Practical Guide To International Debt Collection in Italy

Practical Guide

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Italy

Is there a minimum amount to start a legal action?

In Italy, there is no minimum amount required to start a judicial process; therefore, creditors can recover even very small claims, but in such cases, the court fees and expenses could make it uneconomic.

The good news is that Article 91 of the Italian Civil Procedural Code (hereinafter, “C.P.C.”) provides that the winning party has the right to the reimbursement of court fees and expenses, and this applies for all proceedings, including the summary proceedings (procedimento monitorio) for debt recovery.

The Court will settle the procedural costs and fees according to the parameters established by law, ordering the debtor to pay such costs and fees, but unfortunately, the parameters do not always include all the costs and fees actually incurred by the creditor.

In general, it is considered that a claim below €2,500 is often uneconomical due to the costs involved in its recovery; but this obviously depends largely on the amount of the debtor’s valuable assets.

A good practice is to check the solvency of the debtor before proceeding with the judicial recovery of the debt.

Will the amount due condition the type of procedure?

In Italy, the amount of the debt only affects the jurisdiction of the Court.

According to Article 7 of the C.P.C., the jurisdiction for debt collection up to €5,000 belongs to the Giudice di pace (literally the justice of the peace), whereas for claims of a higher amount, the Tribunale shall have jurisdiction. The main difference between the two judges lies in the lesser formality of the first proceeding.

The most common way to collect a debt in Court is the request for a Decreto ingiuntivo (hereinafter, the “Payment Order”) through a Summary Proceeding called procedimento monitorio.

This proceeding is quite quick: the creditor, assisted by a lawyer, may file a written application requesting a Payment Order, which is issued by the Court if the debt meets the following conditions:

  • it concerns the payment of an amount objectively determined or easily determinable;
  • the creditor provides qualified written evidence. The law lists the following as "qualified" written evidence: payment promises signed by, or coming from, the debtor (including those contained in written contracts), private instruments with certified signature, or notarial deeds, promissory notes, and bank checks. For commercial debts, any documents proving the debt (i.e., invoices and delivery notes signed by the debtor) also constitute "qualified" evidence.

The amount of the claim is irrelevant for the purposes of this special proceeding.

The Court usually orders the debtor to pay within 40 days (or within a shorter term the Court deems fit), but it:

  • shall grant a provisionally enforceable Payment Order if the debt results from a private instrument with a certified signature, or notarial deed, promissory note, or bank check.
  • may grant a provisional order if there is a risk of serious damage due to the delay or if the creditor’s right is stated in documents signed by the debtor.

The Summary Proceeding is very advisable in the case of unpaid invoices, and in all cases, where the debt meets the requirements seen above. It is even more effective if the debt is also supported by special documents (such as promissory notes, bank checks, notarial deeds, or a private instrument with certified signature, etc.), so there is the possibility to obtain a provisionally enforceable Payment Order and immediately start an enforcement procedure.

When the debt does not meet the conditions seen above (e.g., when the amount due is not yet objectively determined, such as in cases of civil liability or compensation for clientele, or when there is no qualified written proof), the creditor will have no choice but to initiate the Ordinary Proceeding, which, in addition to being slower and more expensive, in some cases is subject to the prior execution of an out-of-court mandatory mediation procedure.

Is it mandatory to send a warning letter before taking legal action to collect a debt?

Sending a warning letter before starting legal action is not mandatory, but it is a common and advisable preliminary step, because in some cases, especially when sent by an Italian lawyer, it may lead to the payment of the debt or the signing of a repayment plan. Additionally, in some circumstances, interest on arrears is due only from the date of the formal notice; therefore, it is generally suggested to attempt this step before taking legal action.

The formal notice may be sent by the creditor themself, but the letter should be drafted by a lawyer to ensure it includes all the elements necessary to legal effects.

An effective warning letter will:

  1. clearly specify the title of the request, the amount requested, and the relevant interest up to that date, including a reasonable estimation of legal fees;
  2. assign a reasonable deadline for payment;
  3. communicate the decision of the creditor to start a court procedure if the debt is not paid within a certain period.

An accurate calculation of the accrued interest may encourage the debtor to speed up payment or reach an agreement.

Although this is not a rule, warning letters sent by a lawyer are usually more effective.

What are the best practices for creditors to increase the possibility of recovering the debt?

The first suggestion for an effective debt collection is to check the debtor’s economic and financial position, by collecting and updating information on their creditworthiness before starting, and during, any commercial relationship.

However, even if the creditor has taken the above measures, it is always important to have documents proving the debt claimed, also in order to be able to benefit from the Special Procedure for obtaining a Payment Order, which has numerous advantages as seen in point 2 above.

In general, any document coming from the debtor and giving evidence of the business relationships can be useful: contractual documents, correspondences, messages, as well as third-party documents, videos, and witness statements may be useful to debt collection.

For commercial debts, the following may be useful to obtain effective and quick collection:

  1. Signed contracts containing the obligations of the parties (stating the amount due by the debtor).
  2. Orders for goods or services with detailed written documents, delivery notes, documents signed and stamped by the debtor are particularly important, written amendments of the contract, if any.
  3. Collecting in advance information on debtor’s assets and financial details (such as bank accounts, properties, etc.).
  4. Requesting a guarantee, such as the first demand bank guarantees.
  5. Requesting bank checks, or, in the case of deferred payments, promissory notes.

As seen in point 2, bank checks, promissory notes, notarial deeds, and private instruments with certified signature give the creditor the possibility to obtain a provisionally enforceable Payment Order, which is the most effective instrument for the judicial recovery of the claim. Although difficult to obtain from debtors, it is worth remembering how much difference they make when it comes to the judicial recovery of the debt.

Effective credit recovery, therefore, starts from the phase prior to the debt contraction, so it is strongly recommended to ask for specialized advice when forming, collecting, or using such documents.

How can a foreign creditor start a procedure for international debt collection in Italy?

Before starting the judicial phase of the debt collection, the creditor should consult a trusted Italian lawyer, who will assess the chances of a positive outcome of the legal action, the best measures to take, and the debtor's future solvency.

In order to bring the action, the creditor will be required to appoint a lawyer registered with the Italian Bar Association, unless the dispute has a value of less than €1,100. Even in such disputes, however, a lawyer is highly recommended, as all proceedings (regardless of their value) in Italy have strict rules and formal requirements.

The lawyer’s appointment is made by granting a special power of attorney (“PoA”) which should be signed personally by the party, if the creditor is a natural person, or by a person authorized to sign (e.g., the legal representative and any other person delegated by the board of directors to handle disputes) on behalf of the legal person (e.g., company, association, etc.).

If the PoA is signed in Italy before the lawyer, he/she may authenticate it directly; otherwise, the creditor will have to sign the PoA before a local Public Notary, which then must be authenticated with either a) an Apostille (if the state where the PoA is signed is among the signatories of the Apostille Convention), or b) by legalization at the local consular office (if the state is not among the signatories, such as China, Canada, or one of several African and middle-eastern countries). Please note that authentication is not necessary for power of attorneys issued by Public Notaries in the following countries, which entered into specific conventions with Italy: Austria, Belgium, Denmark, France, Germany, Ireland, Latvia, Luxembourg, the Netherlands, Poland, Portugal, and Turkey. It is suggested that the power of attorney be drafted in the local language of the creditor, but always with a parallel text in Italian, so as to avoid further translations, saving superfluous costs and time.

The court costs (Contributo Unificato) depend on the claim value, but, compared to other jurisdictions, they have a rather low incidence. By way of example, the Contributo Unificato amounts to €49 for proceedings between €1,100 and €5,200, while it amounts to €259 for proceedings between €26,000 and up to €52,000. This value is doubled for Ordinary Proceedings.

Which documents are necessary for the debt collection in Italy?

When deciding whether or not to commence litigation, existing evidence must be assessed from two angles: (i) whether they are sufficient to prove the existence and the amount of the claim; (ii) whether they give the right to apply for a Payment Order, or if an Ordinary Proceeding will be necessary; and (iii) whether they give the right to a provisionally enforceable Payment Order.

(i) The burden of proof of the existence and exact quantification of the claim always falls on the creditor, who can overcome this not only by providing the proof listed in the Procedure Code (e.g., documentary evidence, testimony, oaths, confessions, etc.), but also through atypical evidence, such as emails, WhatsApp/Telegram/Viber messages, SMSs, audio recordings, videos, etc.

This said, and even considering the different possibilities for evidence, Courts usually prefer some types of evidence to others. Although in Italy, there is the principle of free evaluation of the evidence by judges, a conclusive document will always be better evidence than a witness, for example. Therefore, the better a debt can be evidenced with documents, the more possibilities there will be to succeed in Court, or to reach a good agreement.

(ii) In point 2, it was seen that the Payment Order procedure is very advantageous, both in terms of cost and timing. This special procedure, however, is subject to the existence of at least one of the following two types of evidence: an acknowledgment of the debt contained in a document coming from the debtor (e.g., written promise, insurance policy, email); and/or a commercial invoice. In the absence of either of these two types of evidence, the creditor is obliged to commence an Ordinary Proceeding, in which he/she has the burden of fully proving the existence and quantification of the claim, by means of any of the evidence seen under item (i). This same burden of proof will fall on the creditor if the debtor decides to lodge an opposition to the payment order.

(iii) In the following 4 cases, the Judge may issue a provisionally enforceable Payment Order, which allows the enforcement of the claim to start immediately, and is the sharpest weapon in the creditor's hands: 1. if the claim is based on a notarial deed (e.g., contracts and promises of payment signed before a public notary, public wills, minutes of extraordinary shareholders' meetings of limited liability companies); 2. if the claim concerns social security contributions and welfare payments; 3. if there is a danger of serious damage in the delay of payment; or 4. if there is a debt acknowledgment signed by the debtor, proving the claim.

Debt securities (cheques, bills of exchange, etc.) entitle the creditor to begin enforcement directly, unless they are past due, or have other formal defects. In these latter cases, the creditor shall apply for a Payment Order, which, however, will be issued as being provisionally enforceable.

What happens after the first demand for payment?

If the Court procedure has not still been initiated, and there is only a warning letter, the debtor's actions will have consequences depending on the answer they may provide, if any (for instance, if they refuse or contest the relationship or the amount, or if they include other counterclaims, or if they simply do not answer).

If an Ordinary Proceeding has been initiated, the debtor's acceptance and payment may imply their obligation to also pay procedural costs if it has been previously required by any recorded means. If the debtor opposes, then the trial will continue in its different phases.

However, if a Payment Order has been issued by the Court, there are several possibilities:

  1. If the debtor pays (including procedural costs and legal fees) within 40 days of being required, then the procedure will be terminated.
  2. If the debtor lodges an opposition, the Payment Order procedure will be transformed, upon payment by the debtor of the Court costs (Contributo Unificato), into an Ordinary Procedure. If the Payment Order was issued as being provisionally enforceable, the creditor may continue the enforcement proceedings during the Ordinary Procedure.
  3. If the debtor does not pay, nor oppose the Payment Order, the creditor may begin (or continue, if the Payment Order was provisionally enforceable) the enforcement process by seizing the creditor's assets (of any kind: real estate, movable property, cars, etc.) or the creditor's claims on third parties (the two most frequent examples are the salary from the employer and the current account from the bank).

Can interim measures be taken?

Yes, there are precautionary measures that can be taken to ensure the effectiveness of a judgment before any payment order is issued.

In particular, pursuant to art. 671 CPC "the Court, upon request of the creditor who has a well-grounded fear of losing the guarantee on the debt, can authorize the seizure of the debtor's movable or immovable property or of the sums and things due to them, within the limits in which the law allows for the seizure.”

The following conditions are necessary to obtain the interim measure:

  • fumus boni juris, i.e., the probable existence of the right to be asserted, and
  • periculum in mora, i.e., “the fear of losing the guarantee of the debt claimed,” during the time necessary to assert in court the related right.

The creditor must submit to the court evidence of their right, and of the real risk of insolvency of the debtor due to the procedural delays.

The courts have interpreted the requirement of the periculum in mora in different ways, therefore, even if in theory it is possible to proceed with the interim measures, in practice, it is necessary to carefully evaluate the presence of the conditions required by law; in fact, while there are some uncertainties (mainly) about the interpretation of the periculum in mora requirement, in the event of rejection of the request of an interim measure, there is reasonable certainty that the creditor will be sentenced to pay the legal costs and fees. We recommend carefully assessing the opportunity of an interim measure, and use it only when a high amount is at stake, and there are serious reasons to believe that the debtor might dissipate, or dispose of, their assets.

In general terms, the best opportunity for the creditor to start any legal claim is:

  • to find out, with the help of a lawyer, as much as possible on the solvency of the debtor; and
  • to collect, from the very beginning of the commercial relationship, written documents giving evidence of their right, to speed up the proceeding, or to make use of the “fast track” solutions in case of non-payment.

If, for any reason, the recovery was not possible, is there any other action that the creditor could take to write off such debt in their accountancy?

As a general rule, under Italian tax law, the creditor is allowed to write off credit losses in their accountancy only if the impossibility of recovering results from certain and precise situations, following a rational and documented valuation process. This means that neither the non-payment nor the obvious financial difficulties of the debtor are sufficient.

The creditor is required to demonstrate that he/she has taken all possible legal action to recover the claim, including during the enforcement phase.

In Italy, there are two exceptions to this general rule: one is for claims on debtors subject to bankruptcy proceedings; another is for claims not exceeding €2,500 (or €5,000 for large companies, meaning those with a turnover or revenues not less than €100 million).

Foreign creditors will have to check whether local legislation provides for similar provisions, but, generally speaking, a full recovery Court process (including the enforcement procedure), together with a certificate issued by the lawyer who followed the case, attesting to the difficulty or impossibility of such collection, should be enough to obtain the tax benefits.

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