Supreme Court ruling on mortgage loan and avoidance action
Significant ruling by the Supreme Court (Section I Civil, published on July 26, 2023, No. 22563) regarding Mortgage Loan and Avoidance Action.
The Supreme Court's intervention comes as a result of the appeal for cassation (filed by a company acting on behalf of a company that acquired a bank's credit resulting from a mortgage loan) against a decree in which the Pordenone Tribunal dismissed the objection to the insolvency state, following the bank's credit being admitted only as unsecured debt, despite being backed by a mortgage guarantee.
With the aforementioned ruling, the Court of Cassation upheld the Tribunal's decision based on the following reasons.
In the context of the opposition to the insolvency state, the Pordenone Tribunal determined that the bank's granting of the mortgage loan was done to convert its own unsecured debt into a debt secured by a mortgage. This circumstance means that the mortgage guarantee invoked by the bank cannot be recognized.
Granting a mortgage as security for a mortgage loan constitutes a revocable act - under Article 67, paragraph 1, No. 2 of the Insolvency Law and also under Article 67, paragraph 2 of the Insolvency Law - especially when the loan amount is intended to offset a pre-existing unsecured exposure on the current account and the act is part of a unified operation carried out to eliminate the exposure, thereby transforming the bank's unsecured debt into a debt with a mortgage guarantee, to the detriment of concurrent creditors.
The Supreme Court did not consider the bank creditor's reference to Article 39, paragraph 4 of the Banking Law, which states that the granting of a mortgage as security for a mortgage loan is not subject to avoidance action, to be decisive. This is because the transaction itself was reconstructed as an "abnormally indirect solvent procedure" and "aimed at extinguishing previous obligations by abnormal means."
Once the mortgage loan contract is revoked, the mortgage also loses its status, and therefore, the benefit accruing to the creditor is nullified. For this reason, the bankruptcy trustee had excluded the amount requested by the bank for mortgage interest from the insolvency estate.