Distribution rules and value determination criteria in the composition with creditors in direct business continuity

Court of Rome, 11 April 2024

The present judgment originates from the filing, by a company operating in the construction sector, first of an application for a so-called reservation arrangement under Article 44 CCII and, subsequently, of the proposal and plan.

The appellant's crisis originated in 2022 due to the interruption of an important commercial partnership which should have led to an increase in turnover deriving from ordinary management due to the opening of an important construction site. The blockade of the construction site led to the start of a dispute, promoted by the appellant, pending before the Court of Milan for the recognition in its favor of amounts of more than 5 million euros as compensation for damages.

The composition plan proposed by the appellant provides for the direct continuity of the company activity and, the advantage compared to the hypothesis of judicial liquidation, is constituted by the revenues expected from the execution of a subcontracting contract already stipulated by the appellant and subject to the approval of the preventive agreement. The aforementioned contract, indeed, would be terminated in the event of the opening of judicial liquidation since on the one hand the client would have no interest in its continuation and on the other the liquidator would not be physically able to complete the order.

Furthermore, the plan does not provide for external financial contributions nor does it indicate potentially revocable deeds or possible liability actions that can be brought about in the course of judicial liquidation.

 As for the liquidable assets - the value of which must be distributed according to the absolute priority rule at the time of the agreement - it consists of equipment estimated to have a value of €30,000.00 and of receivables to be collected and already the subject of litigation for €423,284.00. At the time of the composition proposal, the credits were estimated, on a prudential basis, at €300,000.00, corresponding to the amounts covered by the settlement agreements already formulated but not yet signed.

To this should be added the amount paid by the counterparty subject to the proceedings pending before the Court of Milan as compensation for damages, abstractly hypothesized by the appellant's lawyers at a figure between €1,858,500.00 and €2,700,000, 00 which would allow the general preferential creditors to be satisfied to a much greater extent in relation to the insufficient portion compared to the liquidation hypothesis.

The liquidation value therefore amounts, net of the aforementioned hypothesized amount of compensation for damages, to €453,284.04 to which must be added, in the event of approval of the agreement, €400,000.00 deriving from business continuity; thus for a total distributable composition of €823,284.00.

For the purposes of opening the composition with creditors procedure, the Court clarified what is meant by realizable value, liquidation value and excess value.

As for the realizable value, the Court observes that pursuant to art. 84, paragraph 5 - which provides for the excisability of preferential creditors - this value must be estimated at the filing date of the application for composition with creditors and must be derived from the sale during the judicial liquidation of the entire company (en bloc), including what can be achieved by the exercise of mass shares and the value generated by the company during the provisional exercise pursuant to art. 211 CCII.

In the present case, the appellant calculated - with an annexed justification - the liquidation value assuming an atomistic liquidation of the individual assets since, given that the only contract in progress was the subcontracting contract, the curatorship would not have considered the provisional exercise.

According to the arrest in question, the realizable value pursuant to art. 84, paragraph 5, CCII coincides with the "liquidation value" referred to in paragraph 6 of the same law as the aforementioned last paragraph does not provide for "any specific relationship or identifies any professional who must determine the liquidation value... and this is explained precisely with the fact that that value is already established in the appraisal referred to in paragraph 5".

As for the excess value, however, it was estimated at €370,000.00 net of €30,000.00 corresponding to the value of the equipment ascribed as liquidation value.

The Court, having verified the admissibility of the proposal, the feasibility of the plan and the rituality of the proposal, opened the procedure for composition with creditors.