The Court of Parma, in the context of a negotiated crisis resolution procedure, recently authorised a sale of business branches, exempting the purchaser from liability for the debts related to the business prior to the sale. The order dwells in detail on the requirements for the granting of the authorisation measure and the extent of the Court's assessments.
By order dated 4 November 2022, the Court of Parma granted the request (made by a company that had previously commenced a negotiated crisis resolution procedure pursuant to Law Decree 118/2021 converted by Law 147/2021) for the authorisation to sell – with the benefit for the transferee of the exception to Article 2560 paragraph 2 of the Italian Civil Code – two business branches and inventories to the party with whom a lease agreement was entered into and who had already formulated a binding purchase proposal.
The order is of particular interest because it provides an overview of the prerequisites that must be met in order for a judge to grant the authorisation measure requested by a company in crisis, wishing to sell its business under the negotiated crisis resolution procedure.
It is useful to recall that, first of all, during the negotiated crisis resolution procedure, when the entrepreneur has the opportunity or need to transfer his business or branches thereof to a third party in order to overcome the crisis, in principle it could be done: this is an act of extraordinary administration which the entrepreneur may proceed with autonomously after informing the Expert, pursuant to Article 9 of the aforementioned Decree-Law 118/2021 (now Article 21 of the Code for Business Crisis and Insolvency in force as of July 15th, 2022). In such a case, the transfer takes place according to ordinary rules and the purchaser will be jointly and severally liable with the transferor for all prior debts pursuant to Article 2560 of the Italian Civil Code.
In this regard, it is well known that the regime of joint and several liability of the purchaser for the company's debts has long represented a ‘disincentive' for the transfer of businesses of entrepreneurs in difficulty outside the protected framework of the sale in bankruptcy or in execution of an approved arrangement (areas in which it is possible to benefit from the effect of the derogation to Article 2560 of the Civil Code). Today, as a result of Article 22 of the Crisis Code (formerly Article 10 of the cited Decree-Law 118/2021), entrepreneurs even immediately, can sell the business or branches thereof within the negotiated crisis resolution procedure by obtaining, under certain conditions, the Court's authorisation for the sale without the effect, for the purchaser, of the liability for the debts prior to the transfer related to it.
The authorisation measure requires a verification by the Judge as to the functionality of the transfer to safeguard the continuity of the business and the correspondence of the transfer operation to the best satisfaction of the creditors. With respect to Article 10 of Decree-Law No. 118/2021, Article 22 of the Code of the Crisis has moreover codified the Court's further obligation to “verify the respect of the principle of competitiveness in the selection of the purchaser“. The Court's authorisation, once granted, will retain its effects and the transfer, including the ‘derogatory' effect that distinguishes it, will be considered as released under Article 24 of the Crisis Code (formerly Article 12 of the cited Decree-Law 118/2021), irrespective of the outcome of the negotiated crisis resolution procedure.
In the case submitted to the Court of Parma, the plaintiff had requested authorisation to sell the business branches without the effects of Article 2560 of the Italian Civil Code under the conditions set forth in the binding expression of interest in the purchase and in the lease agreement previously executed within the parties, with the preservation of the effects of the definitive sale. The Judge was therefore called upon to assess the existence of the requirements for the granting of the requested authorisation.
It is important to highlight that, from the opinions requested, it emerged that the Expert had: (i) verified the existence of the conditions for overcoming, at the end of the procedure, the economic-financial imbalance of the plaintiff through the conclusion of a restructuring agreement with extended effect pursuant to Article 61 of the Crisis Code; (ii) assessed the functionality of the sale with respect to business continuity and the best satisfaction of creditors by comparing the higher realisable value of the business branches in continuity, the business property and the movable assets included in the business with the value that could be obtained in the event of an atomistic sale of the assets in a ‘pure' liquidation scenario; (iii) carried out a comparison between the transaction planned under the extended restructuring agreement and the results of the sale in the liquidation scenario; (iv) concluded by stating that the sale of the business units was consistent with the recovery plan outlined to overcome the conditions of asset imbalance; (v) confirmed that the plaintiff had tried to collect several expressions of interest in the purchase on the market.
In light of these opinions together with the documentation filed, and following the outcome of the discussion with the creditors, the Court of Parma eventually held that there were the prerequisites to grant, pursuant to Article 10 of Law Decree 118/2021 and Article 22 of the Code of Crisis, the authorisation for the sale of the business branches without the effects of Article 2560 of the Italian Civil Code for the purchaser.
The Judge, considering that he had to enter into the merits of the entrepreneur's managerial choice (e.g. the sale) in the perspective of the reorganisation project in which the same is placed, specified that he considered that the functionality of the deed with respect to the business continuity and the best satisfaction of creditors is subsistent only if, on the basis of a prognostic judgement, the assignment meets the interests of the creditors through a comparison with the foreseeable satisfaction of the same creditors in the liquidation scenario and in the event of the assignment of the company as a going concern in the negotiation resolution crisis procedure (a comparison that also implies a verification of the creditor satisfaction modalities with respect to the project or the reorganisation path that the debtor intends to concretely undertake).
In this regard, in the light of the Expert's opinions, the Court held that in the case at hand the requirement of functionality was indeed met with respect to the business continuity (the sale made it possible to avoid the definitive dissipation of the values linked to the continuation of the business and the accrual of further losses) and the best satisfaction of creditors (there was a reorganisation project, structured and developed through the negotiation, which was reasonably suitable for overcoming the company's situation of economic-financial imbalance).
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.
