The Court of Cassation (decision No. 4915 of 27 February 2017) lowered the threshold allowing the Bankruptcy Court to review the feasibility of the concordato preventivo proposal.
The Court of Vibo Valentia denied the admission of a company to the concordato preventivo procedure due to the fact that the restructuring plan and the expert report on its feasibility were much too vague. In particular, this was the case of the plan’s milestone consisting in a reorganization arrangement to be entered with other companies which were still to be incorporated and regarding a joint venture with an international industrial group.
The local Court then declared the company’s bankruptcy, which was revoked by the Court of Appeals of Catanzaro. The receiver then challenged the decision in front of the Court of Cassation.
The issue concerns the limits and the scope of the assessment of the concordato plan by the Court in the merits, with respect to its elaboration following the well-known Court of Cassation’s decision No. 1521 of 23 January 2013 issued by the Joined Chambers of the Court.
The decision of the Court
The Court of Cassation reversed the decision of the Court of Appeals of Catanzaro, recalling its own decision No. 1521 of 2013, which stated that:
(i) the Bankruptcy Court can assess under certain conditions the feasibility of the plan irrespective of the certification issued in this respect by the expert appointed by the debtor, while it is up to the creditors to assess the chances of success of the plan from a factual point of view, since the creditors are those taking the risks arising therefrom;
(ii) in connection with the opening of the procedure, the Bankruptcy Court is not simply entitled, but is required to assess the plan in the merits, as far as the Court needs to exclude that – beyond any possible doubt – the concordato plan cannot be implemented.
In the specific case, the concordato plan and proposal and the validation of the expert were considered by the Court of Cassation to be too vague, because they did not set forth even high-level details of the business plan or drafts of the deeds of incorporation of the new companies taking part to the reorganization.
The well-known decision No. 1521 of 2013 of the Joined Chambers of the Court of Cassation is the leading case on the scope and limits of assessment by the lower Courts of the feasibility of the concordato proposal. The Court of Cassation ruled in subsequent decisions that the concordato cannot attain its own purpose when “the proposal is beyond doubt unable to repay at least in part all creditors” (Cass. 4 May 2016, No. 8799) and when “the plan is clearly unsuitable at all for attaining the concordato plan and proposal’s goals” (Cass. 9 August 2016, No. 16830).
These principles have not been applied consistently by the lower Courts.
On one side, the Court of Appeals of Turin (decision of 17 April 2014) ruled that the Bankruptcy Court can simply take note of what it can be said for certainly that will not happen, while it should refrain from making a factual assessment when there is even a slight chance that something could happen.
On the other side, the Court of Pavia (decision of 14 October 2016) denied confirmation of a concordato proposal based on a plan providing for the debtor to continue to trade, arguing that there were very little chances that the plan and proposal could be implemented. The decision of the Court of Treviso dated 1 June 2016 shares the same line of argument, having ruled that a concordato plan and proposal is not feasible, whose implementation depends on future events which are uncertain and not clearly defined.
The issue – which perhaps could not be solved, due to the need to consider on a case by case basis all the different possible kinds of proposal and peculiarities of the specific situations – is that it is impossible to define in general terms a test whereby the plan can be said to be, beyond doubt, not feasible. Only the above mentioned, narrower interpretation does seem to be able to provide a defined guideline of the criteria that the lower Courts should follow in their review of the feasibility of the proposal.
The latest decision of the Court of Cassation seems to offer a new perspective, noting that the assessment of the feasibility of the concordato plan and proposal can directly involve the format of the plan and, in particular, the lack of sufficient information regarding the transactions to be performed by the debtor and third parties involved in the restructuring plan. This direction seems to be sound, as it recalls the one defined by the Court of Cassation for the assessment of the report of the expert appointed by the debtor to certify the feasibility of the proposal. The only risk in applying this test is that, on one side, Bankruptcy Courts could develop a strict formalistic approach in applying it and, on the other side, that the Courts could make an assessment into the merits, indirectly, through a review of the plan’s format.