The Unified Sections of the Italian Supreme Court have recently taken a stand (Cassazione SS.UU. n. 1521, 23 January 2013) on certain issues posited by case law relative to the procedure of arrangement with creditors (concordato preventivo) provided under Italian bankruptcy law.

The ruling of the Supreme Court sought to clarify the scope and limits of Italian Courts’ intrusion in such procedures, particularly defining their powers to evaluate the convenience and feasibility of proposals for arrangement with creditors.

The Supreme Court confirmed that only creditors shall be entitled to evaluate the convenience and merits of the proposal, including the likelihood of success and the associated risks. In particular, it has been pointed out that the percentage of creditors’ satisfaction contemplated in the proposal is impertinent to judicial scrutiny because no criterion is any longer imposed by Italian law (while at least 40% satisfaction was previously required).

However, the Supreme Court has now stated that, notwithstanding the fact that arrangement with creditors plans are to be attested by an independent surveyor, Courts must scrutinize arrangements mainly in evaluating the correctness of the procedure (including compliance with creditors’ information requirements) as well as of the legal feasibility of the proposal. Such scrutiny must be carried out on a case-by-case basis focusing upon the assurance of two key interests, namely, the protection of creditors and the rehabilitation of the enterprise’s financial crisis allowing, when possible, business continuity.

The judgment portrayed in this article contributes to a legal panorama recently modified by the provisions introduced by the so called Decreto Sviluppo, entered into force last summer (D.L n. 83 of 22 June 2012, converted into law n. 134 of 7 August 2012) and also referred to in the dicta of the Supreme Court.

As highlighted by commentators, the trend of Italian legislation on insolvency is indeed to emphasize the contractual “color” of arrangements with creditors and their objective to safeguard the value of the insolvent company assets and avoid bankruptcy rather than merely secure creditors with the “division of the cake” Nonetheless, the Supreme Court as seen by this judgment has been willing to clarify that the legal capability of an arrangement to satisfy creditors in the proposed percentage is a public interest that must be subject to Court review and control and not reserved solely to the majority decision of creditors.

Tommaso Tamburino