Abstract

This work addresses the issue of protection afforded to priority rights in bankruptcy agreements. The approach of the Italian legal system is twofold: collectivized for non secured creditors and individualized for secured ones. Non-secured creditors are always considered as a group, subject to majority rule, although not necessarily as a single group. They must be divided into different classes, according to their respective position relative to other creditors in the division of the debtor's assets value. Non-secured creditors are protected, individually, only through this compulsory division. They remain subject to the decisions taken by the group of creditors to which they belong. Therefore, the majority are allowed to abdicate to a common position, considered as a collective right, not an individual one. Instead, claims of secured creditors are considered as individual rights, at least within the limits of the value of the related collateral. Normally, secured creditors are entitled to receive, through the process of reorganisation, the entire value of their claim. However, as regards the value of any claim exceeding the value of the related collateral, as determined by an independent valuation, it is possible to turn these individual claims into collective ones.