Creditors being now allowed to make competing concordato proposals restricts the exclusive powers of the debtor, which are now limited to the choice to commence the procedure, while on the other side it is now always mandatory that a competitive bid process is carried on for the sale of business units and assets, when the proposal of the debtor provides for an already designated buyer
Concordato competing proposals by creditors
Following the parliamentary confirmation process of the law decree, only two marginal amendments were introduced to the new regime of concordato competing proposals, introduced by law decree No. 83/2015 in June 2015. In all procedures commenced with a filing made from 21 August 2015, creditors will be entitled to make proposals alternative to that of the debtor, for the restructuring of the indebtedness and the turnaround of the business, e.g. by changing the composition of classes of creditors and the relevant dividends offered, or the means of discharging claims, or by swapping a plan providing for the business continuing trading with a liquidation plan, or by providing that the business be sold as a going concern (thereby excluding that the debtor remain as the owner of the business), or even providing that new shares be issued and assigned to the creditors or to a new investor.
The new regime, amending Articles 163, 165, 172, 175, 177 and 185 IBL, provides then wide avenues to creditors willing to challenge the proposal made by the debtor, when deemed not convenient, without being forced to choose, as the only alternative, a bankruptcy liquidation. At the same time, this allows third-party investors willing to take over the business or the company to have a chance, even when the debtor had made a proposal ensuring that he would remain in control.
a) who is entitled to make competing proposals
The new fourth para. of Art. 163 IBL states that an alternative proposal can be made only by creditors who, jointly, represent at least 10 percent of total claims (among which, claims of companies of the same group cannot be taken into account). Third parties not holding claims can also become eligible, if they wish to make a competing proposal, because it is expressly provided that – in order to reach the 10 percent threshold
– claims can be purchased even after the concordato filing.
b) timing of competing proposals
The new fourth para. of Art. 163 IBL sets:
- the moment from which competing proposals can be filed, by stating that the calculation of the 10 percent threshold shall be made from the list of claims filed by the debtor with his own concordato proposal: it is therefore excluded that competing proposals can be made after a concordato pre-filing and pending the term set by the Court to the debtor for filing the proposal, also because in such a phase creditors could not have access to information which is necessary in order to fashion the proposal, regarding assets and liabilities of the debtor;
- the deadline for filing alternative proposals, set on 30 day before the creditors’ meeting.
In order to allow for a sufficient time span for creditors to prepare a competing proposal, the same Art. 163 IBL now provides that the creditors’ meeting can be fixed within 120 days from the order of the Court opening the procedure, after the proposal of the debtor has been filed (it was 30 days – though, as a matter of fact, normally this term was not abided to): those willing to make an alternative proposal can therefore enjoy a term up to 90 days.
c) restrictions to competing proposals
The new fifth para. of Art. 163 IBL provides that competing proposals are barred – thereby allowing the debtor to protect himself from hostile initiatives by creditors – if the proposal of the debtor provides:
- payment of at least 30 percent of unsecured claims, if the concordato provides that the business continues as a going concern or is sold as such;
- payment of at least 40 percent of unsecured claims, in the other cases;
- an expert must also certify the foregoing under his own personal liability.
Lawmakers use the term “payment”, but it should be considered that it refers also to any other means of discharging the debtor’s indebtedness, different from cash, as Art. 160 IBL still allows the debtor to make such a proposal and there seem not to be reasons to impose a strict literal interpretation.
d) the proposal and the accompanying information
The new third para. of Art. 165 IBL states that the Judicial Commissioner – further to a proper non disclosure agreement – can provide creditors any information which is useful in order for them to prepare an alternative proposal.
The proposal must be filed together with the relevant restructuring plan setting forth the transactions envisaged in order to allow the proposal to be performed. Both the proposal and the plan – as already mentioned above – can have a completely different structure than those filed by the debtor.
The additional documentation provided by Art. 161 IBL needs not be filed together with the proposal, as it has been already filed by the debtor, except for the experts’ report which, by the way, can be limited (as expressly provided Art. 163 IBL) to the feasibility of the proposal and can be omitted if there are no aspects exceeding those which are already being verified by the Judicial Commissioner.
If the proposal provides for classes of creditors, it shall be submitted to the Court which shall evaluate if the classification criteria are reasonable.
e) voting competing proposals
The phase preceding the voting of the proposal is scheduled according to a new set of terms, as follows:
- the term of Art. 172 IBL for the filing by the Judicial Commissioner of his report is anticipated from 10 to 45 days before the creditors’ meeting;
- as already mentioned, alternative proposals can be filed up to 30 days before the meeting;
- the term for amending the proposals (by the debtor or by creditors) is anticipated to 15 days before the creditors’ meeting;
- the Judicial Commissioner, if actually competing proposals have been made, must file at least 10 days before the creditors’ meeting a supplemental report setting forth his own evaluation and a comparison of all the proposals.
The creditors who filed a competing concordato proposal are not entitled to vote, unless they are included in a specific class.
All the proposals are simultaneously voted and it is considered as approved:
- the proposal which obtained the highest majority;
- in case of parity, the debtors’ proposal;
- in case of parity among creditors’ proposals, the proposal filed earlier.
Accounting for a possible allocation effect of votes among different proposals, the law provides that, in case none of the proposals reaches the required majority, only the proposal having accounted for most votes to be voted again. It seems, however, that each creditor can vote more than one proposal.
A general provision – not limited to voting competing proposals – is inserted at the last para. of Art. 177
IBL: companies of the same group are not admitted to vote.
f) implementing a competing proposal
Various provisions are introduced at Art. 185 IBL in order to safeguard from possible hostile behaviour by
the debtor, when a competing proposal has been approved and needs to be implemented. In such a case, the Judicial Commissioner shall report to the Court, which may empower the same Judicial Commissioner to take any appropriate act or activity replacing the debtor, and can also revoke the debtors’ directors and appoint a judicial administrator.
Competing offers for the purchase of business units or assets: amendments to Art. 163-bis IBL
The new Art. 163-bis IBL provides – for any kind of concordato, irrespective of it providing for a liquidation plan or not – a new regime of competitive purchase offers for business units or specific assets, when the debtor’s concordato proposal provides an already designated buyer (for further details, see at the links above). Following conversion of law decree No. 83/2015, the only amendment to the new Art. 163-bis IBL – introduced by the same law decree – is that a competitive bid process to select the purchaser is now always mandatory, and it shall be completed before the creditors’ meeting (the law decree originally provided that this be the case only if the Judicial Commissioner considered that the price offered was not fair).
Art. 163-bis IBL applies (and the immediate competitive process shall then take place) only when the concordato proposal designates an already selected buyer: if this is not the case, according to Art. 182 IBL (as amended by law decree No. 83/2015) a competitive bid process is still mandatory, but it shall take place before or after the concordato has been approved and confirmed by the Court, depending on the provisions of the proposal (of the debtor or of creditors). One can speculate whether, in this new legal environment, it will still be the case that concordato proposals provide for designated buyers, considering that this can no longer ensure any reliable perspective to the designated buyer – who shall in any case take part to the competitive process – to become the actual purchaser: on the other side, a possible pre-emptive right can be granted only within a lease of business arrangement, made prior to the concordato filing, irrespective of any possible purchase offer made within the debtor’s concordato proposal.
Entry into force
Amendments to Articles 163, 165, 172, 175, 177 and 185 IBL, introduced by Art. 3 of law decree No. 83/2015, as amended and supplemented following conversion into law, shall apply (according to Art. 23, first para., of the law decree) to concordato preventivo procedures commenced following filings made after entry into force of the conversion law 6 August 2015, No. 132, which is (according to Art. 1, third para. of the law) the day following publication in the Official Gazette and, therefore, on 21 August 2015.