Two recent decisions of the Court of Rovereto (16 July 2015) and of the Court of Rimini (1 October 2015) reached opposite conclusions.

The case

  1. In the case examined by the Court of Rovereto, a company filed a proposal providing for the continuation of the activities by means of the transfer, which occurred before the filing for admission to the concordato, to a Newco wholly owned by the company within a liquidation scheme regarding all the remaining assets, not functional to the business. The Tax Agency opposed to confirmation of the proposal, arguing that the concordato was less favourable than bankruptcy and the plan was not feasible.
  2. In the case examined by the Court of Rimini, a company filed a proposal based on the liquidation of real estate property and other assets, on the sale of the business and on the cashing of rent due on an interim lease of the business unit. Two creditors opposed confirmation, on the grounds that the proposal was not feasible, the implementation phase was too long, competitive procedures were needed for the sales.

Issues

The issues concern the possibility of qualifying a concordato as “preserving the businesswhen the transfer or the lease of the business unit is already effective when the application for admission to the procedure is filed, and therefore there is no further trading carried on by the debtor during the procedure.

The decision of the Court

  1. The Court of Rovereto rejected the opposition and confirmed the concordato. Art. 186-bis IBL requires that the business be preserved as a going concern also through a sale of the same, also to a Newco, but does not state when such a sale should take place. The Court states that a pre-filing sale fits into the definition of the law as long as it is contemplated by the plan and contributes to the better satisfaction of creditors.
  2. The Court of Rimini reached an opposite conclusion and stated that a lease of a business unit entered into by the company before filing the application for admission to the procedure, although providing for a precise term of the lease and for a termination clause in favour of the procedure, still qualifies the plan as a liquidation scheme, because the lease is functional to prevent the loss of goodwill and is aimed at the subsequent sale of the business unit.

The comment

The issue whether a concordato is “preserving the businesswithin the definition of Art. 186-bis IBL is crucial today because, as a result of the recent amendments introduced by Law Decree No. 83/2015, converted into Law No. 132/2015, provides for a minimum payment to unsecured creditors of 20%, which is not applicable only if the concordato is “preserving the business.

In this respect, the definition of the law refers to the contents of the concordato plan, which shall provide alternatively that:

  • the debtor will continue trading, or
  • the business will be sold as a going concern.

The definition expressly includes, therefore, cases when the resources to pay dividends to the creditors will come from cash flows of future operations, without a liquidation (so-called “direct” preservation of  business), and cases when, to the contrary, the business as a going concern will be sold as a whole within a liquidation plan of all the assets of the debtor (so-called “indirect” preservation). A concordato proposal preserving the business is therefore perfectly compatible (in its “indirect” form) with a liquidation plan: what is relevant is that the business be preserved as a matter of fact and not as a matter of the debtor continuing to be the owner. 

Uncertainties remain for cases when (as very often happens) a lease of business arrangement is put in place within the concordato plan, in particular when the lease takes effect before the concordato filing: in such a case, indeed, there is no continuing operation of the business by the debtor during the procedure, but a sale is still provided of the business as a going concern, although the business is being run by a third party and not by the debtor (case law is split on this issue: see Trib. Roma 24 March 2015, Trib. Bolzano 10 March 2015, Trib. Vercelli 13 August 2014 and Trib. Mantova 19 September 2013, holding this as a concordato “preserving the business”; for the opposite conclusion, see Trib. Ravenna 22 October 2014, Trib. Busto Arsizio 1 October 2014 and Trib. Patti 12 November 2013).

Art. 186-bis IBL, which sets forth the rules applicable to the concordato scheme preserving the business, seemed to imply a condition that the debtor continued trading during the procedure: however, today the conclusion may differ, because the overall legal environment has changed. The “value” of preserving the business as a going concern seems to be the key reason for a lower protection of creditors’ interests, as they are not guaranteed a minimum dividend: this rule should therefore apply also to a concordato with a lease of business taking effect before the initial filing.

It should also be noted, however, that a concordato “preserving the business” must comply to the condition that creditors receive a better treatment that they would in a different situation. Although preserving the business, therefore, a concordato proposal offering a percentage lower than 20 percent might still be not admissible due to a lack of this condition, if the mere liquidation alternative (without a sale of the business as a going concern) could yield a better return to creditors: however, this does not seem will happen very frequently, because in a bankruptcy liquidation, as it is well known, assets are sold at highly depressed prices.