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Subcontractor's bankruptcy: the consequences for the main contractor

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In brief: when a subcontractor enters judicial liquidation (liquidazione giudiziale, the procedure that replaced the old bankruptcy (fallimento) from 2022, under the Business Crisis and Insolvency Code, CCII), the subcontract does not terminate automatically — the fate of ongoing contractual relationships passes through the rules on pending contracts under the CCII, and the decision whether to continue or terminate the contract rests in the first instance with the trustee (curatore). For the main contractor, the most immediate practical problem is often not legal: it is finding a replacement quickly without compromising timelines towards its own client.

What happens to the contract if the subcontractor enters judicial liquidation

The Business Crisis and Insolvency Code (Codice della Crisi d'Impresa e dell'Insolvenza, D.Lgs. 14/2019) governs the fate of contracts still being performed when judicial liquidation is opened, within the framework of pending contracts (art. 172 CCII et seq.). For construction contracts where judicial liquidation has been opened against the contractor (here, the subcontractor), art. 186 CCII provides that the contract terminates, unless the trustee, with the authorisation of the creditors' committee, chooses to step in by offering suitable guarantees — a choice for the trustee, not an automatic outcome in favour of or against the main contractor.

The practical problem, beyond the legal framework

Whatever the contractual outcome, the main contractor is left with a site stalled or slowed in the part entrusted to the failed subcontractor, while its own timelines towards the client keep running. Finding a replacement subcontractor takes time — qualification, negotiation, mobilisation — which the schedule towards the client often does not allow as a margin.

How to limit the impact, before it happens

What this guide does not cover

Veryfy is not a law firm: it shows financial risk signals estimated with risk management algorithms, not legal opinions. This guide does not replace a lawyer's advice on the concrete management of dealings with the trustee or on step-in contractual clauses — it concerns prevention and a general understanding of the mechanism, not the management of a case already open.

For subcontractors on critical or long-running sites, Sentinella sends an alert if balance sheets, protests or directors change — an early-warning margin that is useful before any insolvency brings the site to a halt.

Frequently asked questions

Does the subcontract terminate automatically if the subcontractor goes bankrupt?

No: the fate of the contract passes through the rules on pending contracts of the Business Crisis and Insolvency Code (Codice della Crisi d'Impresa e dell'Insolvenza, CCII, art. 172 et seq.). Under art. 186 CCII the contract terminates, unless the trustee (curatore), with the authorisation of the creditors' committee, chooses to step in by offering guarantees.

What is the most immediate practical problem if a subcontractor enters judicial liquidation?

It is often not legal: it is finding a replacement quickly without compromising timelines towards your own client, with the site stalled or slowed in the part entrusted to the struggling subcontractor.

How can you limit the impact of a possible subcontractor bankruptcy before it happens?

By checking its financial strength before awarding the work, monitoring signs of deterioration during the works, and providing contractually for a step-in clause or a reserve subcontractor for the most critical works.

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