The enforceability of pre-emption rights in the context of insolvency proceedings
Pre-emption right clauses are often included in the by-laws (or shareholders’ agreement) of the companies and constitute a strong measure for the shareholders to keep control on the members of the company, preventing the possibility of selling to third parties unwelcome to the existing shareholders. Is the above true also in the context of an insolvency proceeding?
The pre-emption clauses usually provided for in-company bylaws (as well as shareholders’ agreements) constitute a derogation to the principle of the free transferability of the shares according to Italian law and are aimed at protecting the shareholders against the risk of the third parties’ entry into the share capital. In fact, the pre-emption right entitles the shareholder to be preferred, under the same terms and conditions, to third purchasers should one of the other shareholders decide to transfer its shares.
Due to the effectiveness (the so called “efficacia reale”) of the pre-emption clauses included in a company’s bylaws, the transfer of shares in breach of such provisions will be ineffective vis-à-vis the company and the pre-emption right will be enforceable against the third purchaser.
It is disputed under Italian case law and doctrine whether the above mentioned bylaws’ provisions can be also enforced in the context of insolvency proceedings involving one of the shareholders. In particular, the question has been raised as to whether the pre-emption right can be enforced vis-à-vis the competent body of the insolvency proceedings who intends to sell the shares together with the other assets owned by the insolvent shareholder or whether the relevant effectiveness should cease before higher and eminent public interests, such as the protection of creditors and the safeguarding of employees.
In this respect, case law has expressed conflicting positions.
According to a first approach (Supreme Court, ruling no. 17523/2003), the pre-emption right (both of legal and conventional source) is generally incompatible with compulsory sales, and, in particular, with sales performed in the context of bankruptcy proceedings. This interpretation confirmed a previous approach (Supreme Court no. 295/1981 and no. 7056/1999) and was based on the general principle that the insolvency proceedings cannot suffer hindrances imposed by a rule protecting an interest having a private nature, as is the case for the pre-emption provisions.
Moreover, according to the above mentioned case law, the exercise of pre-emption rights would require an act of free choice, which is not the case in the event of a bankruptcy sale. As stated by the Supreme Court, “in a bankruptcy proceeding, deprived the owner of his right to dispose of the asset, it would be unreasonable to believe that a private interest, such as inheritance, urban or agrarian pre-emption, could hinder the publicist activity of the bankruptcy bodies aimed at liquidating the assets of the bankrupt for the satisfaction of creditors”. From a different prospective, the exercise of the pre-emption right would entail a reduction of the possibility to sell the assets at the best conditions, preventing one of the potential purchasers from attending the competitive procedure.
In another ruling (no. 17524/2004), the Supreme Court, emphasizing the nature of the pre-emption clauses and the circumstance that they are aimed at protecting an interest of the shareholders (instead of the approval clauses which protect the company's interest) affirmed that such clauses may not be invoked against the sale by auction procedure (with which only the restrictions that protect an interest of the company would be compatible).
However, a different judicial approach of the Supreme Court is opposed to the above described interpretation and finds the pre-emption clauses perfectly compatible with forced sales, including those in the context of insolvency proceeding.
In fact, according to the Supreme Court (ruling no. 2576/2004), the conventional pre-emption right would be fully compatible with the procedural structure of the bankruptcy liquidation phase, since the alleged designation of the holder of the pre-emption right would not interfere with the timing of the bankruptcy proceeding. In particular, in such case the Court has argued that the administrator of the insolvency proceeding who takes over pre-existing contractual relationships could not choose among the conditions and clauses included in such agreements, whether provided for ex contractu or ex lege. As a consequence, the liquidation phases would be affected by the pre-emption clause.
The enforceability of the pre-emption right in the context of insolvency proceedings has been also stated by a recent decision of the Court of Bolzano dated 9 May 2018, based on the consideration that it is a right which will be exercised by the relevant holder under the same conditions of the other potential purchasers admitted to the competitive procedure.
Such decision is of particular interest, considering that it would seem to offer a third interpretation of the matter, midway between the two approaches of the Supreme Court mentioned above.
In fact, according to the Court of Bolzano, the pre-emption right would be generally compatible with competitive sales in the context of insolvency proceedings, provided that the object of the pre-emption right fully coincides with the asset to be transferred. Otherwise, the pre-emption right would not be enforceable in the event that the object of the competitive sale is an entirety of assets constituting a going concern. In such case, in fact, the enforceability of the pre-emption clause should be excluded since, in accordance with the consolidated interpretation of the Supreme Court, the activity carried out by the bankruptcy bodies, as it is aimed at safeguarding publicity purposes, cannot suffer impediments set by an internal rule concerning a private relationship.
Therefore, based on the above interpretation, also the judicial approach, which is favourable to the enforceability of the pre-emption clauses in the context of insolvency proceedings, denies the relevant exercise whenever a whole of assets is transferred as a going concern and the pre-emption right can only be exercised in relation of one of such assets.
In conclusion, even in absence of a majority approach, in view of the above judicial arguments it may be inferred that the pre-emption clauses could be considered as compatible with insolvency proceedings as long as their exercise does not conflict with the protection of particular principles and values to which the legal system attributes particular care, as in the case of the integrity and the continuity of a going concern.