A decision of the Court of Rimini dated 1st December 2016 states that the competitive bid process provided by Art. 163-bis of the Italian Bankruptcy Law is not mandatory when there is a strict connection between the lease of business and a proposed third-party loan to support the concordato proposal
A company operating in the hotel sector filed a petition for concordato preventivo plan and proposal providing for the direct prosecution of the business by the company, according to Art. 186-bis IBL. In particular the plan provided for:
- a five-year lease agreement of the business, due to be returned to the company at the end of the lease;
- the lessee or its shareholders making new loans to support the concordato proposal for the amount of euro 2.000.000, granted super-priority status according to Art. 182-quarter IBL, subject to the confirmation of the concordato by the Court and to the business remaining, at that time, as a property of the company and still subject to the lease.
The issue regards the interpretation and application of the competitive bid process set forth by Art. 163-bis IBL – which applies as far as compatible to urgent activities to be carried outside of the ordinary course of business as provided by Art. 161 seventh para. IBL and to lease of business unit(s) – in particular, to the case that the lessee of the business is strictly linked to the third party due to make new loans, functional to the concordato preventivo plan. It should be noted that in this case the lease of business was functional to a rebalancing of the financial conditions of the debtor himself rather than, as it normally happens, to a sale of the business: this led also to the issue of the qualification of the concordato plan and proposal as one «preserving the business» according to the definition of Art. 186-bis IBL.
The decision of the Court
In the decision to open the concordato procedure, the Court stated that the competitive bid process set forth by Art. 163-bis IBL should not take place because that would not be compatible with the specific situation at hand, whereby the lessee of the business was strictly linked to the third party granting new loans in support to the concordato proposal.
The decision deals with an unprecedented specific case in which the particular situation on the part of the lessee of the business was considered not to be compatible with the competitive bid process. The only known prior decision comparable to this one is that issued by the Court of Torre Annunziata on 29 July 2016, which ruled that «competitive bid process set forth by Art. 163-bis IBL does not apply to a concordato preventivo plan and proposal providing for the transfer of business units to related undertakings whose sole shareholder is the debtor himself ». The Court of Rimini, indeed, does not set forth the reasons supporting the decision as to the relationship between the lease of business and the offered new loans. One can guess that the Court was driven by the need to introduce some flexibility in the rules of the competitive bid process in a specific case where, if these were flatly applied, creditors would suffer a loss (consisting in the lack of new loans and of the prospects of the business not being restructured). In this perspective, the decision of the Court should be approved, since it appears to be aimed at an interpretation of the law allowing for the highest yield to the creditors, in line with previous case law (Court of Bergamo). With specific regard to the second issue, the Court held that the debtor’s concordato plan and proposal could be qualified as «preserving the business» within the definition set forth by Art. 186-bis IBL, in line with case law (such as Court of Milan and Court of Alessandria) which considered the preservation of the business itself to be relevant rather than the debtor himself (rather than a lessee of the business) actually continuing to trade. In this specific case, the lease of business had the same duration as the concordato plan and, therefore, it was actually uncertain whether the definition could be met.