New rules for the competitive bid process aimed at the sale of the debtor’s assets in each phase or type of concordato preventivo procedure, which can now take place even before the confirmation order of the Court.
Competitive sale of debtor’s assets
The Law Decree introduces new rules based on recent case law in the well-known precedents of “San Raffaele” (Court of Milan) and “La Perla” (Court of Bologna) which considered the terms of the sale of the business unit to a third party – designated by the debtor in the concordato plan and proposal – not consistent with the aim of the procedure to maximize the value of the assets in the creditors’ best interest, thus ordering an immediate public auction, although the transfer of the business units could take place only after the confirmation order of the Court.
This case law, which was not uniformly followed by the Courts, thus creating uncertainty for potential investors, has been now disciplined by the new Article 163-bis IBL, according to which, whenever a concordato preventivo plan includes a proposal by a designated third party to purchase some of the debtor’s assets for a pre-determined price, the judicial commissioner shall evaluate if the price offered is fair.
If the judicial commissioner finds that the price is not consistent with the best creditors’ interest and considers that a higher price could be reached with a public auction, he files a petition to the Court to open a competitive bid process.
The ruling of the Court – entitled to proceed also sua sponte – sets the guidelines for the auction, providing:
- modes and criteria to compare the various offers;
- pre-requisites to take part to the auction;
- modes and limits for bidders to access the relevant information;
- the date of the public hearing at which offers will be considered;
- conditions of the public auction;
- collateral which can be asked to the bidders;
- public notice of the auction.
The bid process shall be completed before the creditor’s meeting and the debtor shall amend accordingly the concordato preventivo proposal in order to allow the creditors to vote the proposal as updated.
Article 182 IBL is amended as follows:
- public auction rules applicable to bankruptcy liquidation procedure (Articles from 105 to 108-ter IBL) shall now apply to all sales and transfers of assets taking place after the filing (or pre-filing) of the request for admission to the concordato preventivo proceeding and not (as before) only after the confirmation order by the Court;
- public notice rules for auction sales set by Article 490 of the Italian Civil Procedure Code (which is also amended in this respect by Law Decree No. 83/2015) regarding the upcoming “portale delle vendite pubbliche” (public sales web-portal) are applicable only to concordato preventivo plans providing for a full liquidation of the debtor’s assets (cessione dei beni);
As a consequence of the Law Decree, several relevant new rules are introduced for the competitive sale of debtor’s assets or business:
- concordato preventivo procedures shall now always provide competitive bids for the sales of the debtor’s assets;
- the transfer of the debtor’s assets or business can take place also before the confirmation order of the Court;
- it seems that the anticipation of the sale could take place only in case the judicial commissioner raises an objection to the fairness of the price offered: however, the Court is entitled to act on its own motion in the best interest of the creditors and this may allow a wider application of the new rule;
- it can not be ruled out that the provision of Article 163-bis IBL can be extensively interpreted to admit that the concordato preventivo proposal can always (and not only in the situation envisaged by Article 163-bis IBL) provide the sale of the debtor’s assets before the confirmation order of the Court;
- it can be inferred from the new rules that the transfer of the debtor’s business unit to a designated third party purchaser can still be considered as a binding term of the concordato preventivo proposal, without the need of a public auction after confirmation of the concordato, considering that the bid process can now take place during the procedure according to Article 163-bis IBL.
The new rules could significantly impact on the routine so far followed for concordato preventivo procedures and in particular on the lease of business arrangements which were put in place in order to preserve the business before the sale could be made, only after the confirmation order of the Court. Indeed, this was due to the need to have the debtor discharged from residual debts relating to the business being transferred, otherwise the purchaser could incur joint liability for such debts: Article 105 IBL (excluding joint liability) is now made applicable to sale of business units also after the filing (or pre-filing) of the request for admission to the concordato preventivo proceeding.
Enforcement of the new provisions
Amendments to Article 182 IBL can be applied also to concordato preventivo procedures which were already pending on 27 June 2015 (except for the provisions regarding the public notice rules, requiring that the Ministry of Justice sets the technicalities of the upcoming “portale delle vendite pubbliche”).