The Tribunal of Modena with a decision of 6 June 2015 stated that a supplier can not refuse to perform its obligation and ask for the payment of previous claims by raising a non-fulfilment of the debtor’s obligations objection. Payment of such claims can then be made only after confirmation of the concordato by the Court.

The case

NCTM Studio Legale Associato assisted a company active in the manufacturing sector in a concordato preventivo procedure based on a plan providing for the company to continue trading thereby preserving the business as a going concern. The debtor then asked the Court to authorize pursuant to Art. 182-quinquies IBL payment of certain claims, arisen before the concordato filing, of some key suppliers (i.e. sales representatives), arguing that this was functional to the implementation of the concordato preventivo plan and to allow a better return for the creditors.

The request was based on the fact that (a) the services provided by sales representatives – as confirmed by the required expert report filed with the request – was absolutely necessary in order to maintain a stable sales volume and to reach the best final outcome for the creditors and (b) the sale representatives could terminate the contracts causing a significant damage to the company.

The issues

The ruling of the Tribunal of Modena is interesting because it helps to determine the scope of application of Art. 182-quinquies IBL with respect to the specific case of the payment of key suppliers’ previous claims, when these suppliers are obliged by a pending contract to provide their services to a company undergoing a concordato preventivo procedure, and in particular faces the issue, whether these creditors are entitled – with an aim at refusing further supplies – to raise an objection that the other party has not performed its own obligations.

The decision of the Court

The Tribunal refused to authorize payments of pre-concordato claims, stating that the conditions according to which the authorization may be granted should be strictly interpreted and, in particular, that it can not be granted with respect to suppliers who are already obliged to supply, because there is no need then to offer to them a specific benefit.

The Tribunal then points out that the supplier is not entitled to raise an objection that the other party has not performed its own obligations, which would ultimately have en effect contrary to the par condicio creditorum principle and would also be contrary to the rule that pending contracts shall continue to  be performed during the concordato procedure, as it confirmed also by the rule that termination clauses linked to the access by a company to the concordato are unenforceable.

The comment

The decision should be noted under two respects:

  1. it is one of the few addressing in depth the issue of the scope of application of Art. 182-quinquies IBL which is very strict; the rule is subject to a narrow interpretation by the Tribunal, which points out that its rationale is limited to cases where creditors are in a condition to lawfully refuse further supplies and not when they are bound to do so;
  2. it faces a specific issue which is related as a direct consequence of  the  foregoing,  i.e.  that  these suppliers can not entitled to raise an objection that the other party has not performed its own obligations, in order to refuse further supplies required under a pending contract; thus, the Tribunal ends up restricting the enforcement of contractual remedies, which seems not to fall literally within the scope of the protection granted by Art. 168 IBL with respect to seizure of the debtor’s assets.

Should this interpretation be followed by other Courts, a new important scenario for debtors undergoing concordato preventivo would be put forth, with the effect of further safeguarding the aim of preserving the business as a going concern, limiting cases where suppliers can insist for payment of prior receivables. At the same time, the rule of Art. 182-quinquies IBL could no longer be exploited by creditors for their own benefit, and the debtor could have more leverage in discussing arrangements with his key suppliers.