In a recent decision, the United Sections of the Supreme Court of Cassation found that:
"the bankruptcy receiver has the right to institute both civil and criminal proceedings with regard to any kind of action for liability against directors of any company, even in relation to unfair preference in a bankruptcy committed through preferential debt payment in violation of the principle of the equality of creditors."(1)
With decision 1641/2017, the Supreme Court of Cassation addressed an action commenced by a bankruptcy receiver against the directors of an insolvent limited liability company who had made preferential debt payments without respecting the general principle of the equality of creditors.
With reference to these payments, an action was commenced before the criminal court to ascertain the directors' criminal liability for preferential bankruptcy (Article 216(3) of Law 267/1942).
Regarding the proceedings before the civil court, the judge of merit negated the bankruptcy receiver's right to commence an action for liability, stating that violation of the principle of equality of creditors creates a "dispute between the personal individual positions of the creditors, but also a prejudice for the mass of creditors in its entirety".
The receiver appealed the decision before the Supreme Court of Cassation.
The Supreme Court of Cassation recalled the specific case law principle regarding Article 14 of Law 267/1942, under which, a receiver has the right to commence on behalf of creditors only actions "aimed at the restoration of the capital of the debtor with regard to its function of generic guarantee and with indistinct character regarding the possible beneficiary of their positive outcome".(2)
Further, the Supreme Court of Cassation decided on two different preliminary questions. First, it stated that the action of a bankruptcy receiver includes both the action concerning the company itself and the action concerning the company's creditors, specifying that, although these two actions have a separate and different basis, the receiver cannot activate both of them for the purpose of twice obtaining the reintegration of company capital.
Second, the Supreme Court of Cassation stated that a receiver's right to activate an action is universal, as it has the right to commence the action for liability against the directors of a limited liability company and the directors of a joint stock company.
Recalling the main arguments that the judge of merit had examined, the Supreme Court of Cassation underlined the error in the argument that preferential payment could cause damage only to company creditors. In a situation of financial trouble, preferential payment "could cause a decrease of company capital by more than what would occur respecting the principle of the equality of creditors", thus considering that insolvency proceedings could expose creditors to a reduction and that the preferential payment could damage the insolvent company's assets.
In closing, the Supreme Court of Cassation affirmed the principle that a bankruptcy receiver has the right to institute civil and criminal proceedings for liability against company directors, even in relation to unfair preference in a bankruptcy committed through preferential debt payments in violation of the equality of creditors' principle.
For further information on this topic please contact Costanza Mariconda or Michele Centonze at Mariconda e Associati by telephone (+39 02 795 212) or email ([email protected] or [email protected]). The Mariconda e Associati website can be accessed at www.studiomariconda.com.
(1) Court of Cassation, United Sections, 1641/2017.