Collection of a Commercial Claim by a Company Successor of the Debtor due to the Transfer of an Industrial Plant

Critical points:

The case involved the collection of a claim by a company operating in the dairy industry against its client company that sold finished goods. The supplier company had already succeeded in obtaining a payment order in 2012 for claims it held against its client from cheques it had delivered to it. However, the client company had gone out of business, owed large sums of money to several creditors and the auction of the only asset held by its personally liable partners was constantly cancelled by the failure of bidders to appear.

The proper support of the case led to a judgment recognising that the debtor had transferred the major part of its assets to a new company with the mother of the original debtor's partners as legal representative and, therefore, the new company was jointly liable with the old one for the repayment of the debt.

Background

A general partnership active in the dairy industry supplied dairy products to its client which produced and sold the final product. However, cheques delivered to the supplier company in lieu of payment of the price for the supply of the products were not paid in 2012 and were subsequently cancelled and the supplier obtained a payment order for an amount of approximately EUR 150 000. However, the debtor company had no assets, owed large sums of money to its creditors, while at the same time the sole asset of the personally liable partners of the debtor was multiply encumbered with mortgage notes for the amount of EUR 1,000,000 and its auction was constantly cancelled due to the non-appearance of bidders. The question therefore arose as to how the supplier could, in the above circumstances, satisfy its claim. At the same time, a limited liability company (LLC) had already been established in 2011 with the mother of the partners of the debtor company as its legal representative, and a year later the operating licences of the cheese dairy were transferred to the company, in order to continue in practice the activity of the debtor company. The LLC used the same premises, had the mother of the debtor's partners as its legal representative, even used the same telephone numbers as the debtor, while declaring to the competent authorities that it was a 'continuation of the business' of the debtor company under a new entity.

Strategy

The key points for the successful outcome of the case were as follows:

• Thorough investigation, first of all through the data posted on the internet, led to the interconnection of the debtor company with the successor limited liability company, thus raising the issue of the application of Article 479 CC, which provides that in the case of a transfer of property or business, both the transferor of the property or business and the transferee are cumulatively liable to the creditor.
• The most crucial element was the gathering of the evidence necessary to prove that there was a transfer of an undertaking in this case. The evidence was gathered from documents provided by the principals, by searching online platforms and by obtaining documents from the competent authorities following the issuance of prosecution orders. Thus, documents were gathered certifying that there was a transfer of the operating license of the industrial property to the LLC and in which there was also an admission of the continuation of the operation of the business under the new entity.
• The proper processing and utilization of the evidence presented to the court by the opposing party. The opposing party submitted lease agreements for both the premises and the equipment, which showed that the rent was particularly low in relation to the value of the property and equipment leased, which indicated that the contracts in question were fictitious.

Result

The supplying company brought an action before the competent court on the legal basis of the provision of Article 479 of the Civil Code, which provides that when a person transfers all or the most important elements of his property or business to another person, a parallel liability arises for both the transferor and the transferee. The evidence submitted before the court showed the personal relationship between the partners of the two companies, the common object of their activities, the use by the LLC of the debtor's property and equipment for a very low rent, the transfer of all the necessary licences to the new company and, finally, the interconnection of the two companies.

The judgment states, inter alia: '...with the private lease agreement of 14/6/2011, the above company, with the consent of the owners of the property, subleased the property to the defendant at a monthly rent of EUR 158, while the existing equipment of the company [...] (i.e. the equipment of the company [...] already present in the property was also leased to the defendant, for a total value of EUR 417 290,99 for a rent of EUR 526 per quarter, i.e. EUR 175,33 per month. From all of the above and in particular from the family relationship of the sole partner of the defendant company with the partners of [...] (i.e. the debtor), i.e. their mother, from the fact that with the above lease agreement of 14/6/20111 a property of 7,920.95 sq.m. was leased for the amount of 158 euros per month and even six years from the previous lease without any revaluation, as well as equipment with a total value of 417. 290.99 euros, for a monthly rent of 175.33 euros, which in no way corresponds to the value of the equipment, and the fact that the sole partner of the defendant limited liability company itself stated that the company is a continuation of the previous business maintained by her children, in the same place and with the same equipment, leads to the conclusion that the above lease agreement of 14/6/2011 was never validly drawn up by the parties, but was fictitiously [... ] It has therefore been established that there is indeed a transfer of property in the present case, concealed under the pretext of a fictitious lease, and therefore a statutorily compulsory cumulative assumption of debts within the meaning of Article 477 of the Civil Code is established, thus creating a joint and several liability between the transferor and the transferee'. This decision was subsequently upheld by the Court of Appeal, following an appeal by the LLC.

Conclusion

Particularly in times of financial distress, many entrepreneurs make the choice to transfer their business to another entity in order to avoid meeting their obligations. In this way, the creditor, while having a title in his hands, is often unable to satisfy his claim because the debtor not only has no assets, but has also ceased trading. In such cases, a careful examination of the evidence may lead to a link between the debtor and the new entity carrying on its business, in which case the procedure described above is a one-way street for the creditor in order to satisfy its claim.