The extension of credit to an insolvent undertaking (impresa decotta) enabling the entrepreneur to delay the declaration of bankruptcy while worsening the state of insolvency, in violation of criminal law, entails the nullity of the loan agreement for breach of mandatory rules and the irrecoverability of the disbursed sums on grounds of contrariety to public morality (buon costume)

By the order under comment, the Italian Supreme Court ruled on the validity of two loan agreements entered into between a bank and an insolvent company, on the ground of an alleged violation of criminal law, confirming in that scenario the nullity of the agreements for breach of mandatory rules and the exclusion, on grounds of contrariety to public morality, of the credit institution’s right to recover the disbursed sums.

The decision originates from a decree by which the Tribunal of Rome had rejected the opposition to the statement of liabilities filed by a bank seeking admission to the bankruptcy estate of the credits arising from two loans granted pursuant to Law No. 40/2020 (the so-called decreto liquidità) and secured by the Mediocredito Centrale guarantee fund. The Rome Tribunal had held that the execution of the two agreements was in conflict with the criminal provision set out in Article 217, first paragraph, No. 4), of the Bankruptcy Law, as they involved sums knowingly disbursed to an insolvent company with the effect of worsening its financial distress and delaying the declaration of insolvency. To that end, the Tribunal also relied on the fact that part of the borrowed sums had been used to reduce a pre-existing current account exposure, essentially enabling the bank to ”restructure a pre-existing unsecured claim with another of equal amount but secured by a public guarantee”. On those grounds, the Tribunal of Rome declared the nullity of the agreements pursuant to Article 1418 of the Civil Code and the irrecoverability of the disbursed sums on grounds of contrariety to public morality pursuant to Article 2035 of the Civil Code.

The credit institution filed an appeal on a point of law, arguing, in summary, that no provision capable of giving rise, from the violation of the aforementioned criminal rule, to the nullity of the loan agreements, let alone to the non-recoverability of the disbursed sums, existed.

Seized of the matter, the Italian Supreme Court acknowledged that “[t]here is no doubt that, as a matter of principle, an agreement that is prejudicial to the rights of creditors, in the absence of a provision that generally prohibits the entry into contractual arrangements prejudicial to third parties, is not, in itself, unlawful and that its conclusion is not, therefore, void for unlawfulness of the cause, for fraud on the law or for a common unlawful motive”.

The Supreme Court, however, clarified that “if the contract was entered into by the parties, not only to the detriment of the creditors (of one of them), but also in violation of a mandatory rule, such as a criminal law provision, the contractual act so performed is sanctioned, pursuant to Article 1418, first paragraph, of the Civil Code, with its nullity”. In such cases, the so-called reato-contratto scenario comes into play, namely the ”case in which it is precisely the [ ] execution [of the contract] that achieves, by reason of the arrangement of interests contained therein, the result prohibited by criminal law”, and it is thus ”the very existence [of the contract] that conflicts with the mandatory rule”.

Turning to the restitutory consequences of the declaration of nullity, the Court affirmed that, for the purposes of the soluti retentio under Article 2035 of the Civil Code, “performances contrary to public morality are not limited to those that conflict with the rules of sexual morality or decency, but also include those that are inconsistent with the ethical principles and requirements constituting social morality in a given environment and at a certain historical moment, accordingly, the disbursement of sums in favour of a company already in a state of insolvency, constituting a genuine loan transaction, which enables the entrepreneur to delay the declaration of bankruptcy while increasing the company’s debt exposure, must be considered as contrary to public morality, and therefore irrecoverable, being, in truth, one aimed at violating the rules of correctness governing market relations”.

In conclusion, the Supreme Court clarified that “nothing prevents an agreements judged unlawful and, as such, void pursuant to Article 1418 of the Civil Code, from also being subject to the civil sanction of irrecoverability laid down by Article 2035 of the Civil Code, where […] performances motivated by immoral purposes are identified, given that a contractual act found to be in conflict with a mandatory rule or with public policy may certainly be, at the same time, susceptible to an assessment in terms of contrariety to public morality, precisely for the effects referred to in Article 2035 of the Civil Code”.

On those grounds, in light of the findings of fact made by the first-instance court, the Italian Supreme Court confirmed as “undoubtedly correct” the rulings reached by the Tribunal of Rome as to the nullity of the loan agreements and the non-recoverability of the disbursed sums, dismissing as unfounded the appeal filed by the financing bank.