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Unlawful granting of credit is contrary to public morality: in addition to claims for compensation for damages, the lender is denied repayment of the loan

(Italian Supreme Court Judgement, No. 4376, 19 February 2024)

With a decision issued on 19 February 2024 (no. 4376/2024), the Italian Supreme Court rejected the appeal brought by a lender against the order issued by the bankruptcy court, which denied the repayment of a loan granted to a company in financial crisis.  According to the Supreme Court, financing an insolvent company is to be considered contrary to public morality and, as a consequence, repayment of the loan can be denied according to Article 2035 of the Italian Civil Code.  Indeed, the Supreme Court held that such conduct is designed to violate the rules of fair market interactions and to create conditions that facilitate predatory behaviours towards insolvent companies with the effect of aggravating the insolvency status.

The case subject to the Supreme Court scrutiny stems from the appeal brought by the former CEO and shareholder of a company subject to a bankruptcy proceedings against the order of the bankruptcy court denying the admission of the 2 million loan he had granted to the company into the list of recoverable liabilities within the aforementioned proceedings. The Supreme Court upheld the decision of the bankruptcy court, which found that the loan, despite interest-free, lacked an “actual entrepreneurial purpose” and “was not part of a reasonable bailout programme” and that, on the contrary, it was granted with the sole purpose of postponing the disclosure of the company’s insolvency and the opening of bankruptcy proceedings.

With this decision, the Supreme Court confirmed its previous approach (decision no. 16706/2020), paving the way for the spread of this interpretative trend among bankruptcy courts and receivers, which may lead to a duplication of risks for the lenders in the event of bankruptcy proceedings:  indeed, the receiver may bring the “classic” claim for compensation for damages and, at the same time, the same receiver may deny repayment of the loan, causing a double loss to the lender.

Authors - Giuseppe Curtò, Federico Rampazzo, Alberto Rocco

Cassazione Civile 4376-2024
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