The decision of the Court of Treviso of 26 February 2015 admitted a concordato proposal providing for a partial payment of receivables having a lien over the entire estate and for payment of unsecured creditors out of the higher liquidation value of the debtor’s assets according to the concordato plan, as compared to the bankruptcy liquidation value

The case

NCTM Studio Legale Associato assisted a real estate company, active in the business of  building  and managing shopping malls, in filing its proposal of concordato preventivo.

The proposal was based on a plan providing for the sale of all the debtors’ assets and for the business being carried on by a newco in which a stake is held by the debtor. In particular, newco would provide accessory services (such as management of the shopping malls, advertising and advising in selling debtor’s real estate property), which will be useful in order to maximize the return from the sale of the debtor’s assets.

The proposal was based on a plan providing payment of secured creditors only up to the pure liquidation value of the debtor’s assets pursuant to art. 160, second paragraph, IBL.

The issues

The debtor proposed that the difference between the liquidation value of the debtor’s assets in the bankrupcty scenario and the higher value resulting from the sale according to the concordato preventivo plan – due to

(i) easier and faster sale procedures in concordato preventivo (such as ordinary business negotiations through real estate intermediaries) as compared to bankruptcy’s sale procedures and to (ii) continued operation of the business through newco – could be considered as “external funding”, which can be freely allocated to all creditors.

According to the ruling of the Court of Cassation of 8 June 2012, No. 9373, when the concordato proposal provides for the partial payment of receivables having general  preferential  rights  over  the  entire  estate (which is the case for most common secured claims such as those of  employees  and  the  tax  and  social security agencies), unsecured creditors cannot be satisfied out of the debtor’s assets: as a consequence, the concordato proposal is admissible only if the resources to pay the secured creditors are made available by third parties, as “external funding”. This is because, pursuant to Art. 160,  second  paragraph,  IBL  the proposal providing for different classes of creditors cannot have the effect of reversing the order of the preferential rights provided by law.

The decision

The Court of Treviso  allowed the concordato  proposal of the debtor to be voted by creditors, as  it was compliant to  the law in consideration of a plan  providing (i) that  receivables having general  preferential rights over the entire estate will be paid up to the liquidation value of the debtor’s assets pursuant to art. 160, second paragraph, IBL plus the same share offered to unsecured creditors for the remaining part of the claim, and (ii) the free allocation to unsecured creditors of the surplus generated by the concordato liquidation, to be considered as “external funding”.

Commentary

This decision follows the open approach of an earlier decision by the Court of Rovereto of 13 October 2014 (see our February’s newsletter) but, in fact, it pushes it a little bit forward.

In particular the Court of Treviso stated that “external funding” can come out not only from the continued operation of the business, but also from a very detailed planning of faster and more efficient sale procedures of the assets, which can determine in the specific case a considerable profit in comparison with  simple liquidation of those assets in a bankruptcy liquidation procedure.

This interpretation awards an opportunity for restructuring to debtors arranging a concordato proposal based on a plan allowing at the same time payment of secured receivables up to the liquidation value of the assets – which they would get in the bankruptcy alternative – and a better return to all other creditors.

We are of the opinion that this interpretation offers a more open approach and should be followed by other Courts because it is in line with the rationale of the law, which provides that the concordato proposal should give a better payment to all creditors and not only to receivables having special preferential rights.

This can also be helpful to suppliers, which usually belong to the category of the unsecured creditors and are more damaged by bankruptcy of their debtor than by a concordato proposal based on a plan which can afford not only a better payment of past receivables but also, for the future, a continued business relationship with the debtor.