The Court of Appeals of Turin (5 August 2016) and the Court of Milan (25 June 2016) deal with cases of bankruptcy and concordato preventivo of the assigned debtor and confirm a broad interpretation of the limit to set-off set forth by Article 56 second para. of the Italian Bankruptcy Law

The case

In the case before the Court of Appeals of Turin, a company subject to concordato preventivostarted a lawsuit for the payment of a claim. The debtor that the claim was set-off against a claim that had been assigned to the defendant by its own parent company, after the concordato preventivofiling.

On the contrary, in the case addressed by the Court of Milan, a creditor filed a proof of debt in a bankruptcy procedure with respect to a claim, assigned after the declaration of bankruptcy, net of a set-off with a prior debt which the claimant had to the bankrupt company. The Judge rejected the proof of debt filing and the creditor appealed.

The issue

Art. 56 IBL widely allows for set-off in favour of debtors of an insolvent company, even when the counterclaim of the debtors of the insolvent are still not due or are not of the same kind, the only condition being that the facts from which both the claim of the insolvent and the counterclaim arise occurred before the declaration of bankruptcy.

The second para. of Art. 56 sets a limit to set-off, only for receivables against the insolvent which are not overdue on the date of the declaration of bankruptcy, when these are assigned during the year before. The issue is therefore if – when it comes instead to receivables which are overdue – the debtor of the insolvent can freely purchase such receivables even after the declaration of bankruptcy for the purpose of setting them off against his own debt towards the insolvent.

The decisions of the Courts

Both Courts, although on different grounds, rule that set-off is not allowed, if claims against an insolvent company have been purchased after the commencement of insolvency proceedings.

The Court of Appeals Turin shares the opinion allowing set-off of claims purchased before the declaration of insolvency, but not thereafter: indeed, in the first case, reciprocity between the claims of the debtor and of the creditor exist before the insolvency procedure, while in the second case set-off is prevented due to Art. 2917 ICC, according to which this is unenforceable vis-a-vis the insolvency estate.

Therefore, for set-off purposes not only the facts giving rise to the opposed claims need to have occurred prior to the insolvency, but also title to such claims.

The Court of Milan does not differentiate between assignment of a claim before or after the declaration of insolvency, stating that, in both cases, set-off is not allowed, due to the rationale of Art. 56 IBL which is due to frustrate any transaction aimed only to benefit the debtor of an insolvent company and, consequently, to damage the creditors. According to the Court of Milan, it is not reasonable to distinguish in this respect between claims already expired and claims not yet overdue at the moment of the commencement of the insolvency proceeding.

Commentary

The decisions of the Courts of Turin and Milan add on the broad interpretation of the limits to set-off provided by Art. 56 IBL, recently shared by the Court of Monza (12 October 2015) which had followed a different line of argument based on the “abuse of a right”, thus requiring that it is ascertained if that occurs on a case-by-case basis.

The two decisions reported here offer persuasive reasons suitable to support on alternative grounds the same conclusion, but in a wider perspective, i.e. irrespective of a specific purpose to damage the creditors.

In line with their respective reasoning, the Courts of Milan and Turin take different views regarding the scope of the limit to set-off, in particular with respect to claims purchased before the declaration of insolvency. A wider limit seems to be more in line with the rationale of the rule of Art. 56. However, from an other point of view, the interpretation followed by the Court of Turin seems to be the only according to which Art. 56 actually has a scope of application: for claims purchased before the declaration of insolvency, case law based on an “abuse of right” would still allow to bar fraudulent assignments of claims on a selective basis.