In a recent decision, the Supreme Court has further clarified the conditions for the validity of the sale and lease back contract. This is, as is well known, the contractual transaction whereby a company sells a capital good to a leasing company, which in turn, after paying the agreed sale price, leases the same asset back to the original owner, in return for a periodic fee: at the end of the relationship, the user company can choose to continue the lease or to repurchase ownership of the asset, exercising its option right.
The Sale and leaseback is primarily a response to the selling-company's need for self-financing, which means the need to obtain immediate liquidity while continuing to dispose of the sold asset.
However, according to article 2744 of the Civil Code, the fact that the capital good remains outside the company's assets (and therefore outside the assets that can be seized by creditors) raises certain problems of compatibility with the prohibition of the so-called “patto commissorio” (agreement of forfeiture). In other words, jurisprudence has questioned whether the sale and leaseback may constitute a means to circumvent the mandatory rule prohibiting the parties from agreeing that, in the event of non-payment of the debt within the fixed term, the ownership of the asset pledged as security shall pass to the creditor.
In this regard, the Court of Cassation has ruled on this point on several occasions (ex multis Cass. 22.03.2007, n. 6969; Cass. 11.09.2017, n. 21042; Cass. 22.02.2021, n. 4664) and has, at least in the abstract, authorised the contractual scheme as it meets a significant need for the maintenance of business activity and the improvement of the financial factors of production.
However, it will always be necessary to verify, on a case-by-case basis, the absence of at least three specific “symptomatic” factors which, if present together, reveal the fraudulent intent of the transaction and, therefore, its unlawful nature:
(i) the existence of a credit and debit situation between the grantor financial company and the user seller company, either prior to or at the time of the sale;
(ii) the economic difficulties of the selling company, which gives rise to the suspicion that it is taking advantage of its weak position;
(iii) the disproportion between the value of the asset transferred and the payment made by the buyer, which confirms the validity of this suspicion.
The Supreme Court (judgment no. 26415 of 13.09.2023) has now returned to the subject. The case concerns a complex commercial transaction, which can be summarised as follows: a company entered into a lease agreement for an industrial shed intended for the exercise of its business activities. Before the expiry date, the company terminated the contract prematurely, paid the purchase price and acquired full ownership of the shed; it then sold the shed to another company and leased it back from the same company.
Subsequently, the company went bankrupt and the bankruptcy trustee requested a declaration of ineffectiveness – against bankruptcy – both of the sale and the financial lease .
The Court of First Instance granted the application, and the Court of Appeal upheld the first instance judgment, deeming that the company's awareness of its insolvency and its intention to harm its creditors were sufficient to prove “participatio fraudis”, i.e. the intention to commit an act in fraud on creditors.
The company appealed against the judgment of second instance, arguing that:
(i) firstly, the whole operation was preordained in order to allow it to continue its business activities, to obtain liquidity and to implement production factors;
(ii) secondly, the Court of Appeal had failed to explain “for what reasons such a transaction could be detrimental to the company's creditors”.
The Court of Cassation reiterated its guidance, pointing out that a careful examination of each specific case is required. In particular, the Court of Appeal should:
(i) explain for what reasons and on the basis of which factual elements an economic operation theoretically aimed at “oxygenating” the company could be considered harmful to the creditors; and
(ii) identify, in concrete terms, the individual claims that would be adversely affected, particularly where, as in the present case, the contract is at least ideally suited to support the business activity rather than depleting it.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
