context, this paper aims at presenting some initial empirical evidence regarding how the procedure was put into effect between 1999 (the year of the reform) and 2008. Sources of information are documents available from the Ministry of Industry, which sets out the procedure and has to approve the restructuring plan and the Court Houses that are empowered to accept filing for Extraordinary Administration, in cases of insolvency. The data collected, regarding almost all cases ruled by Act 270/1999 refer to 65 groups composed by 313 companies. The paper investigates: i) the economic relevance of the phenomenon; ii) the characteristics and assets of the companies involved; iii) timeframes and management aspects; iv) safeguarding of the work force. The author is aware that because of the statistical limits the analysis can be considered an initial survey, but it is worth presenting as the basis for future studies and to create the conditions for proper discussion for an institution whose real weight is often merely imagined, rather than known.