With the decision of 2 September 2015, No. 17461, the Court of Cassation confirmed that secured creditors’ deferred payment amounts to a partial satisfaction and has confirmed the criteria for determining the economic loss arising out of the delay, for allowing these creditors to vote.

The case

A company filed a proposal to creditors in a concordato preventivo procedure, providing for a delayed payment to secured creditors, with respect to the timing which is normally required for the beginning of the liquidation of property on which the creditors had a security.

The Tribunal in the first instance ruled that such a proposal was not admissible and declared the company bankrupt.

The Court of Appeals rejected the appeal filed by the company, on the assumption that the proposal put secured creditors in a condition either to be bound by the concordato proposal, or to waive their security in order to be able to vote.

The company further appealed to the Supreme Court of Cassation.

The issues

The issues brought to the attention of the Supreme Court were the following :

  1. if a concordato proposal, providing for a delayed payment of secured creditors exceeding an ordinary timing, is admissible;
  2. if so, whether these creditors are entitled to vote, as creditors that are not fully satisfied under the proposal;
  3. if so, for what amount of their claim they can be admitted to vote.

The Court’s decision

The Court of Cassation resolved in the affirmative the first two issues: on the one hand, it confirmed that a concordato proposal providing for a delayed payment of secured creditors exceeding an ordinary delay imposed by the procedure itself (and by liquidation in case the concordato provides for a liquidating plan); on the other hand, the Court ruled that such creditors must be treated as creditors not fully satisfied under the plan, thus being entitled to vote for the part of their claim represented by the economic loss resulting from the delay in obtaining the amount due to them (Art. 177, third paragraph, IBL).

As to the third issue, the Supreme Court stated that, in order to assess the amount of the economic loss, the lower Court should base its analysis on the expert’s report accompanying the proposal according to Art. 160, second paragraph, IBL, and consider the utilities offered to the creditors, the time required for realization of the encumbered assets as an alternative to the concordato proposal, as well as the actual contents of the proposal, alongside the rules governing the accrual of interests (Articles 54 and 55 IBL) in insolvency proceedings.

The Supreme Court referred then the case to the Court of Appeals, since the latter omitted entirely this evaluation in the merits.

The comment

The lawmakers, with the reforms of the years 2006-2007, as it is well known, introduced a series of rules clearly aimed at encouraging recourse by debtors to the concordato preventivo procedure, inter alia allowing that secured creditors could be paid not in full. The new rules were that, on the one hand (Art. 160, second paragraph, IBL), secured creditors should be paid at least an amount equal to the estimated proceeds from the sale of the assets on which they had a lien, and, on the other hand (Art. 177, third paragraph, IBL), that they should be treated as unsecured creditors (and therefore admitted to vote) for the remaining portion of their claim.

The new rules left open, however, a significant issue: does the expression “not fully satisfied” refer only to secured claims not being paid the full amount as principal (as it would appear on the basis of the literal expression of the rule), or does it refer to full payment, which is delayed beyond an ordinary timing (as it would appear on the basis of the rationale of the provision) ?

The decision of the Supreme Court confirms and consolidates a recent line of precedents of the same Court (Court of Cassation 26 September 2014, No. 20388 and 9 May 2014, No. 10112) based on the rationale that both satisfaction “not in full” and “in full” but delayed cause a lower recovery in bankruptcy of the claim (the first being direct and immediate, because creditors will receive only a share of the principal amount; the second in an indirect way, because creditors will receive the full amount, but still suffer an economic loss due to the delay).

The task of the lower Courts is therefore to assess in each specific case, according to the criteria set by the Supreme Court, the extent of the economic loss associated with the delay, to determine the amount for which creditors should be considered as unsecured for the purpose of voting.