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24 August 2018
Bankruptcy agreement procedure
Voting rights under Article 127
Supreme Court decision on proponent creditors' right to vote
Bankruptcy agreement procedure
Bankruptcy agreements are governed by Articles 124 to 141 of the Bankruptcy Law and aim to speed up bankruptcy proceedings. Bankruptcy proceedings are closed either on the liquidation of assets and distribution of the proceeds or as a result of a bankruptcy agreement.
Under Article 124, a bankruptcy agreement can be proposed during the course of a bankruptcy by:
The proposal for a bankruptcy agreement can include:
Further, the proposal may provide, among other things, that the secured and preferred creditors will not be satisfied in full, on the condition that satisfaction is fixed at an amount not lower than the best possible price which may be obtained for the security on the market.
When a bankruptcy agreement proposal is filed with the bankruptcy court, the delegated judge seeks the receiver's opinion and the approval of the creditors' committee.
For a proposal to be approved, it must obtain a favourable vote (counted according to the amount of claims, not per capita) of a majority of the creditors admitted to vote by Article 127.
According to Article 129, after the vote, the bankruptcy receiver presents a report to the delegated judge informing them of the outcome. If the proposal is approved, the delegated judge orders the receiver to immediately notify the proponent of the approval in order to allow it to seek homologation of the plan and notify the debtor and any dissenting creditors. The receiver sets a term of between 15 and 30 days for the filing of possible oppositions. Within the same term, the receiver must file a report detailing its final opinion on the proposal.
If any opposition is filed, the bankruptcy court homologates the bankruptcy agreement (after having verified the procedure and the outcome of the vote) through a decree which is final and not subject to appeal. Instead, if oppositions are filed, the bankruptcy court conducts a hearing to examine the evidence requested by the parties or ex officio. The bankruptcy court takes a decision by means of a motivated decree. The decision may be appealed before the Court of Appeal within 30 days of the date of service of the motivated decree on the relevant parties. However, the original decree is immediately enforceable even if subsequently appealed.
The right to vote on a proposed bankruptcy agreement is governed by Article 127 as follows:
Further, Paragraphs 5 and 6 of Article 127 provide two hypotheses for conflicts of interest:
5. The spouse, relatives up to the fourth grade of relation of the debtor and those that are transferees or judicial creditors of these individuals for less than one year from the bankruptcy decree are excluded from the right to vote and the computation of the majority.
6. The same rules apply to credits of an entity controlling or controlled or under common control.
Article 127 contains no specific provisions regarding the right to vote of proponent creditors or their controlling, controlled or under common control entities.
Given the lack of legislative provisions concerning proponent creditors' voting rights, a previous approach to this issue maintained that proponent creditors could vote on proposed agreements without any restrictions.
The Supreme Court set out this interpretation in Judgment 3274 (10 February 2011), in which it stated that the conflict of interest hypotheses provided by Article 127(5) and (6) are peremptory and that Article 127 has "an exhaustive nature and it cannot be applicated by analogy".
The need to clarify any conflicts of interest in a bankruptcy agreement and fill the corresponding legislative gap motivated the First Chamber of the Supreme Court to seek the Joint Chamber's assistance.
With Judgment 17186 (28 June 2018), the Joint Chamber deviated from the previous interpretation of Article 127, stating that in a bankruptcy agreement neither the proponent creditor nor the entities controlling, controlled or under common control correlated to the proponent creditor have the right to vote on the proposal.
The court supported its decision with the following arguments:
According to the developed interpretation, the court stated that Article 127(6) should be extended to cover other hypotheses of conflicts of interest to include conflicts involving proponent creditors in an attempt to avoid entities controlling, controlled or under common control from being influenced by the party that has a conflict of interest.
For further information on this topic please contact PierDanilo Beltrami at Lombardi Segni e Associati by telephone (+39 02 896 221) or email (firstname.lastname@example.org). The Lombardi Segni e Associati website can be accessed at www.lsalaw.it.
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