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MGI Studio Pragma

Company transfer: what rules for credits and debts?

29 Oct 2019

The Italian civil code regulates the consequences of a transfer of company for the creditors and debtors concerned. However, it is still controversial whether its provisions have the effect of determining – in the internal relationship between assignor and assignee – an automatic transfer of the receivables and / or debts relating to the asset transferred by the assignor to the assignee. How should the parties behave in order to avoid the unclear consequences that the provisions of the civil code may derive from the sole application?

The Italian Civil Code sets forth the consequences of a transfer of business for the relevant creditors and debtors, by introducing, under Article 2559 (Credits relating to a transferred business) and Article 2560 (Debts relating to a transferred business), some derogations from its general principles on credit and debt transfer.
The above provisions apply only when credits or debts are considered separately, including (for example) credits or debts arising from: non-contractual liability, or contracts where the obligations are to be discharged only by the proposing party, or contracts with mutual obligations which, at the time of the transfer, have been fully discharged by only one party. Should the credits or debts arise instead from contracts with mutual obligations where neither of the parties has fully discharged its obligations (i.e., agreements from which mutual rights and obligations are still existing), the transfer of the relevant credits or debts is governed by Article 2558 (Succession to contracts) of the Italian Civil Code in the context of the transfer of a business.
As to debts arising from employment relationships, the Italian law sets out a special rule under Article 2112 (Maintenance of the rights of the workers in case of a transfer of business) of the Italian Civil Code, aimed at giving greater protection to the workers/creditors of the business. The provision applies to employees’ wages, including (according to Court of Cassation’s decision no. 164/2016) severance payments. Article 2560 of the Italian Civil Code shall instead continue to apply to the debts of the transferor with social security institutions.
In particular, Article 2559 provides that the (possible) transfer of credits relating to a transferred business is effective against third parties from the time of the registration of the business transfer in the Business Register, even in the absence of its notification to or acceptance by the transferred debtor (notification or acceptance that, for the purposes of the transfer effectiveness against the assigned debtor, are instead “a must” in standard assignments of credits). Article 2559 also provides that the transferred debtor is released if it pays, in good faith, the transferor. Such provisions apply only to enterprises registered in the ordinary section of the Business Register and, according to some authors, to agricultural enterprises registered in the special section.
Article 2560 sets out, on the one hand, that the transferor is not released from the debts that it has incurred in the operation of the transferred business prior to the transfer, unless it is shown that the relevant creditors consented to such release; and, on the other hand, that in the transfer of a commercial business, the transferor is also liable for such debts, if they are registered in the mandatory accounting books.
Therefore, Article 2560 underpins the general principle according to which it is not permitted to replace the debtor without the creditor’s consent and introduces – subject to the conditions mentioned above – the joint liability of the transferor and the purchaser for the debts relating to the transferred business, so that the creditors may rely on two different subjects for the payment of the relevant debts (unless such creditors have consented to the transferor’s release).
As far as employment credits are concerned, the second paragraph of Article 2112 of the Italian Civil Code sets out that the transferee shall be jointly liable with the transferor for all credits that the worker had at the time of the transfer (regardless of whether or not the transferee was or might have been aware of such credits).
Articles 2559, 2560 and 2112 of the Italian Civil Code give therefore no indications on the internal relationships of the parties (i.e. the transferor and the transferee) with respect to the credits and debts relating to the transferred business.
As a consequence, it is still controversial whether the provisions mentioned above have the effect of determining – in the internal relationship between transferor and the transferee – an automatic transfer of the credits and/or debts relating to the transferred business from the transferor to the transferee.
According to reputable scholars, the credits and debts pertaining to the business (including employment debts) are not transferred, either automatically or by operation of law, unless the parties have expressly agreed upon such transfer.
According to the case law (Court of Cassation decision no. 13676/2006), the transfer of a business would instead automatically result in the transfer of all of the credits relating to such business, unless the parties have expressly agreed upon the exclusion of certain credits.
As to the debts, the most recent case law (Court of Cassation decision no. 13319/2018) tends to exclude an automatic transfer in the internal relationships.
In light of the above, it is certainly appropriate for the parties to a business transfer agreement to expressly regulate the transfer of the credits and debts relating to the business in their internal relationships, in order to avoid the unclear consequences that may derive from only applying the provisions set out in the Italian Civil Code.
Such a conduct would, in fact, be perfectly in line with the legal framework of a transfer of business which is an act of contractual autonomy of the relevant parties. Indeed, if a subject is entitled to transfer the business, deeming it appropriate or in line with its interests, such purpose would be better accomplished in case the transfer of credits and debts relating to the business is also specifically regulated by the parties involved (i.e., the transferor and the transferee), because no one better than them is in a position to address and balance the interests underlying the deal and any relevant consequence. In such a way, the power of the involved parties to negotiate and regulate their mutual positions would also be greatly enhanced, with no need for them to defer to the legislator matters which can be better framed and addressed by them.