The Court of Rovigo (1st August 2016) confirms that the debtor shall regularly perform obligations arising after the concordato filing from an existing contract, when the debtor elects not to apply to the Court to terminate it

The case

A company after a pre-filing for concordato preventivo asked the Court pursuant to Art. 161 seventh para. IBL to authorize the payment of some key suppliers for claims arising from contracts entered into before the concordato pre-filing and performed only thereafter.

The issues

According to Art. 169-bis IBL contracts pending at the time of the filing for concordato preventivo remain in force, unless the debtor files a petition to the Court for their termination. Debts arisen before the filing for concordato preventivo can be paid only if the conditions set forth by Art. 182-quinquies IBL are met (i.e. they are in the best interest of creditors based on an expert report and the Court grants an authorization).

The issue is if payment of debts arisen from contracts still pending at the time of the concordato filing should be authorized by the Court according to Art. 182-quinquies or as acts of extraordinary administration.

The decision of the Court

The Court considered that it was not required to rule on the petition filed by the debtor. The reason for that is explained by the Court, based on the consideration that – if the debtor does not request the Court to terminate a pending contract – both parties shall perform the relevant obligations during the insolvency procedure. As a direct consequence, payment of suppliers is deemed as an act of ordinary administration, the relevant claims enjoy super-priority status and there is no breach of the pari passu rule. The debtor can therefore make these payments without asking any authorization to the Court.

Commentary

The decision of the Court of Rovigo recalls the precedents of the Court of Modena 6 June 2015 and of the Court of Alessandria 18 January both regarding treatment of pending contracts during the concordato, with specific regard to (i) the duty of suppliers to continue to perform the contract although only a percentage of their pre-petition claims can be recovered under the concordato proposal, with the consequence that petitions to the Court to authorize full payment of such claims must be rejected and (ii) the super-priority status of claims arising from new supplies during the procedure.

The decision of the Court of Rovigo confirms this interpretation and underlines some aspects:

• contracts entered into before the concordato filing are regularly carried on by the parties unless the debtor files a petition to the Court according to Art. 169-bis IBL for their termination;

• it’s up to the debtor to decide if the termination of the pending contract is appropriate or not;

• payment of new supplies under pending contracts falls out of the scope Art. 182-quinquies IBL;

• performance of pending contracts is an act of ordinary administration;

• claims arising during the concordato procedure from new supplies under pending contracts enjoy super-priority status.

A debtor undergoing a concordato can then pay new supplies without asking any authorization to the Court, although the relevant contracts were entered into before the concordato filing. The claim for new supplies enjoys super-priority and, therefore, the Court notes, is not subject to the pari passu rule with pre-petition claims.

This interpretation, as further confirmed by the Court of Rovigo, allows both more flexibility to the debtor ion the management of the business during the procedure and more reliance to the suppliers as to the actual payment of their receivables for new supplies.