Italy: The Company Has A Super-Priority Claim In The Insolvency Of A Shareholder For Equity Payments

The Tribunal of Reggio Emilia (9 July 2018) ruled that claims for equity contributions gain super-priority status in the insolvency procedure of a shareholder, at the time when the company recalls the relevant payment

The case

A company subject to liquidazione coatta amministrativa had previously underwritten (but only in part paid in) a portion of the share capital of a special purpose construction company, whereby further equity payments would be recalled at later stages by the company, according to its own financial needs.

In the proof of debt proceeding the claims for equity contributions were considered as unsecured.

The special purpose construction company, assisted by Nctm, appealed insisting for the recognition of the super-priority status of the claims.

The issue

The decision addresses the issue of the ranking of claims for equity contributions with respect to shares underwritten prior to the shareholder entering into an insolvency procedure, and then recalled for payment pending the same procedure.

The decision of the Tribunal

The Tribunal, although formally rejecting the appeal, acknowledged that the claims for equity contributions gain a super-priority status at the time when the company recalls the relevant payments pending an insolvency procedure to which the shareholder is subject.

The Tribunal based its decision on the grounds that such claims meet the requirements of Art. 111 IBL, i.e. they arise in connection with the insolvency procedure (as the company recalls the relevant payments after the opening of the insolvency procedure) and they are also functional to the procedure, as their full payment allows the insolvent shareholder to keep its shares and their value as assets pertaining to the insolvency estate.

Commentary

The decision, as far as it is known, is the first one on this issue (there was only another one in the proof of debt proceeding in 2017, rendered by the Tribunal of Verona in favor of the same special purpose construction company as creditor, in the amministrazione straordinaria insolvency procedure of another shareholder).

The Tribunal acknowledged the super-priority status of the claim, although only at the time when the company reclass the equity payments on the shares.

The reasoning of the Tribunal can be criticized, as the claim should have been considered unconditionally as a super-priority claim, as (i) the contract for the incorporation of the company is a contract providing for a consideration, whereby the claims for capital contributions are linked to the continued performance of the contract by the insolvent company, (ii) according to corporate law, payments of equity contributions need to be made in full, and (iii) the insolvent shareholder would not have been required to make the equity payments right away following admission to the insolvency estate, because the due date would be in any case determined by the decision of the company to recall the payments at later times.

Irrespective of the reasoning and alternative grounds considered, the decision of the Tribunal acknowledged anyway, from a substantial point of view, that a shareholder subject to an insolvency procedure needs to make equity contribution payments in full, if it wishes to retain its shares and relevant corporate rights.

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