Prepared by Cristian Sgaramella and Michele Carminati
The Italian Court of Cassation, in its recent order no. 18610 of 30 June 2021 (the “Order”), affirmed the receiver’s capacity in bringing a legal action for damages against the bank for the wrongful granting of loan, including such action in the so-called “mass action” (i.e.“azioni di massa”), therefore, within his capacity, such as those set out in articles 66, 67, 146 and 240 of the Italian Bankruptcy Law, probably providing a milestone in the non-univocal case-law orientation developed on the subject of the bank’s liability in such cases (the Order was further confirmed by the even more recent order of the same Court of Cassation no. 24725 of 14 September 2021).
In the Order, the Court of Cassation ruled as follows:
“In the event of the granting of financing that the judge on the merits considers wrongful, because provided with malice or negligence to a company that is in economic and financial difficulties such as to exclude a perspective of overcoming such distress, the conduct of the lender constitutes a tort, for violation of the duties of prudent administration, with liability for damages if it resulted in an aggravation of the financial instability, as fueled by the artificial continuation of economic activity in such way allowed.
The action, where the conditions are met, belongs to the mass actions (i.e. “azioni di massa”), and it is carried out by the receiver and is grounded on the cause connection between the wrongful financing and the reduction of the bankrupt company’s assets, with prejudice of the entire creditors’ class. The same action can be combined with that can be carried out pursuant to Article 146 of the Italian Bankruptcy Law against directors and auditors, where there is a concurring conduct with the aforementioned liability, even if it is not necessary to promote it jointly, given the merely optional nature of the relevant joinder”.
In the grounds contained in the Order, the Court of Cassation safeguarded the financing granted for the purpose of restructuring the company distress by means of the law instruments set out by the Italian Bankruptcy Law and the Code of Corporate Crisis and Insolvency (please see, inter alia, Articles 182 quater and quinquies of the Italian Bankruptcy Law and Articles 99 and 101 of the Code of Corporate Crisis and Insolvency, “CCII”: the latter, as known, will enter into force on 16 May 2022 and the early warning mechanisms provided therein on 31 December 2023).
Therefore, with the Order it can be stated that the Court of Cassation has overcame the contrary orientation that emerged with judgments no. 7029, 7030 and 7031 issued on 28 March 2006 by the same Court of Cassation in joint session (confirmed by the judgement of the Court of Cassation of 12 May 2017, no. 11798), by which the latter had instead excluded from the mass actions (i.e. “azioni di massa”) the one at stake, deeming that the capacity of start such an action was on the single creditor damaged by the unlawful conduct of the bank, in the same way as the individual action of the shareholder and third party pursuant to Article 2395 of the Italian Civil Code. About the conditions for the existence of the damage, the judgments issued by the Court of Cassation in 2006 also differentiated the position of individual creditors depending on whether they became creditors prior or after the bank’s wrongful financing.
In the aforementioned 2006 judgments, the Court of Cassation held that creditors, who were as such prior to the improper grant of the financing, were entitled to complain about the participation in the distribution of subsequent creditors (i.e. the ones who have become as such after the granting of the improper financing), whereas the latter were entitled to complain only about the inability to their repayment of the distribution itself.
This distinction between creditors prior or subsequent to the unlawful conduct of the bank is no longer provided for in the Ordinance.
Having said this, it is important to briefly review the most important points of the Order:
- The bank’s liability
In addition to the ordinary principle of professional diligence set out in Article 1176 of the Italian Civil Code, the Court of Cassation, in identifying the Bank’s liability, the violation of which places a burden of compensation on the Bank itself (jointly and severally with the corporate bodies which have made wrongful request of financing, dissimulating the bankruptcy or state of insolvency, please see Article 218 of the Italian Bankruptcy Law and Article 325 CCII), also refers to the principle of sound and prudent management which underlies all the banking regulations set out in the Italian Banking Act (please see Articles 5, 14, para. 2, 53, 67, 107, 108, 114 quaterdecies and 114 quinquies etc.) and the Supervisory Instructions for Banks (see Bank of Italy Circular No. 229/1999), as well as the risk weighting methods contained in the Basel Agreements, the prudential requirements for credit institutions and investment institutions set out in Article 142 of EU Regulation No. 575/2013.
- The damage
With reference to the damage caused by the bank’s conduct in the wrongful granting of financing, it has been observed that it consists in a damage to the company’s assets and therefore to the bankrupt’s guarantees in view of the reduction in the creditors’ chances of meeting their claims. Therefore, the receiver’s legal action is aimed at benefiting all the creditors in the bankruptcy proceedings as it is aimed at recovering the bankrupt’s assets.
In any case, the Order does not exclude the damage to the contractual freedom of those who have given their trust to the entrepreneur due to the wrongful financing by the bank (and therefore the creation of a further type of damage), this distinction between the two different types of damage being based on Article 240, paragraph 2, of the Italian Bankruptcy Law, where the individual creditor is given capacity in the constitution as a civil party in criminal proceedings for bankruptcy.
- The capacity of the receiver to start the legal action
The Order establishes the capacity of the receiver for the action at stake, not only in his capacity as the bankrupt’s successor pursuant to Article 43 of the Italian Bankruptcy Law, but also, as mentioned above, as the party entitled to the so-called mass actions (i.e. “azioni di massa”), aimed at recovering the bankrupt’s asset guarantee pursuant to Article 2740 of the Italian Civil Code.
It is precisely this last profile of “legitimatio ad causam” that overcomes what is stated in the aforesaid judgments of the Court of Cassation’s issued in 2006, which identified in the case at stake a hypothesis of complicity of the borrower according to Article 1227 of the Italian Civil Code.
In particular, the 2006 judgments held that the conduct of the legal representative of the borrower who had aggravated the bankruptcy with a reiterated request for bank loan was concurrent with the one of the lender who granted such loan, with a consequent proportional reduction in the compensation payable by the bank.
It derives that the provision of Article 1227 of the Italian Civil Code cannot be invoked when the receiver acts to protect the creditors as a whole.
- The title of liability towards the company and the company’s creditors
Without prejudice to the Italian Civil Code provisions and the special regulations referred to above, which establish the bank’s duty of professional diligence (see point 1 listed above), the Court of Cassation also qualified the two different liability regimes of the bank towards the company and towards the company’s creditors, placing the former within the scope of contractual liability pursuant to Article 1218 of the Italian Civil Code due to “qualified social contact” (referring to the abundant case-law on the subject, which depicted as contractual this kind of liability) and the latter within the scope of tort liability under Article 2043 of the Italian Civil Code.
- The possible coexistence of the bank’s capacity as debtor and creditor
Another reason given by the 2006 judgments to exclude the receiver capacity to bring the action at stake against the bank was that it should be excluded that the bank was both debtor in relation to the compensation to be paid by the bank itself and creditor in relation to the right to repayment of the granted financing.
This point was also easily overcome by the Order, which instead affirmed the admissibility of a dual role of the bank, i.e. that of debtor to the bankruptcy for the burden of compensation borne by it and creditor to it for the repayment of the granted financing, given that, in the latter case, the bank would be paid in bankruptcy money, in the same way as the bank’s claim in the event of the successful outcome of the claw-back action started by the receiver pursuant to Article 70, para. 2 of the Italian Bankruptcy Law.
- Participation with the corporate bodies
Finally, as can be seen from the aforementioned abstract of the Order, the Court of Cassation also admitted the existence of the bank’s liability for the wrongful granting of the financing in conjunction with that of the corporate bodies for having unlawfully request for financing as provided for by Article 146 of the Italian Bankruptcy Law, given the principle of joint liability governed by Article 2055 of the Italian Civil Code, as conduct that caused the same damage, without, however, the need for the joint starting of the actions against the corporate bodies and the lender, as this is merely optional joinder (in this last part, the Order is in line with the previous judgement of the Court of Cassation of 1 June 2010, no. 13413).
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