The Supreme Court declares that corporate groups in arrangement with creditors procedure is non-actionable.
Corporate groups in arrangement with creditors procedure is non-actionable.
With its decision no. 20559/2015, filed on 13 October 2015 (A. Ceccherini Presiding – L. Nazzicone Reporting Judge), the Supreme Court, 1st Civil Section, declared that a so-called corporate groups in arrangement with creditors procedure was non-actionable before the same court, in the absence of positive laws and regulations covering the phenomenon and governing its jurisdiction, the forms of complaints, the appointment of the bodies and the formation of the classes and of the volumes of assets and liabilities; indeed, according to current laws and regulations, a composition with creditors may be proposed solely by each of the companies belonging to the group before the court having local jurisdiction for each individual procedure, without possibility of confusion between assets and liabilities.
The issue originated from the final approval, by the Court of La Spezia, of the composition of a newly established general partnership and of four companies as partners with unlimited liability, which had contributed nearly the entire capital to the new partnership.
The new partnership had been established with its registered office in La Spezia, while the four partner companies had moved their registered office there shortly before submitting the composition proposal.
The Court of Appeal of Genoa, following the complaint filed by some creditors, had confirmed the approval of the composition.
With this decision, the Supreme Court overturned the approval, in view of the circumstance that, as the law currently stands, there are no rules governing the corporate groups in arrangement with creditors procedure, although in fact groups of companies are common in today’s economic environment, and attempts have been made to manage the insolvency situation of the different companies of a group in a unified manner.
In the body of the decision, the Court highlighted the aspects that led it definitively to rescind the court order that validated the composition and the subsequent disputed measure.
First of all, the court of the place where each company of the group has its principal place of business has jurisdiction to ascertain the state of insolvency, a change of jurisdiction in favour of the parent company’s court being excluded.
The composition must pertain individually to each company of the group, as a single validating judgement is not actionable, nor does it extend to the partners with unlimited liability, who benefit from the debt relief provided by Article 184.2 of the Italian Bankruptcy Law solely for the partnership’s debts, not for personal ones as well.
The assets and liabilities of the individual companies of the group must be kept separate: however, in the case in question, since the assets and liabilities of the new partnership consists of the sum of the assets and liabilities of the founding partners, all creditors of the four companies were placed in the same number of classes, with the consequence that those of the smaller companies inadmissibly contributed with those of the larger companies.
Lastly, in terms of procedure, the majority for the approval of the composition must be calculated in reference to the individual companies of the group while, in the case in question, there were no separate general meetings, no votes, and no distinct majorities for each company.
“In the final analysis, the described operation forced the regulatory provision - in particular, Article 161 of the Italian Bankruptcy law and Article 2740 of the Italian Civil Code - beyond the limits that, through a mere interpretation and in the absence of positive laws and regulations governing the phenomenon (a law intending to govern corporate groups in arrangement with creditors procedures should plausibly regulate their jurisdiction, the forms of the complaint, the appointment of the bodies, the formation of the classes and of the volumes of assets and liabilities), it could reasonably tolerate”.