Italy: Contracts Remain In Force In Amministrazione Straordinaria Even After They Are Expired?

With the decision No. 1195 of 18 January 2018, the Court of Cassation ruled on the powers of the extraordinary commissioner to require performance of pending contracts and on the treatment of the relevant claims of the suppliers.

The case

Pending an extraordinary administration insolvency procedure a gas supply contract continued, until the supplier sent a termination notice to avoid the automatic renewal of the same.

Due to an order to the supplier by the local authorities, for public and urgent reasons, not to interrupt its own performance, the supplier was obliged to continue supplying and filed then a proof of debt in the procedure for full payment as a super-priority creditor.

The Tribunal of Novara upheld the supplier's claim, for a higher amount than the contractual price, which had then expired. The decision was upheld on appeal by the Court of Appeals of Turin.

The issue

Art. 50 d.lgs. No. 270/1999 sets the rule that pending contracts continue to be in force during the extraordinary administration procedure. The extraordinary commissioner can step into the contract or terminate the contract at his choice, while the other party to the contract can summon the extraordinary commissioner to make his choice within 30 days only after the Ministerial Decree ordering that the plan be performed, according to Art. 54 d.lgs. No. 270/99.

The issue is then whether the "inertial" continued performance of the contract after the opening of the procedure and until the extraordinary commissioner steps in or walks out of the contact can be interpreted as a decision by the commissioner to remain in the contract, which are the contractual rules applicable in this period and whether the relevant claims arisen enjoy super-priority status.

The decision of the Court

The Court of Cassation upheld the appeal by the extraordinary commissioner, confirm that the commissioner keeps the option to step in or walk out of the contract even after his request for continued performance during the initial period. The Court recalls in this respect a provision of law (Art. 1-bis law 27 October 2008, No. 166) which meant to stat the true interpretation of Art. 50, para. 2, d.lgs. No. 270/99.

On the other side, the Court ruled that receivables for new supplies made during the procedure shall be considered as super-priority claims, as these fit into the definition of Art. 52 d.lgs. No. 270/99 referring to supplies "made for the continued operation of the business and for the management of the debtor's assets".

According to the Court, finally, the contract remains governed by its own terms and conditions, also with respect to its expiration date, because there is no extension mandated by law, but at the same time any unilateral change to the contract is unenforceable in order to allow the commissioner to make his choice: in the case at hand, the Court ruled that the notice of termination by the supplier was unenforceable and, consequently, the price of further supplies was still that provided by the contract.

Commentary

The Court of Cassation considered an area of law which has frequently raised uncertainties, as to the rules governing continued performance of pending contracts in the initial period after the opening of the extraordinary administration procedure and the approval by the Ministry of Economic Development of the plan pursuant to Art. 54 d.lgs. No. 270/99.

The Court, following on certain previous decisions, clarified that pending contracts continued performance during the initial stage of the procedure does not in any way "freeze" their contractual terms (Cass. No. 2904/2016; Cass. No. 2762/2012), but instead lets the contract be performed under its own terms and conditions, without implying that the commissioner steps into the contract, so that he has time to decide whether to do that or not.

The Court of Cassation has clarified that the other party being subject to this rule does also mean that the supplier cannot exercise a right to avoid an automatic renewal of the contract; however, claims for new supplies enjoy super-priority status.

The protection of the interests of the procedure does indeed determine a relevant sacrifice on the part of the supplier, who is bound to await until the commissioner makes his choice, and is also bound to continue performing the contract, until the Ministry of Economic Development has approved the plan, which can take several months.

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