The Court of Cassation (29 March 2016, No. 6045) ruled that the look-­back period for claw-­back actions starts from the concordato filing, when bankruptcy was declared after a period of time, provided that both procedures refer to the same insolvency situation

The case

A bank filed a proof of debt in bankruptcy for a secured claim based on a mortgage registered within the look-back period before the filing for concordato preventivo, which procedure was not concluded and bankruptcy was declared after some time.

Both the Bankruptcy Judge and the Bankruptcy Court on appeal refused to consider the claim as a secured claim, because the mortgage was subject to claw-back.

The bank then further appealed before the Court of Cassation.

The issues

Art. 69-bis IBL provides that in case the declaration of bankruptcy follows to a concordato preventivo filingthe look-­back period for claw-­back actions starts from the concordato filing, instead of the bankruptcy  declaration.

The bank argued that Art. 69-­bis IBL was not applicable, as bankruptcy was not declared at the same time as the concordato procedure was terminated – and the look-back period provided by Art. 67 IBL could not start from the concordato filing, so that the mortgage was not subject to claw-back in the following  bankruptcy.

The decision of the Court

The Supreme Court, in agreement with the decision of the lower Court, ruled out that the claim could be considered as a secured claim, as the mortgage was subject to claw-back according to Art. 67 IBL: indeed, the Court states, when two insolvency procedures follow one to the other, they should be considered as a single procedure and the look-back period for claw-­back actions starts from the first, as both procedures are based on an insolvency situation and the only difference is that in concordato insolvency can be cured.

In the case at hand, therefore, the mortgage was still subject to claw-back.

The Court of Cassation added that  two insolvency procedures can still be  considered as a  single procedure, although there is a gap between the end of the concordato and the declaration of bankruptcy, because both procedures evolve from the same insolvency situation.

Commentary

The principle that insolvency procedures following one to the other should be considered linked (so-called “following procedures”), so that certain effects of the bankruptcy declaration can date back to the first procedure, was created by case law very long ago, well before the wave of reforms started in 2005. The  reforms  recognized  the  “following  procedures”  principle  in  various  express  provisions  of  the  IBL. The  aim  of  the  “following  procedures”  case  law  were  to  (i)  anticipate  the  running  of  the  look-back period for claw-­back actions (which is now provided by Art. 69-­bis IBL), (ii) safeguard acts performed during  concordato  from  claw-­back  actions  (which  is  now  provided  by  Art.  67,  third  para.  IBL)  and (iii) grant a super-priority status to claims arising during concordato (which is now provided by Art. 160 seventh para. and 111 second para. IBL).

Before the reforms:

  1. the condition for dating back the effects of bankruptcy was that the Court actually opened the concordato procedure – today the mere concordato filing (or pre-filing) is sufficient;
  2. the declaration of bankruptcy followed automatically to the termination of the concordato procedure – today, without a bankruptcy petition from a party in interest, concordato can be terminated and bankruptcy can follow after some time.

The issue faced by the Court of Cassation based on the new Art. 69-­bis IBL is therefore different than in the  past.  The  Court  indeed  followed  the  same  rationale  which  was  the  basis  for  the  “following procedures” principle and ruled that it should be applied also if there is a gap between them, stating that the lower Courts can assess in the specific cases whether the two procedures follow from the same insolvency situation. This test will therefore guide the lower Courts to decide on a case-by-­case basis if the delay between one procedure and the other is consistent with the “following procedures” principle. Finally, it should be pointed out that the principle should be extended also to other effects for which a specific  rule,  such  as  those  mentioned  above,  was  not  provided,  including  the  following  which  can therefore be dated back to the concordato filing (or pre-filing):

  1. mortgages  registered  upon  a  judgement  within  the  90-day  look-back  period  before  the concordato are unenforceable (Art. 168 third para. IBL);
  2. payables not yet overdue to an insolvent debtor cannot be set off against receivables from the same debtor, if the former were assigned within one year before the concordato or thereafter (Art. 56 second para. IBL recalled by Art. 169 IBL);
  3. accrual of interests is stayed and receivables from the insolvent debtor are accelerated as a consequence of the concordato (Art. 55 IBL recalled by Art. 169 IBL).