The Italian Supreme Court (judgement No. 14552 of 26 June 2014), ruled that the disclosure of acts in fraud carried out by the debtor causes the admission to concordato preventivo to be revoked according to Article 173 IBL, even in case of approval by the creditors.

The case

A company submitted a request for admission to concordato preventivo, not disclosing some acts of fraud to the creditors, which were discovered by the Judicial Commissioner and described in his own report to the creditors pursuant to Article 172 IBL; the creditors approved the concordato preventivo proposal, supposedly deeming it (though “tainted” by such acts of fraud) more satisfactory than insolvency  liquidation.  The company requested the confirmation of the concordato, but the Court refused to do so. The Court of Appeals rejected the appeal brought by the company.

The Issue

The Italian Supreme Court was called on to rule on the following issue:

  • if the favourable vote of the majority of creditors could cure any acts of fraud committed prior to the procedure, and so if creditors knowingly approving the concordato proposal could prevent revocation of admission to the concordato procedure as provided for by article 173 IBL and, therefore, allow its confirmation;
  • or if, contrary, the debtor hiding acts of fraud to the creditors should have in any case as a consequence the end of the procedure and the refusal of confirmation of the concordato.

The decision of the Court

The Italian Supreme Court considered that the nature of the concordato preventive (as mainly an agreement or a procedure governed by public law) is not a key factor in solving this issue. Indeed, although recent reforms increased  the role of the  agreement of the creditors within the  concordato, it continues to show “clear features of public law”, as the Court previously argued with the judgement No. 1521/2013.

The ruling on the issue was made dependent from application of ordinary rules of the IBL. In particular, the Court recalled that Article 173 IBL excludes that the creditors’ vote can supersede the violation of such a provision, which “reconnects immediately to the discovery of acts of fraud the duty of the judge to revoke the admission to the concordato”.

The creditors’ vote could prevail on such a rule only if the law were that, upon discovery of acts of fraud, the results of the vote of creditors should in any case be considered. According to the Court’s ruling, this is not consistent with the rule of Article 173 IBL, which, instead, does not give the creditors any chance to approve the proposal when acts of fraud are discovered, because the procedure must go to an end.

Furthermore, according to the Court, this is confirmed by Article 161, sixth paragraph, IBL which – in the context of the so called “concordato con riserva” – provides a similar rule of revocation also in the very first stage of the procedure, not allowing creditors to choose a possible different outcome.

Commentary

The ruling – which points to a wider perspective of policy – was favourably received by some commentators, who underlined that “the discovery of fraud is one of the rules of the game” and “the rules must be enforced even if the debtor is ‘forgiven’ by the creditors”.

However, there is at least one decision of lower courts to the contrary (Court of Piacenza, 4 December 2008): the judges there pointed out that the creditors were informed of the acts of fraud prior to casting their vote and for this reason the stop to the procedure should be excluded.

This latter opinion is also shared by other commentators who deem appropriate applying article 173 IBL only when the creditors have casted their vote not having been made aware of acts of fraud: indeed, it is argued, the principle that a fully informed vote of the creditors is a key factor within the procedure is a principle that the Supreme Court has considered particularly important (Court of Cassation 23 June 2011, No. 13817).