The Court of Cassation with the decision of 28 April 2015, No. 8575 ruled that no amendment to the concordato plan or proposal, even though more favourable to the creditors, can be made by the debtor after the end of the voting process, in a case, though, where the decision could have been influenced by the fact that the debtor himself had waived its right to confirmation of the concordato proposal.

The case

Although the Judicial Commissioner raised objections in his report to the creditors pursuant to Art. 172 IBL, with respect to the feasibility of the concordato plan, the proposal of the debtor was nonetheless approved by the creditors by a wide majority.

After the voting process was concluded, the debtor amended his initial proposal, offering better terms both as to personal guarantees and as to timing of payments. The Judicial Commissioner filed then his report to the creditors pursuant to Art. 180 IBL, concluding in favour of the confirmation by the Court of the proposal, as amended.

The Court refused to confirm the proposal, but confirmation was granted by the Court of Appeals.

The issues

The current rules of concordato preventivo do not provide expressly that the debtor can amend the plan or the proposal, after it has been approved by the creditors. Art. 175 second para. IBL seems indeed to rule this out, as it stes a time limit for any amendment, after the voting process has been started.

On the other side, Art. 179 second para. IBL provides that the Judicial Commissioner must inform the creditors if, after their approval, the feasibility of the plan seems to be impaired, so that the creditors can change their vote, appearing in the confirmation proceeding before the Court: according to some opinions (which the Court of Appeals seems to have agreed to in his decision, which was then reversed by the Court of Cassation), the debtor must be entitled to amend the plan and the proposal, as a consequence of the new facts occurred.

The decision of the Court

The Court of Cassation reversed the decree of the Court of Appeals granting confirmation, taking a very firm (and stubborn) stand against any amendment, even if more favourable to the creditors than the proposal which they already approved.

According to the Court, amendments to the plan, even if they do not imply a change of the dividend the creditors are supposed to receive, but only a change of the way to obtain that and, therefore, they touch on the issue of feasibility of the concordato, always require that creditors be fully informed before they cast their vote: therefore, any amendment to the concordato proposal which involve a material change in the concordato plan “imply a withdrawal of the initial proposal which, although approved by the creditors, can no longer be confirmed by the Court”.

The Court of Cassation, then, decided on the merits and refused confirmation of the concordato.

Commentary

The decision of the Court can hardly be justified in a general perspective, considering that the interests of the creditors should be the paramount in construing and applying concordato preventivo rules. An amendment offering to the creditors a better proposal or plan cannot lead the Court to refuse confirmation. By the way, the same Court of Cassation had denied this with a decision of 18 June 1992, No. 7557: the Court overrules today its own precedent, arguing that the new rules introduced with the reforms of 2005-2007 provided expressly a possible amendment to the proposal (which was not mentioned before by the law) but also provided a strict time limit to this. The Court says tha this is aimed at “avoiding that majorities can be formed on a plan different from that which was voted by the creditors”: this, however, cannot sustain a rigid closure to better proposals, which are clearly aimed at making the plan more feasible, so that objections by creditors challenging confirmation of the proposal could be rejected.

The point is, however, that amendments to concordato proposals are made in general following a worsening outlook with respect to the implementation of the initial plan. In this respect, the above-mentioned rule set forth by Art. 179 second para. IBL allows a sort of “re-opening” of the voting process for the creditors, who can change their vote: in

light of this, also the debtor must be allowed to amend his initial proposal or plan, in order to convince the creditors not to change their vote. Also in this respect, then, the rationale offered by the Court is not a convincing one.

In the case at hand, the feasibility issue emerged during the proceeding before the Court of Cassation and this could not be overcome by the debtor, who was then induced to withdraw his right to confirmation of the concordato. Apparently, it is in light of this situation that the Court finally refused confirmation, although it would have been preferable that this be argued, indeed, based on tha waiver by the debtor, rather than on general principles of law.

It is anyway to be determined when a material change test can be met, so that the principles now stated by the Court of Cassation apply. It should not be so when it is simply a matter of new facts (such as, e.g., a waiver by some secured creditors) determining as a consequence a higher return for unsecured creditors.

Finally, it should be noted that the foregoing is not set for a change as a consequence of the amendments to some rules of concordato preventivo introduced by law-decree No. 83/2015 of 27 June 2015, which is about to be converted into law. The second para. of Art. 172 IBL in the new version, indeed, simply provdies that the time limit for amendments to the concordato plan or proposal is anticipated at 15 days before the creditors’ meeting, as a consequence of the new rules (which will be addressed in our next month’s newsletter) allowing also creditors to make a concordato proposal competing with that of the debtor.