Relevance of business continuation for the purposes of qualifying or not qualifying the liquidation nature of the composition

The Court of Bergamo, with a decision dated 14/07/2021, addresses the issue of the liquidation or non-liquidation nature of the composition, by expressly referring to the approach adopted by the Court of Ravenna on 08/03/2021, according to which the Italian Supreme Court’s ruling no. 734/2020 is not intended to “approve” the concept of minimal business continuity, in the sense that also compositions in which the liquidation component clearly prevails may be considered continuous, “but only on the condition that the company business continuation is relevant, firstly, for the quid plus that derives from it for creditors with regard to the greater cash flows that such continuation ensures, and secondly, for the specific significance – that one could call conforming – of its “qualitative” component, relating, by way of example, to the preservation of jobs, the otherwise precluded protection of company intangibles, and the safeguarding of the beneficial effects on the local community brought about by the survival of a company”.

Thus, for the Court of Bergamo, it is “appropriate to adopt a reading of art. 186-bis that combines the “letter” of the first part of the first paragraph with its second sentence and – above all – with the subsequent paragraphs. From this point of view, it is necessary to enhance the quantitative component and weigh the incidence of business continuity in the context of the plan and the satisfaction offered to creditors”.

On the basis of these considerations, in the business continuity agreement outlined by art. 186-bis, the liquidation component is usually called upon to play a marginal and recessive role, and this would be deduced from the fact that it is confined in the closing sentence of the first paragraph, and it is described as a mere possibility (the debtor “may”), relating only to non-functional assets.

Also the second paragraph of art. 186-bis would point in this direction, demanding “a plan based on an analytical indication of the costs and revenues expected from the continuation of the company business envisaged in the composition plan, the financial resources required, and the related coverage methods”.

Thus this indication would be “aimed at ascertaining that there is no worsening of liabilities, but also that, from the cash flows made possible by business continuity, the company generates both resources suitable for satisfying creditors and the profits needed in order to stay in business. If continuity is not qualitatively and/or quantitatively crucial, and it does not have an essential dimension, this expectation would be void of meaning.

Lastly, it can be noted that letter b) of the second paragraph requires a certification of continuity to the best satisfaction of creditors, which for some time now seems to have become a “general clause” in matters of composition, given that, in addition to constituting a criterion expressed in certain regulated scenarios (e.g. pre-deductible financing or payments of previous claims), it is characterized as a component which, alongside the “resolution of the crisis”, ends up integrating the concrete cause of the composition proposal.

Favoring business continuity, and therefore the application of its “by-laws”, is always subject to the best satisfaction of creditors pursuant to art. 186-bis, paragraph 2, letter b), which means that continuity is relevant only if the expected results for the creditors are, in any case, higher than those of a liquidation alternative, whatever it may be; otherwise, continuity would be elevated to an end, rather than a means, attributing to the composition agreement the character of an extraordinary administration.