The Italian Supreme Court of Cassation confirms that the “In-house Companies” can be declared bankrupt
| Insights
The Italian Supreme Court of Cassation by issuing the sentence n. 5346 of 22 of February 2019 (published on last 12 of March) clarified that the “In-house companies” can be declared bankrupt as they are private entities. At that time according to article 1 of Italian Insolvency law only private entities (and not public entities) were subject to the provisions on bankruptcy and pre-bankruptcy composition. Such ruling annulled the decision of the Court of Appeal of L’Aquila (published on 2 march 2005) where by contrast it had been affirmed that the mentioned company are public entities, and therefore they may not go bankrupt.
The main reason of the said contrast was due by the fact that “In-house Companies” seem to be both public and private entities. On one hand, they are publicly owned, like a public entity, and the public authority or authorities holding the share capital exercise over the company a control which is similar to that exercised over their own departments. On the other, these companies, as all private entities, must be incorporated under the terms and conditions of Italian Corporate Law.
The Court of Appeal had given more emphasis to the first aspect. In fact, it had stated that in these companies the public controller and the controlled companies cannot be really distinguished since the essential part of the company’s activities are carried out with the controlling of the public authority or authorities. Consequently, as all public entities, they cannot be declared bankrupt. By contrast, the Italian Supreme Court of Cassation reached the opposite conclusion. Holding the property of In-house Companies by public authorities does not mean per se that such companies are public entities. What it is more relevant is the fact that they operate in a competitive market, with the same forms and methods as any private entity. This, requires to preserve the legitimate expectations of persons who interact with such Companies that therefore must follow the “ordinary” laws, including insolvency procedures. Such decision was in line with another case issued by the Supreme Court of Cassation (case n. 3196 of 7 February 2017).
This conclusion is confirmed by the New law on public participated capital companies, that was implemented by the Decree Law n. 175/2016, and in particular by the article 14. According to such article these companies, including the issued “In-house Companies”, fall under the application of the legislation on insolvency procedures, and in particular on bankruptcy, pre-bankruptcy composition and Extraordinary administration of large enterprises in a state of crisis.