The Court of Milan (18 April 2016) sticks to its own precedents mandating automatic termination, notwithstanding the recent decision of the Court of Cassation (19 February 2016, No. 3324) requiring that an actual prejudice for the creditors be ascertained

The case

A company made a concordato preventivo pre-filing according to Art. 161 sixth para. IBL with the Court of Milan. The Judicial Commissioner issued a report to the Court pointing out that the debtor, after the pre-filing, made certain payments of pre-petition claims (namely, payments of salaries to employees). The company denied that these payments could be considered as fraudulent, arguing that they were made in good faith under an agreement with the Unions and were acts of ordinary management, as such not requiring any prior authorization by the Court. Moreover, the company argued that such payments were not prejudicial to the estate, because workers enjoy the highest priority to be observed within a concordato proposal and payment of salaries allowed to preserve the business as a going concern.

The issues

Payment of pre-petition claims is allowed only with the authorization of the Court, according to Art. 182-quinquies IBL. Hence, Courts consider that payments without an authorization as forbidden. Unlike other concordato rules, Art. 182-quinquies IBL does not expressly provide as a consequence of a unauthorized pre-petition claim the termination of the concordato procedure. Case law applies, though, the general rule of Art. 173 third para. IBL providing for termination of the procedure if the debtor performs unauthorized acts of extraordinary management or other acts aimed at defrauding the creditors.

The decision of the Court

The Court of Milan, following its own precedents, considers that a payment of a pre-petition claim cannot be considered fraudulent, solely when it can actually prejudice the estate and thus the concordato creditors.

The Court aso considered that its own order, setting a term to the debtor for filing the final concordato proposal and plan, expressly forbid payment of pre-petition claims and that an agreement with the Unions would not per se make the payment of a pre-petiton claim an act of ordinary management. As a consequence, the Court ordered that the concordato be terminated.


The Court of Milan refused to follow the recent ruling of the Court of Cassation 19 February 2016, No. 3324, which tries to soften the hardships of a supposed rule mandating the automatic termination of a concordato as a consequence of an unauthorized payment of pre-petition claims: according to the Court of Cassation, termination should follow only in case such payments do actually entail a fraud to the creditors and this requires that an actual prejudice to the creditors could follow from the payments. The Court of Milan sticks to its inflexible case law. The Court, clearly, wanted to sanction the wilful breach of a rule by the debtor, ordering the termination of the procedure, irrespective of any consideration that the payments could result as being useful for the estate and not causing any prejudice to the creditors, nor jeopardizing the implementation of the concordato proposal.

This interpretation, which ends up in causing an actual damage to the creditors, cannot be shared. The path marked by the Supreme Court should instead be followed, which is more in line with the ratio legis encouraging turnaround efforts based on agreements with the creditors and is aimed at bringing about the implementation in practice of the best interest of creditors principle.