By Fabio Marelli
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.
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.
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 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.
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 only for information and does not constitute professional advice.
For further information: Fabio Marelli.
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