With a recent decision (28 June 2018, No. 17186), the Joint Chambers of the Court of Cassation ruled that companies belonging to the same group as that which made a proposal for concordato fallimentare are excluded from the vote and cannot be taken into account for determining the relevant quorum.
The case
Two companies made a concordato fallimentare proposal
to end the bankruptcy liquidation procedure of another
company of the group. Two creditors and two former shareholders
opposed to confirmation on the grounds that the proposal was
approved with the vote, as creditors, of two companies of the same
group. The Tribunal of Rome with a decree of 15 March 2011 denied
to confirm the proposal.
The Corte of Appeals of Rome reversed the decision, ruling that in
the context of a concordato there is no room for conflicts
of interest.
The issue
Absent a specific rule, it is uncertain whether a creditor making the concordato proposal is entitled to vote on the same, and if the rule set by Art. 127 IBL (excluding from the vote other companies of the same group of the debtor) can be construed extensively.
The decision of the Court
The Court of Cassation started from the issue, whether a
creditor making the concordato proposal is entitled to
vote on the same.
A similar issue, as the Court recalls, was addressed with the
decision No. 3274/2011. On such occasion, the First Chamber of the
Court stated that the rules of company law regarding limitation ot
the voting rights of shareholders in a conflict of interests (Art.
2373 ICC) could not be extended to concordato
fallimentare, because the insolvency procedure is not a
separate entity to which the creditors are parties, and the
creditors are not bound by an agreement whereby they are bound to
abide to an interest different from their own. As a consequence,
the law does not provide for a general rule on conflicts of
interest in insolvency procedures, but rather considered only
specific and peculiar cases where this was appropriate.
The Joint Chambers of the Court, departing from this reasoning,
ruled instead that rules provided in the IBL do consider that, as a
general rule, conflicts of interest matter in the context of the
vote of creditors.
In particular, the Court notes, who makes the proposal has an
interest that it be approved, while the creditors have an interest
to maximize their own recovery, and these interests are not
aligned: thus, the absence of an express rule cannot be regarded as
permission of the proponent to vote on his own proposal.
The Court then goes on noting that Art. 127 IBL, fifth para.,
provides that the spouse and close relatives of the debtor, as well
as any assignees of their claims, are not allowed to vote on the
concordato proposal. The same Article, at sixth para.,
states that the same applies to other companies of the group of the
debtor.
According to the Court, such rules must be construed extensively:
the exclusion of the voting rights of the companies of the group is
based on the consideration that they can be influenced by those who
are directly in a conflict of interest and there is no reason why
this should be limited to creditors linked to the debtor and not to
those linked to the party making the concordato
proposal.
Commentary
With this decision, the Court addresses for the first time the
issue of the voting rights of the party making the
concordato proposal; this issue could not arise before the
2006 amendments to the IBL, because earlier third parties were not
allowed to make concordato proposal in bankruptcy
liquidation procedures.
Following on the line of argument of the Court, however, one should
note that current insolvency rules include one that is closer to
the issue at hand than the rule of Art. 127 IBL: Art. 163 IBL,
sixth para., provides indeed that creditors making a concordato preventivo proposal in
addition to the proposal of the debtor, are allowed to vote on
their own proposal, provided that they are placed in a separate
class. This is a different way (and a less "intrusive"
one) to address potential conflicts of interests in the context of
insolvency procedures.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.