Corporate arbitration and insolvency proceedings

After a year-long pause, a new article is available on Arbitration in Italy!  It concerns a matter already analysed in the past: the relationship between arbitration and insolvency proceedings and, in particular, between arbitration and bankruptcy proceedings (please see here and here, as well as my article on YAR – Young Arbitration Review).

I took the opportunity to further investigate the matter since it was examined by the Court of first instance of Turin in a recent decision (no. 2510 of 23 May 2019, Italian text available here).

The case heard by the Turin Court was as follows.

The receiver of a bankrupt company sued the company’s former director, as well as a third-party, claiming that a certain amount of company’s money had been taken by the director and given to that third-party.  As a consequence, he claimed towards the director and the third-party the refund of the said amount.

The respondents raised a number of objections on the merits and on the procedure and, in particular, they objected to the jurisdiction of the State Court asserting that the jurisdiction lies with the Arbitral Tribunal provided for by the arbitration clause contained in the bankrupt company’s articles of association.

The said arbitration clause sets forth that the possible disputes between the shareholders and the companies, as well as the disputes commenced by or against the directors and the statutory auditors, shall be submitted to an Arbitral Tribunal.

The respondent’s objection to the State Court jurisdiction was rejected.

First of all, the Court of Turin stated that the said arbitration clause cannot be enforced in the relationship between the bankruptcy receiver and the third-party.  Indeed, under Italian law an arbitration clause contained in the articles of association of a company is not binding in the relationship between the company and a third-party.  It only binds the shareholders and, under certain conditions, the directors and statutory auditors.

Moreover, the Court of Turin also stated that the above mentioned arbitration clause cannot be enforced in the relationship between the bankruptcy receiver and the company’s former director.  In this respect, the Court of Turin referred to a decision of the Italian Supreme Court (Italian Supreme Court, VI Civil Chamber, decision no. 28533 of 8 November 2018, Italian text available here), that addressed the matter in an obiter dictum.  The principle established by the said decision is that “the arbitration clause contained in the articles of association of a bankrupt consortium is binding in proceedings instituted by the bankruptcy receiver to claim a right arisen before the insolvency proceedings are opened, while the said clause is not binding in proceedings instituted by the bankruptcy receiver against the consortium’s directors, since they are aimed to restore the consortium’s assets in the interest of consortium’s members and creditors and the arbitration clause is not binding on the creditors because they are not parties thereto.”  Nonetheless, the Supreme Court upheld the lower Court’s decision that stated that the jurisdiction lies with the Arbitral Tribunal provided for by the arbitration clause contained in the articles of association since, in the case at hand, the bankruptcy receiver was claiming a right which has arisen out of the said articles before the opening of the insolvency proceedings.

However, the decision of the Court of Turin is in line with the established case-law (see Italian Supreme Court, I Civil Chamber, decision no. 19308 of 12 September 2014, Italian text available here), whereby the claim brought by the bankruptcy receiver is other than the the general claim concerning directors’ liability under Italian companies’ law (Article 2393 of Italian Civil Code) and therefore it cannot be deferred to an Arbitral Tribunal.

Under Italian law, the company (or, under certain circumstances, the company’s shareholders in a derivative action) may bring the general claim concerning directors’ liability under Article 2393 of Italian Civil Code.  If the articles of association of the company contain an arbitration clause, this claim is submitted to the Arbitral Tribunal.

In addition, the company’s creditors are also entitled, under certain circumstances, to bring a claim against the company’s directors (Article 2394 of Italian Civil Code).  This claim is not a derivative claim and cannot be referred to arbitration under the arbitration clause possibly contained in the company’s articles of association.

The claim brought by the bankruptcy receiver under Article 146 of Italian bankruptcy law combines the general claim under Article 2393 of Italian Civil Code (which can be referred to arbitration) and the creditors’ claim under Article 2394 of Italian Civil Code (which cannot be referred to arbitration).  This is the reason why, in case of claims under Article 146 of Italian bankruptcy law, the arbitration clause possibly contained in the company’s articles of association does not apply.

In the light of the above and to sum up, under the established Italian case-law the arbitration clause contained in the articles of association of a company is also binding after its bankruptcy, but it does not apply in proceedings under Article 146 of Italian bankruptcy law.  Moreover, it could be maintained that the said clause does not apply in proceedings under Article 150 of Italian bankruptcy law (concerning the order of payment in relation to the unpaid share capital), but this topic could be addressed in a further article.