Court of Cassation, no. 24633/2021

The extension of bankruptcy under Article 147 of the BankruptcyLaw

With judgment no. 24633/2021 published on 13 September 2021, the Supreme Court – recalling a remote precedent (Court of Cassation no. 1708/1981) – interpreted Article 147 of the Bankruptcy Law and ruled that the extension of the bankruptcy of an individual entrepreneur to another person, after having ascertained the existence of a de facto company, cannot be justified by the simultaneous establishment, for that person, of the capacity of apparent partner and secret partner.  

As is well known, Article 147 of the Bankruptcy Law states that a judgment adjudicating the bankruptcy of a general partnership, a limited partnership or a limited partnership in which the limited partners’ interests are represented by shares results in the bankruptcy of the partners with unlimited liability, even if they are not natural persons. In the case in question, the Court of Appeal of Palermo rejected the appeal against the judgment of the Court of Palermo adjudicating the bankruptcy of the de facto company between an entrepreneur, who had already been declared bankrupt, and a third party classified on the one hand as a ‘secret partner’ – who as such was deemed to have unlimited liability under the applicable legal system – and on the other hand as an ‘apparent partner’, in that the third party was the only person who had dealings with third parties using the company’s name.  

The Court of Cassation, in upholding the appeal alleging breach and misapplication of Article 147(5) of the Bankruptcy Act, held that it was necessary to draw a distinction between apparent and secret partner (an ‘apparent partner’ is a person who is deemed to be a partner by third parties but who is not formally a partner; a ‘secret partner’ is a person who, although not formally a partner, participates in the company without using the company’s name). The Court therefore established that Article 147 of the Bankruptcy Law is applicable in situations that are placed on an alternative level due to the different conditions. It follows that, for the purposes of extending the bankruptcy to another person, the judge must first determine the position of that person in terms of secret partner or apparent partner of the company that is assumed to be established.

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