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  legal advices

Legal opinion on the notavion of the juridical relationship with the purpose of keep one?s privilege to credit.

We were asked to draft a legal opinion illustrating which initiatives ? if any ? may be taken into consideration against a Credit Institute that has granted a mortgage loan for the amount of ? 2 millions to a limited liability company, already exposed with the same bank institution, with deposits in checking account.

We are told that the aforementioned company is administered by a board of directors, and that the articles of incorporation prescribe a joint signature by two members of the Board on deeds of extraordinary administration, but that the loan was actually undersigned by only one member of the Board of Directors.


The case placed under our examination attains to a renown case history, rather common in the past, which finds a justification in the need of the Credit Institution to novate a juridical relationship with the purpose of keeping its privilege to credit.

The operation thus set is today wholly rudimentary and na´ve, clearly showing that the credit conversion from unsecured to privileged, whilst in a spread debt condition known to the Bank, is fully elusive of the principle of par condicio creditorum, a core principle of Bankruptcy Law.

The norm is binding, therefore its violation entails the voidness of the judirical transaction, which implementation must be considered in fraud of the law (as per article no. 1344 of the Civil Code). Nonetheless the loan agreement must be considered void as it produces fraud to the creditors.

The same argument is reiterated even in less rigorous doctrine (see Campobasso ? Jorio ? Tedeschi), not considering, moreover, that the aforementioned orientation has been consolidated both through First and Second degree rulings as well as Supreme Court decisions ? among many: "the concession from a bank of a loan with mortgage guarantee, binding the sum loaned to the extinction of previous debts owed to lenders by borrowers, constitutes a deed for consideration, of the previous debt, and is thus subject to ordinary revocatory action."(Court of Civil Cassation, Section 3, December 21, 1990, No. 12123), and also: "the contract with which the bank, in anticipation of bankruptcy of its own client, with the sole purpose of obtaining the constitution of a mortgage as guarantee of a pre-existent unsecured pecuniary credit, and not to provide for a lack of liquidity of the entrepreneur, shall grant its client a sum of money as land loan, is to be qualified as an indirect transactional procedure in fraud of creditors, resulting in a new objective novation. Such novation, being considered as an anomalous means of payment, is subject to bankruptcy revocation as per Art. 67 L.F., overriding also the written mortgage, which, consequently, may not be placed in opposition to the mass of creditors. While lodging Proof of Debt, the bank may hence only claim the admission of the original credit, non supported by mortgage guarantee". (Tribunal of Genoa, January 1, 2002).

In the occurring composition phase, the Company?s legal representative may be allowed to, upon petition by the liquidation Officer, and upon recommendation by the Judge appointed to the procedure, to carry out solely an ordinary revocatory action, which the Supreme Court has clearly placed in the hands of the contracting party having interest in the same; independently from the aforementioned processual tool, the qualification of such case allows, doubtlessly and certainly, to hypothesise, even before abrogation of a void contract, the tout-court actio nullitatis as a radical tool to remove the contract - stipulated in fraud of law and in fraud of creditors - from the juridical sphere.

The civil action declaring contract voidness, overriding, like unto and with greater authority than the revocatory action, the guarantee accessing to it, should in fact be considered as the most direct and consequential action ensuing the juridical status which the parties have given the relationship, when, through a non-motivated novation of the juridical transaction, hey have transferred pre-existent unsecured debts onto the new credit relationship.

According to both hypotheses it does not appear as though exceptions claimed by an adverse party can be feared or expected, in line also with the scientia fraudis of the Credit Institution. Today, actions which previously pertained solely to company economics, may be bound also to the juridical sphere.

Today?s most prevalent and illuminating jurisprudence has positively established that, through the financial and income indexes processed through balance sheet items, a Credit Institution is presumably aware of the solvency status of a company.

In fact, "The receiver may advance evidence that the state of insolvency of the bankrupt was known by the bank sued in revocatory action, by the subsistence of serious, precise, and concurrent presumptions such as to suggest an effective scientia decontionis by the specific creditor towards which the action is moved. The knowledge of the state of insolvency preceding bankruptcy is based on indexes, such as n 8% indebtedness ratio, and a liquidity ratio lower than 0.3" (several sources: Tribunal of Trieste, March 7, 1997 ? Tribunal of Benevento, December 14 1994 ? Tribunal of Potenza, June 11 1994 ? Tribunal of Cosenza, March 24 1994 ? Tribunal of Rimini, November 22 1995 ? Tribunal of Frosinone, April 15, 1998)

Also, "The state of insolvency of a bank, meant as the impossibility to meet the obligations relating to ordinary means of payment and not demobilizing the full assets, may be construed by the occurring of a series of technical presumptive indexes such as patrimonial deficit, high percentage of unpaid credits compared to the volume of expenditures, mounting negative turnover ." (App. Bologna, 3rd Section, January 30, 2003).

From an integral analysis of the pronouncements, which are here reported only in part, it emerges that are relevantly taken into consideration:

Capital index (or liquidity ratio) ? the capacity of an enterprise to meet the payment of short-term debts, drawing on its own financial means. Such index is given by the current assets-liabilities ratio. A financially healthy enterprise shall have a factor of >1.

(or liquidity ratio) ? the capacity of an enterprise to meet the payment of short-term debts, drawing on its own financial means. Such index is given by the current assets-liabilities ratio. A financially healthy enterprise shall have a factor of .

Indebtedness ratio index (medium/long and short term debts) ? plus the total of the circulating assets (stock + short and medium/long term credit), which expresses the extent of debt of an enterprise.

Turnover index (or R.O.E.), given by the ratio between net income and net assets of a business. The ratio must be greater than the cost of short-term cost of money (the opposite would result in shareholders? investment loss).

Bank ? liquidity ratio, liquidity ratio (acid Test), etc?

, liquidity ratio (), etc?

Instituting proceedings based on the objection of inefficacy of the juridical transaction stipulated with the credit Institution appears to be less conclusive, as the transaction document was signed by just one of the administrative counsellors, whereas the Articles of Incorporation expressly require, for the completion of acts of extraordinary administration, the signature of both administrators.

Such exception, in fact, could easily be by possible evidence advanced by the Bank, affirming and demonstrating a conclusive abrogation of the contract by the non-signing counsellor. The Supreme Court has on several occasions stopped this line of action, clearly stating that through several of such deeds and the recurring of the same circumstances, it may be presumed that a contract executed by the contracting party?s collective representative organ implies the unspoken abrogation, by each and every member of the board, of the uti singuli source of transaction (among many: Civil Court of Cassation, 2nd Section, December 1, 1995, No. 12420 - Civil Court of Cassation, 1st Section, March 12, 1994, No. 2430).

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