Alternative Solutions in Bankruptcy (Alcune Considerazioni su Soluzioni Alternative in Materia di Fallimento) (Italian)

Rivista del Diritto Commerciale, 2002

Posted: 12 Dec 2010 Last revised: 15 Feb 2011

Date Written: 2002


It is still a subject of debate whether the economic function of bankruptcy is to coordinate the insolvent company’s creditors or to leave secured creditors the possibility to foreclose the company’s residual assets. However, the bankruptcy procedure is more or less everywhere of marginal importance since it comes after the distribution of the residual assets to the secured creditors.

As regards the procedures of financial restructuring (for instance, in Italy, the one called amministrazione straordinaria), it is not proven that they guarantee a better financial structure than the one directly negotiated by the company’s creditors. More in general, allowing by law the modification of long-term contracts (the ones on which every company’s financial structure is based) against the will of all or part of the creditors has a certain bearing on the cost of credit. Moreover, the ordinary bankruptcy procedures, where, as in Italy, give coordination powers to judicial or administrative authorities – parties not interested in maximising the value of residual assets - have also an impact on the cost of debt. The conclusion is that the economic function of the bankruptcy legislation is today of preventing rather than facilitating the company’s financial restructuring.

The institutional mechanisms that have allowed such dynamics are based on the willingness of the courts and legislators to protect some contractual partners of the company, in the first place the employees. Instead of introducing laws that explicitly limit the power of shareholders and creditors (something which would require an open justification of such laws), legislators around the world use instead the bankruptcy law, hiding to collectivities the cost of such choices. Initiatives in favor of employees should be directly financed by the public budget.

The crisis of the justifications of the bankruptcy legislation underlines the interest for reorganizing insolvent companies through contractual instruments. Giving bankruptcy back to the creditors would allow to give credibility to the threat by creditors of the recourse to bankruptcy as an instrument to monitor the management of a company before its bankruptcy.

Keywords: Bankruptcy, Financial Restructuring

JEL Classification: G33, G34

Suggested Citation

Santella, Paolo, Alternative Solutions in Bankruptcy (Alcune Considerazioni su Soluzioni Alternative in Materia di Fallimento) (Italian) (2002). Rivista del Diritto Commerciale, 2002, Available at SSRN:

Paolo Santella (Contact Author)

Single Resolution Board

Rue de la Science 27
Bruxelles, 1000

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