Composition with creditors and third-party attachment

Court of Cassation, Civil Division I, judgment no. 3850/2021, filed on 15 February 2021

The Court of Cassation recently ruled on the legitimacy of a payment made to the attachment creditor by a debtor of a party subject to the composition procedure. In particular, it analysed the circumstance in which such a payment is made after the publication of the application for the arrangement procedure in the commercial register, in execution of an assignment order (pursuant to Article 553 of the Code of Civil Procedure) issued by the execution judge before the application was filed.

The Supreme Court, analysing some of the most relevant judgments on the subject[1], has pointed out that the consequences arising from the date of the declaration of bankruptcy and the date of the filing of the application for admission to the composition procedure are partly different.

In the context of bankruptcy, article 44, paragraph 1, of the Bankruptcy Law provides that all acts carried out by the bankrupt and payments made by him after the declaration of bankruptcy are ineffective for creditors. This provision is a consequence of the substantive and procedural dispossession outlined by articles 42 and 43 of the Bankruptcy Law. According to these rules, the bankrupt is deprived of the administration and availability of his assets from the date of the declaration of bankruptcy. This deprivation derives from the application of the principle of “crystallisation at the date of bankruptcy of the relationships belonging to the bankrupt[2].

On the contrary, in the context of the composition procedure, the filing of the application for arrangement determines a so-called “attenuated” dispossession for the debtor. The latter, in fact, retains not only the property (as in bankruptcy) but also “the administration and the availability of the assets, subject to the limitations necessary for the execution of the procedure, which imposes that every act must be functional to the execution of the agreement[3].  During the arrangement procedure, therefore, the debtor may carry out his business under the supervision of the judicial commissioner. As stated above, in this case, the dispossession is less incisive than in the bankruptcy procedure.

In fact, article 169 of the Bankruptcy Law, in regulating the effects that follow the filing of the application for composition, mentions only some of the rules relating to the dispossession of the bankrupt debtor and article 44 of the Bankruptcy Law is not included among them.

The absence of such a reference is crucial for the solution of the issue examined.

First of all, the Supreme Court highlights the different types of dispossession that the bankruptcy law determines, on the one hand, for the bankrupt debtor and, on the other, for the debtor under composition. Secondly, in the light of this observation, it states that, unlike in the case of composition proceedings, “in the event of the bankruptcy of a debtor already subject to third-party expropriation, the payment made by the debtor of the bankrupt debtor to the creditor who has obtained the assignment of the attached credit pursuant to article 553 of the Code of Civil Procedure, is ineffective, pursuant to article 44 above mentioned, if this payment is made after the declaration of bankruptcy“.

On the contrary, in the composition procedure, since the dispossession regime is less invasive and article 44 of the Bankruptcy Law is not applicable, the judges of legitimacy have therefore affirmed the following principle of law.

A payment made, after the publication of the application for composition with the commercial register, to the pledging creditor by a debtor of the party subject to the composition procedure is legitimate only if such payment is made in execution of an assignment order (pursuant to article 553 of the Code of Civil Procedure) issued by the execution judge prior to the filing of the application”.

[1]  Supreme Court no. 26036/2005, Supreme Court no. 24476/2008, Supreme Court no. 11660/2016;

[2] Supreme Court no. 8 giugno 2020, n. 10867;

[3] Regional Administrative Court, Firenze, sez. II, 23/12/2010, no. 6862;