Art. 57 para. 6-bis TUF (introduced by Legislative Decree No. 42/2012) provides for a special procedure of judicial liquidation of investment funds in an insolvency situation, where debts cannot be satisfied in full out of the fund’s assets, but does not state whether investment funds are eligible for concordato preventivo as an alternative to liquidation.

The issues

The issue in general is that concerning available remedies in order to address an insolvency situation of a specific investment fund. It is well known that the key features of investment funds from a legal standpoint are that, on one side (i) each fund is strictly ring fenced from any other fund managed by the same SGR as far as liabilities for obligations assumed by the SGR and by other funds are concerned and, on the other side (ii) funds are not considered as a separate legal entity and they can act only through the SGR which from time to time manages the fund. As a consequence, funds follow the fate of the SGR in case the latter is subject to an insolvency proceeding (as it is provided by Art. 57 para. 3-bis TUF), while on the opposite, if it is the single investment fund to be insolvent and not the SGR, the issue is whether the fund is eligible for concordato  preventivo.

The judicial liquidation procedure of investment funds

Art. 57 para. 6-bis TUF states that “if a fund’s assets are not sufficient to satisfy in full the fund’s obligations and there are no reasonable expectations that such a situation can be overcome, one or more creditors or the SGR can request the local Court where the SGR has its registered office to order the liquidation of the fund”. Lawmakers, through this judicial liquidation procedure, meant to provide a set of rules to manage an insolvency situation of a single investment fund and to provide relief to creditors of the fund.

Bank of Italy appoints one or more liquidators, who act according to the rules set forth in Art. 57 para. 3-bis TUF. This is the specific rule governing the standard insolvency procedure (liquidazione  coatta amministrativa) to which SGRs are eligible. It is currently unsettled whether the renvoi to this provision is meant only to the powers of the judicial liquidator sas set forth therein, or should be considered more widely to all other provisions which are in turn recalled within para. 3-bis and, therefore, this involves a full set of rules governing the unfolding of the judicial liquidation procedure of investment funds.

The opinion of an authoritative commentator (Bonfatti) seems to be in this latter sense and is certainly worth being shared. The judicial liquidation procedure, indeed, is ordered by the Court in a situation of insolvency and is set to satisfy all creditors by an independent administrator: these are the earmarks of a true insolvency procedure, and it seems reasonable therefore to consider that all other rules in general relating to insolvency procedures should also apply. If one shares this opinion, then, to the judicial liquidation procedure of investment funds can also apply all other rules recalled by para. 3-bis of Art. 57 TUF, governing the liquidazione coatta amministrativa insolvency procedure of SGRs, regarding inter alia protection from creditors’ enforcement actions, claw-back actions, rules on pending contracts, proof of debt and payment of dividends to creditors.

The eligibility of investment funds to concordato preventivo

According to Italian insolvency laws, only entities or persons are eligible to insolvency procedures and not the estate or the business unit as such which is owned or run by the enterpreneur: the estate of the debtor is managed  within  the  procedure  with  an  aim  at discharging  the  debtor’s  indebtedness as  the  owner  of  the assets pertaining to the estate. As a consequence, the main obstacle for an investment fund to be eligible to concordato preventivo is that the fund is a separate estate, but is not considered as an entity or person.

If one shares the opinion that the judicial liquidation of investment funds can be considered as an insolvency procedure, it could be argued that funds are eligible also to alternative insolvency procedures, such as concordato  preventivo.

In this respect, considering that the judicial liquidation procedure can be considered (as we have discussed above) to be governed by rules recalled from those of liquidazione coatta amministrativa, it could also be argued that Art. 3 IBL apply, which states that “entities subject to liquidazione coatta amministrativa are eligible to concordato preventivo”.

It is certainly a far-fetched construction as far as the literal wording of the law is concerned, but it is one which could allow to conclude that funds are eligible to concordato preventivo. In such a case, the request for admission should be filed by the SGR, which would in any case not be subject to the procedure in his own capacity, but only in its capacity as the SGR in charge of the single insolvent investment fund, which the SGR could continue managing in the ordinary course of business according to the general rules  of concordato preventive, and the SGR would not be involved as far as its own activity  and  other  funds managed by the SGR are concerned.