In a case where NCTM assisted the debtor, the Court of Appeals of Turin, with a decision of 17 April 2014, confirmed the most recent case law of the Court of Cassation limiting the power of the Tribunal to refuse confirmation to cases where, beyond doubt, the concordato is not economically feasible.

The case

A real estate company filed for concordato preventivo offering the assignment of all assets to creditors (“cessione dei beni”) and, as a minimum threshold, very low dividends for some classes of unsecured creditors. The company was admitted to the procedure and the proposal obtained a favourable opinion by the Judicial Commissioner, being thus approved by almost all the creditors admitted to vote.

The Tribunal, having rejected some oppositions on other grounds by creditors, refused to confirm the concordato, on the grounds that the proposal was not feasible and, consequently, declared bankruptcy. The Court of Appeals, accepting the complaint filed by the company, reversed the decision of the Tribunal and ordered that the same Tribunal confirm the concordato.

The issues

Pursuant to the well known decision of the Court of Cassation of 23 January 2013, No. 1521, followed by others (see Cass. No. 11014/2013, Cass. No. 24970/2013, Cass. No. 11497/2014), the Tribunal can on its own motion consider the issue of the “legal” feasibility of the concordato, while instead an objection based on the “economic” feasibility can be raised only by the creditors.

Subsequently, the issue was faced by case law regarding the conditions allowing the Tribunal to assess the “economic” feasibility of the concordato, notwithstanding the approval of the proposal by the creditors and also in the absence of a challenge to confirmation raised by creditors for this specific reason.

The decision

In its decision the Tribunal ruled that the principle is applicable, according to the decision of the Court of Cassation, allowing the Tribunal to refuse confirmation when it appears prima facie that the proposal will result in no dividend payable to unsecured creditors.

The Tribunal concluded that the proposal was not “economically” feasible on the basis of an assessment of what would likely happen in the circumstances, stating that the minimum thresholds of dividends payable to the unsecured creditors, as indicated by the debtor (ranging from nearly 2 to 4% in the different classes), would not have been realised.

The Court of Appeals followed the guideline of the Court of Cassation and ruled that “confiration of the concordato could have been rejected by the Tribunal only where the circumstance that the concordato is not be viable to sort out the company’s distress would have been absolutely evident or – at least – in line with some material statistic inference. This cannot be found in the documents of the proceedings and the assumed negative outcome of the concordato, as indicated by the complaining party, pertains instead to circumstances which could or could not be realised”.

The comment

In light of the above approach of case law, it is clear that, in the current Italian legal system, within a concordato preventivo procedure the will of the creditors, expressed through their voting right, prevails to the powers of the Judicial Authority, with respect to the economic viability of the transactions and assessment provided for in the plan supporting the concordato proposal.

Only the creditors, indeed, provided that they are correctly informed by the debtor and by the Judicial Commissioner in his report pursuant to Art. 172 IBL, can decide if they like the proposal and trust in the plan supporting it. This is a decision which may depend, in the assessment of each single creditor, also on prior commercial relationship with the insolvent debtor, with a view to carrying it on.

The issue which was further faced by the Courts after the decision of the Court of Cassation No. 1521/2013 relates in particular, as we have noted above, to the allowing the Tribunal to overlap its own judgment to that expressed by the creditors with their vote.

In this respect, it is worth mentioning the different facts giving rise to these decisions, putting forth a rule allowing the Tribunal to refuse confirmation only when it finds that “the plan proposed by the debtor is absolutely and beyond doubt unfit to attain its own goals, or the real cause of the concordato, to be identified on a case by case basis with reference to the specific terms and conditions indicated by the debtor in order to overcome its own state of distress by way of a payment to unsecured creditors which could be even minimal, though in a reasonable timeframe” (Cass. No.24970/2013; Cass. No. 11497/2014)”.

In particular, these decisions make reference to circumstances not allowing the Tribunal to assess the merits of the plan, such as those where “the debtor may be considered unable to secure the sale on which the concordato is based, to third parties selected in the plan, of certain real estate property, ... guarantees promised by third parties may not be payable, revenues from the sale of Assets may be considered not accurate” (Cass. No. 11497/2014) or “a) banks did not legally commit to inject new financial resources after confirmation; b) the share capital of the company may be considered lost due to losses accrued during the concordato; c) there are no guarantees securing payment of the price of real estate propertiesto be sold according to the plan; d) cash needs of the company during the five-year plan may not be covered by resources allocated in the plan” (Cass. No. 24970/2013).

In the case at issue, the remarks made by the Judicial Commissioner who was extremely conservative in assessing expected income for the company – and which the Court of Appeals ruled could not be raised the Tribunal – concerned, among others, the outcome of some pending litigation against the Tax Authority (in which the company was partially successful in first instance) and against a leasing company, as well as some uncertain issues regarding the termination of a preliminary sale contract.

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