The negotiated settlement procedure introduced by the Italian Code of Business Crisis and Insolvency (“CCII”), is a tool designed to facilitate the recovery of financially distressed companies through consensual, out-of-court solutions.

Under Article 22(1)(d) of CCII, an entrepreneur may request the Court’s authorization to transfer its business (or one or more of its branches), in any form, to a buyer, without the buyer being liable for the company’s previous debts. The court grants authorization after verifying that the transaction supports business continuity and maximizes returns to creditors, while also ensuring that the buyer is selected through a competitive process. The principle of competition ensures that the business transfer is carried out under the most favorable conditions for creditors.

The provision is intended to promote the immediate purchase of the company at an early stage of restructuring, as, without excluding liability for the company’s previous debts, potential buyers would likely wait for the opening of bankruptcy proceedings instead, which could worsen the situation for the distressed business and its creditors.

As mentioned, when assessing the request to transfer the business, the judge must ensure compliance with the principle of competitiveness in selecting the buyer.  However, Article 22 does not specify any formal procedure to be followed for identifying the best bidder.  This means that companies have to rely on previous case law to help comply with this principle.

In this regard, the Courts of Brescia, Parma, and more recently Milan (see below) have repeatedly emphasized the need for transparent, public, and comparative processes in buyer selection, even when implemented in a simplified manner and the overarching objective as confirmed by the Supreme Court, is to select a buyer capable of maximizing the value of the business, thereby securing optimal outcomes for all creditors.

Implementation of the Competitiveness Principle

There is some guidance about what is meant by competitiveness and practical recommendations from the following:

  • The Decree issued by the Ministry of Justice on March 21, 2023, provided guidelines and practical recommendations, suggesting to companies that they should “organize an information data room” to collect expressions of interest.
  • Also, according to the Italian National Council of Notaries, they explain that competitiveness requires (i) an incremental bidding system, (ii) adequate publicity, (iii) transparency, and (iv) predetermined, non-discretionary rules of bidder selection.

And the Italian courts, most recently, the Court of Milan in June 2025 have emphasized the importance of market testing in the sale of a business or branch in the context of a negotiated settlement procedure. In the specific case, the court denied the debtor’s request for authorization to transfer the business due to the debtor’s refusal to implement even minimally competitive procedures to identify the best offer.

The debtor argued for an exception to the competitiveness requirement, citing exceptional circumstances such as the transactional nature of the sale and concerns over protecting confidential business data. Specifically, it was claimed that opening a data room for due diligence would expose sensitive information to competitors, thereby undermining the business’s value and harming creditor interests.

Nonetheless, following the previous approach of the Court of Brescia, the Court of Milan confirmed that compliance with the principle of competition is a legal requirement and could not be dispensed with.

Conclusion

In summary, the principle of competitiveness in buyer selection is central to ensure that the negotiated settlement process remains transparent, objective, and fair, and does not devolve into a private negotiation that disregards the creditors’ interests. Compliance with this principle is a non-negotiable legal condition for any business transfer authorized under Article 22 of the CCII.

Through recent judicial decisions, Italian courts have established a coherent and consistent approach, reaffirming that transparency and market testing are essential pillars of effective business restructuring under the negotiated settlement procedure.

Importantly, the principle does not impose a formal auction process but requires an objectively fair and transparent procedure to select the best offer. It is the debtor’s responsibility to demonstrate the transparency and competitiveness of the selection process. A fairness opinion or valuation report alone is insufficient to replace this obligation, which must be fulfilled through a real solicitation of the relevant market and a genuine competitive comparison of offers.