The Tribunal of Milan, with a decision of 5 May 2015, ruled that Art. 104-ter of the Italian Bankruptcy Law is applicable to the lease of business entered into before the declaration of bankruptcy and, therefore, the receiver can terminate pending contracts according to Art. 72 of the Italian Bankruptcy Law

The case

Two companies enteerd into a lease of business agreement whereby the employment contracts continue with the lessee. Upon declaration of bankruptcy of the lessor, the lease of business agreement remained in force, until the receiver terminated it. The employment of workers of the business unit were then terminated by the receiver.

The claim of an employee for the severance indemnity accrued during the term of the lease of business was not admitted to bankruptcy. The employee opposed the Judge’s order, recalling Art. 2112 ICC and, therefore, the joint liability of the bankruptcy procedure, to whom the leased business unit was returned, based on the assumption that the claim for severance indemnity arises at the time the employment contract is terminated.

The issues

The issue the Tribunal faced pertains to the effects on pending contracts, being part of the leased business, as a result of the termination of the lease of business by the receiver according to Art. 79 IBL, in the case of the lease of business was already in place when the lessor was declared bankrupt: the general rules on the effects of bankruptcy on pending contracts, set forth by Articles 72 and following IBL, are indeed made expressly applicable by Art. 104-bis IBL, only when the lease of business was entered into by the receiver, after the declaration of bankruptcy.

The issue relating to Art. 104-bis IBL, pertains also to the part of such rule which provides that “where a business unit is returned to the bankruptcy procedure, the latter is not jointly liable for the debts accrued before the business unit is returned, as an exception to what is provided by Articles 2112 and 2560 ICC”.

The decision of the Tribunal of Milan

The Tribunal of Milano (recalling a precedent of the Tribunal of Monza, 19 November 2013) ruled that Art. 104-bis IBL is applicable also to the termination of a lease of  business  entered  into  before  bankruptcy, pursuant to Art. 79 IBL, because it is an expression of a general principle.

The Tribunal then considered that termination of employment contracts is a right of the receiver pursuant to the general rule of Art. 72 IBL, and ruled that it takes effect going back to the date of the declaration of bankruptcy, because employment contract are included  in  the  category  of  contracts  which  are  suspended upon the declaration of bankruptcy.

The Tribunal then, recalling the theory of the so-called “portioning” of the severance indemnity between the lessor and the lessee  (Court  of  Cassation,  22  September  2011,  No.  19291  and  11  September  2013, No. 20837), ruled that severance indemnity accrued before the lease of the business unit can be admitted as a claim to bankruptcy, while for the period of the lease (until the business unit is returned to the bankruptcy procedure of the lessor), only the lessee is liable. The lessee shall therefore be solely responsible for the severance indemnity accrued after the declaration of bankruptcy.

The comment

The case examined by the Tribunal points out that, in the case of a lease of business concluded by the debtor before the declaration of bankruptcy, the fate of the contracts included in the leased business unit follows as a consequence of two different steps, which in turn come from the general  rules  applicable  to  pending contracts in bankruptcy.

Termination by the receiver of the contracts being part of the  business  unit  implies  that  first  of  all  the receiver terminated the lease of business agreement pursuant to Art. 79 IBL.  The  business  unit  is  then returned to the receiver with effects from the moment the receiver exercised the termination right of the lease of business, because this is one of the contracts which remains in force after the declaration of bankruptcy, until the receiver decides to terminate it.

The second step relates to what the effects are when the business unit is returned to the receiver: here the issue arises whether or not the general rules of Articles 72 and following IBL apply with respect to the pending contracts included in the business until and whether they are terminated, continued or suspended. The Tribunal correctly deemed the general rules applicable, although recalled by Art. 104-ter IBL only for the case of the lease of business entered into by the receiver, considering that the same rationale applies, aimed at protecting the interests of the bankruptcy creditors.

It should be noted that the application of the general rule of Art. 72 IBL – according to which contracts remain suspended until the receiver decides to continue or terminate them – generates a non-alignment of the moment when the effects of the termination of the lease of business operate (i.e. when the reciver issues the relevant termination notice) and the moment when the termination of the contracts contained in the business unit operates: the latter indeed, according to Art. 72 IBL, operates with respect to suspended contracts retroactively from the moment when bankruptcy has been declared. The exercise of the termination power by the receiver sterilizes therefore for the bankruptcy estate the effects of the prosecution of  the  contracts contained in the business unit, while on the other side the lease of business agreement continues until the business has been returned to the receiver. This allows the bankruptcy estate to be protected from liability for debts accrued after bankruptcy is declared.

In the specific case, the receiver terminated employment contracts pursuant to Art. 72 IBL, considering that these are among those who are suspended when bankruptcy is declared. It is commonly shared, however, that employment contracts continue with the receiver: the decision of the Tribunal is in any case correct in not admitting the employee’s claim for severance indemnity accrued during the lease of business, bacause a further rule of Art. 104-bis IBL is that the bankruptcy estate is not jointly liable with the lessee for the business unit’s debts, as the general rules to this effect set by Articles 2112 and 2560 ICC do not apply.