What happens to pending contracts when one of the parties is subjected to an insolvency procedure? The new Italian Insolvency Code has introduced some innovative and peculiar rules regarding the consequences of insolvency proceedings on them.

The new Italian Insolvency Code – applicable to the insolvency proceedings started in Italy from July 15, 2022 – provides for a regulation of the contracts effective at the beginning of an insolvency proceeding, making reference both to: a) special criteria, applicable to specific types of contracts, and to b) a general rule applicable to the other cases.

Such rules are, in part, the same provided for by the previous Bankruptcy Law, but they also features some new innovative and peculiar elements.

The “pending contracts” – pursuant to the Code – are contracts which: (i) are effective at the time of beginning of the insolvency proceeding and (ii) have major obligations which have not yet been fully performed at the said time.
The Code provides – as a general rule – that the pending contracts are automatically suspended when an insolvency proceeding starts. After the suspension, the trustee is entitled to: a) take over with the execution of the contracts, or b) terminate the contracts.

However, some specific contracts have a peculiar regulation: in some cases the Code provides that the contracts are automatically terminated (e.g. bank account contracts) or that the contracts continue to be effective and in force between the parties (e.g., financial leasing or lease agreements).
A new exception to the general rule provided by the Code (article 175) is that the contracts of personal nature (i.e. contracts in which the personal qualities of the party subject to insolvency are essential) are automatically terminated when the insolvency proceeding starts, unless otherwise provided by both the parties.

Furthermore, the Code also provides for a general peculiar regulation of the all contracts with obbligations to be executed periodically (i.e. for example lease agreements, supply contracts with periodic supplies). If the trustee decides to take over the contract with periodic obligations: (i) the debtor shall pay in full the price of services or deliveries performed by the creditor after the opening of the insolvency proceeding; (ii) the creditor can logde a claim in the insolvency proceedings for the price of services or deliveries performed before insolvency declaration.