NEGOTIATED SETTLEMENT: IF THE EXPERT HAS ACCEPTED THE ASSIGNMENT AND INITIALLY CONSIDERED THE PROSPECTS FOR RECOVERY TO BE CONCRETE, CAN THE ENTREPRENEUR CONDUCT DIRECT AND EXCLUSIVE NEGOTIATIONS WITH CREDITORS?
The Court of Milan recently rejected a request for the extension of the protective measures previously confirmed in favour of a company within a negotiated settlement procedure, with a very well-reasoned ruling that helps to clarify what the debtor’s behaviour should be during the settlement and what the role of the appointed expert should be.
By order of 14 May 2022, the Court of Milan, following the hearing for the possible extension of the protective measures of the company’s assets previously requested by a company pursuant to Articles 6 and 7 of the new Law Decree. 118/2021 (converted into Law 147/2021) and confirmed by the Court for the maximum term of 120 days, rejected the request for extension for various reasons, mainly concerning the incorrect way in which the entrepreneur had carried out negotiations with creditors, and the emergence of critical issues such as to exclude the instrumentality of the measures to the successful outcome of the negotiations and serious deficiencies in the information provided by the debtor in support of the request for extension.
The order is of particular interest because, in the articulated argumentation, the Court of Milan provides useful indications on the duties of the parties (and of the entrepreneur, in particular) during the negotiations, and on the essential role of the expert in the course of the procedure initiated, specifying to what extent properly conducted negotiations, and adequate information for the benefit of the expert, shall impact on whether or not the extension of the protective measures initially confirmed will be granted, and more generally, on the actual feasibility of the reorganisation envisaged at the beginning by the debtor.
It is useful to recall, preliminarily, that pursuant to article 4 of Decree No. 118 converted into Law No. 147 (art. 16 of the Crisis Code in force as from 15 July 2022), once a negotiated settlement procedure has been entered into, “During negotiations, the parties shall conduct themselves in good faith and fairness” and “The entrepreneur has the duty to represent his situation to the expert, creditors and other interested parties in a complete and transparent manner and manage the assets and the business without unfairly prejudicing the interests of creditors“. Moreover, it is worth mentioning that, in the same article, according to the wording that should have been adopted in the recent legislative decree on the amendments to the Crisis Code that will enter into force on 15 July 2022 (decree approved by the Council of Ministers on 15 June 2022), the expert, in performing the assignment, “shall verify the overall consistency of the information provided by the entrepreneur by asking him and the creditors for any further useful or necessary information“.
For the purposes hereof, with regard to the expert’s specific duties, it should also be recalled , that the latter, having communicated his acceptance of the appointment, having obtained information from the supervisory body and the statutory auditor and having heard the entrepreneur, pursuant to Article 5 of Decree No. 118 converted into Law No. 147 (Article 17 of the Crisis Code in force as from 15 July 2022), must “assess the existence of a concrete prospect of reorganisation” and, failing to find any prospect whatsoever, “even at a later time” (it is a verification that, therefore, must be carried out both at the beginning and throughout the settlement), “shall notify the entrepreneur and the secretary of the chamber of commerce who shall order the dismissal” of the negotiated settlement.
In the case submitted to the attention of the Court of Milan, the petitioner had obtained the confirmation of the protective measures because, on the basis of what was initially represented, “an effective, concrete and reasonable pursuit of reorganisation” had been deemed to exist (also by the expert) and had “recognised the instrumentality of the protective measures to the success of the negotiations with the creditors“.
Subsequently, the entrepreneur had asked for the extension of the existing protective measures, representing, in a nutshell, that he was finalising the reorganisation plan, “planning” a business leasing operation and “exploring the possibility of reaching a settlement of the debt positions with the proposal of a partial payment of his creditors“. He even indicated that he had “proposed a settlement” to the banks and that he was “in negotiations to obtain an extension of the repayment plan“.
With regard to the application, the expert and creditors adopted a very strong negative position.
The former expressed an unfavourable opinion on the granting of the extension by the Court, pointing out serious criticalities, first of which was the circumstance of having been totally excluded from the above-mentioned discussions between the entrepreneur and the creditors, and therefore not having been able to verify and share, or participate in, any of the initiatives undertaken independently by the entrepreneur following the opening of the negotiated settlement. He also complained about a severely inadequate flow of information from the entrepreneur, who had belatedly provided few and deficient documents concerning the planned reorganisation, the envisaged extraordinary operation and the modalities of implementation of the desired write-offs. Finally, he expressed a negative opinion on the outcome of the analysis of the coherence of the plan, concluding that the extension of the existing protective measures was essentially useless.
All the creditors expressed doubts and some of them confirmed the entrepreneur’s non-involvement of the expert in the conversations that had taken place and emphasised that they considered the petitioner’s behaviour dilatory and did not see any concrete prospect of a successful outcome to the negotiations.
Well, in light of the expert’s opinion and the creditors’ representations, the Court of Milan ultimately rejected the application for the extension of the measures because it found that the entrepreneur had breached his duty of good faith, clarity, fairness and cooperation towards the expert and the creditors, having behaved in a manner contrary to the proper pursuit of the negotiated settlement. It also stigmatised the numerous critical aspects highlighted by the expert regarding the effective pursuit of the company’s reorganisation goal. In addition to the inadequacies noted, it also considered the documents provided by the entrepreneur to be late only after the application for extension of the measures. Lastly, it expressed its support for the notion according to which, in the case of an extension (unlike in the case of confirmation of the measures), the debtor’s petition should be supported by the generality of the creditors or, in any event, their non-opposition, even by implicit consent, which was not the case in this instance (six creditors had firmly disagreed with the granting of the extension).
In practice, in this case, there was no coherent industrial, financial and reorganisation plan, no real negotiations between the parties, no concrete evidence of the above-mentioned discussions with the party interested in leasing the business and no complete, reliable and up-to-date information enabling the expert to verify the continued existence of the concrete prospect of the company’s recovery.
The Court of Milan, in reflecting upon the debtor’s initiatives that differed from the rules governing the conduct to be adopted in the settlement procedure, also clearly recalled that this protected course of action, unlike what had occurred in this case, cannot take place without any third-party and impartial control and, above all, without the expert’s necessary mediation and facilitation.
THE PRINCIPLE OF EQUIVALENCE IN PUBLIC TENDERS: THE INTERESTED PARTY HAS THE BURDEN TO PROVE IT AND THE CONTRACTING AUTHORITY HAS THE OBLIGATION TO EVALUATE IT.
The Council of State, Section III, with its judgement No. 65 of 7 January 2022, returned once again on the subject and has clarified some important points regarding the application prerequisites and the binding effects on contracting authorities.
The “principle of equivalence” (of EU origin under Art. 42 of Directive 2014/24/EU) was implemented by the legislator in the Code of Contracts (Legislative Decree No. 50/2016) in Article 68 paragraphs 1 and 4, with which it states that “characteristics required for public works, services and supplies” are defined by the contracting authority by means of the identification of “technical specifications” included in the tender documents (Art. 68, paragraph 1), in compliance with the pro-competitive fee that guarantees in any case the “equal access of economic operators to the award procedure” without involving “directly or indirectly unjustified obstacles to opening public procurement to competition” (Art. 68, paragraph 4) or generating artificial or discriminatory restrictions to access the market for the purpose of undue benefit or disadvantage to certain economic operators”. In other terms, it is established that the contracting authority may not exclude an offer because it does not comply with the technical specifications it had referred to, if the product offered is not “aliud pro alio“, since a competitor wishing to present a product (or service) equivalent to the one requested encounters the sole limitation of the “dissimilarity of the item with respect to the one described by the lex specialis”, constituting a hypothesis of “aliud pro alio not remediable” (Council of State, Sect. V, 25 July 2019, no. 5258).
Therefore in this respect, the aforesaid principle is aimed at avoiding an unreasonable limitation of the competitive comparison between economic operators, to the extent that administrative jurisprudence has repeatedly reiterated how the principle of equivalence permeates the entire discipline of public evidence, given that the possibility of admitting products to the comparison having technical specifications equivalent to those required, for the purpose of selecting the best offer, equates to, on the one hand, a constitutional principle of impartiality and good performance and freedom of economic initiative and, on the other, a Euro-unitary principle of competition. Such principles are seen as a consequence of the favor partecipationis in public tenders, by means of a legitimate exercise of technical discretion by the administration according to criteria of reasonableness and proportionality. With the principle of equivalence, it is possible to admit tenders whose subject matter substantially corresponds to the one requested and yet formally lacks the prescribed specification (among others: Council of State, Sect. IV, 7 June 2021, no. 4353).
The Council of State, with its judgement No. 65 of 7 January 2022, has clarified the application prerequisites and the binding effects on contracting authorities.
First of all, it was reiterated that the lex specialis shall expressly provide for the applicability of the principle in question, and once the equivalence of the product offered to that indicated in the tender law has been established in general terms, it is up to the interested party to prove such equivalence, while it is the obligation of the contracting authority to evaluate the actual existence of the equivalence adopted by the competitor. Nonetheless, it has been specified that when the tender documentation requires products commonly available on the market and commonly used, when accompanied by a technical data sheet clearly explaining characteristics and qualities, the tender committee may autonomously evaluate whether, despite the dissimilarity to what is required by the tender law, the item offered may nevertheless be considered equivalent. In other terms, according to the Council of State, the type of the item envisaged in the tender procedure must be assessed concretely according to its actual complexity.
Secondly, the judgment reiterates a further principle concerning the significance of the report of the court -appointed technical consultant in administrative proceedings. In this perspective, it should be noted that the evaluations expressed by the appointed consultants are not binding for the judge, who may legitimately disregard them by means of a critical evaluation that is, however, based on the results of the proceedings and is adequately and logically motivated.
The Council of State reiterates the principle according to which the judge is peritus peritorum, however, if the adjudicating body decides to deviate from the findings of the appointed experts, it must in particular, indicate the elements it used to deem unacceptable the arguments on which the verifier (or consultant) based himself, i.e. the evidence, the evaluation criteria and the logical-legal arguments to reach a decision that differs from the opinion of said consultant.
A RECORD CONVICTION FOR A FORMER COCA COLA EMPLOYEE FOR TRADE SECRETS THEFT IN THE US.
On May 9th, 2022, a federal judge in Greeneville, Tennessee, sentenced a Michigan woman, known as Xiarong You, to 168 months in prison, the equivalent of 14 years, for trade secret theft, economic espionage and fraud. The defendant was also ordered to serve three years of supervised release and pay a $200,000 fine.
According to court documents and evidence presented at trial, Xiarong You allegedly stole valuable trade secrets related to formulations for bisphenol-A (BPA)-free coatings, a substance generally applied inside beverage cans and food containers to minimise flavour loss and prevent the container from corroding or reacting with the food or beverage contained therein. However, many corporations have begun experimenting with alternatives to the above substance due to proven health risks for humans.
The trial focused not only on the conduct of the former employee, but also on the security measures put in place by Coca-Cola and Eastman Chemical Company, respectively, in order to protect their confidential information.
In particular, from December 2012 to August 2017, Xiarong You was employed as Principal Engineer for Global Research at Coca-Cola, the latter having entered into agreements with several companies for the purpose of research and development, testing, analysis and review of multiple “BPA-free” technologies.
Due to her considerable education and experience within the field, Xiarong You was one of the few Coca-Cola employees with access to trade secrets relating to the development of BPA-free products belonging to major chemical and coating companies including Akzo-Nobel, BASF, Dow Chemical, PPG, Toyochem and Sherwin Williams.
Subsequently, at the turn of 2017 and 2018, Xiarong You served as Packaging Application Development Manager at Eastman Chemical Company in Kingsport, Tennessee, where she was one of a limited number of employees with access to trade secrets belonging to Eastman.
The indictment states that the development of such secrets cost the companies an estimated $120 million, and Xiarong You stole the confidential information using two methods: by uploading files to her personal Google Drive account and by taking screenshots of the sensitive data displayed on her PC screen. The stolen information was then stored on an external storage drive.
Xiarong You’s conviction is not an isolated case as espionage by former employees is on the increase. In order to cope with such phenomena, companies engaged in the R&D of large trade secrets portfolios are called to implement appropriate security measures aimed at preventing unlawful misappropriation and unauthorised disclosure of the confidential information in their possession.
In the case at hand, Coca-Cola and Eastman Chemical Company had restricted access to trade secret formulas for BPA-free products to a small number of employees. Nevertheless, Xiarong You was able to access such information indiscriminately, being one of the few individuals being authorised to do so.
Hence, corporations should only allow access to their sensitive data exclusively by means of company devices. Furthermore, it is considered as good practice to prevent, for instance, the installation of additional software and/or applications, as well as monitoring access to certain addresses through the adoption of specific whitelists.
Conclusively, companies shall preserve their investments through the development and subsequent implementation of appropriate security and preventive measures aimed at safeguarding, as far as possible, trade secrets, confidential information, and sensitive data, together with spreading a corporate culture that allows employees to quickly provide effective measures that counteract potential violations of such fundamental corporate assets.
COMPLIANCE OBLIGATIONS RELATED TO VIDEO-SURVEILLANCE SYSTEMS.
The design and the installation of a video surveillance system in Italy is often carried out without complying with data protection regulations, thus exposing companies to fines that can amount to several million euros.
The most important rules on video surveillance are prescribed in general by the General Data Protection Regulation (EU Regulation 2016/679 or “GDPR“), the Privacy Code in particular, Legislative Decree 196/2003 as amended by Legislative Decree 101/2018, and integrated by the guidelines provided by the Data Protection Authority (“Garante privacy“).
The fulfilments concern the display of an information sign that shall indicate, in a clear and transparent way, the presence of cameras, in a given area, together with the indispensable information required by law (among these, data retention, data controller and purpose of processing).
In addition, in order to achieve an adequate level of compliance with the law provisions, it is advisable to have internal regulations, a compliant system and a suitable legal basis for the installation of a video surveillance system.
Unfortunately, reality often shows the complete absence of such signs or the presence of signs lacking the necessary details effectively depriving those concerned of the right to receive the minimum information required by law.
The importance of proper compliance of video-surveillance systems is evidenced by the intervention of the European Data Protection Board (‘EDPB’), which issued guidelines 3/2019, and by the fact that more than 15% of privacy sanctions concern video-surveillance systems.
In conclusion, installing and operating a non-compliant video surveillance system exposes the various economic operators to considerable economic risks as well as reputational damage.
NOTIFICATION OF TAX ACTS. ONLINE METHODS SPREAD OUT IN THE TAX AREA.
Easier, faster, more secure notifications with the digital platform managed by PagoPa. The new instrument- established by the Budget Law 2020 (Article 1, Paragraph 402 of Law No. 160 of 2019) and governed by Article 26 of Decree Law No. 76/2020- can be used by all public administrations, including tax officials and other entities in charge of the assessment and collection of taxes and other incomes on behalf of local authorities. In a nutshell, very soon, the public administration will be able to send legally binding, acts, measures, notices and communications to physical or legal subjects, entities associations and other public or private organizations, including those related to tax issues.
However, the use of the digital procedure, which is also valid for tax documents, at this first stage represents an option and not an obligation for the public administration.
Last June 21, 2022, in fact, the regulation of the digital platform came into force, but for the full implementation it will be necessary to wait for the conclusion of the tests and the monitoring of its functioning, and a special working group has been created at the Digital Transformation Department of the Presidency of the Council of Ministers, in which representatives of the central administrations, of the Regions and Autonomous Provinces, Anci of Upi and the platform operator take part.
The operation procedures are set out in Dpcm No. 58/2022 published in the Official Gazette No. 130 of June 6, 2022 and in force, specifically, from June 21. The access will be granted, both for citizens and public administrations, through Spid or Electronic Identity Card. It is also envisaged that specific agents can be delegated to manage for the acquisition of the notified documents, with the exclusion of judicial acts.
Summarising, PagoPa sends the addressee via certified email (“PEC”) a notice informing him of the existence of the document, also providing the procedures for accessing the platform and acquiring the document being notified.
The first notification is served at the digital domicile elected by the addressee, secondly at the special domicile (if any). Lastly at the “general digital domicile,” i.e., the address entered in one of the lists of Electronic certified emails of professionals, Public Administration or citizens provided for by the Digital Administration Code.
The platform allows the addressee who logs on it to track, consult, and acquire the notified computerized documents. For each notification, the platform allows to visualize: the sender, the date and time the document was made available on the platform, the document notified, the history of the notification process, including documents that may be opposed to third parties and notices of non-delivery, and unique notification identification code (“IUN”). The addressee will be able to activate a messaging service, which through the application IO (“appIO”), allows the addressee to receive courtesy notices sent by the platform operator containing the same information as the notice of receipt.
In the event that the addressee does not have a digital address, the acknowledgement receipt will be sent by registered mail with return receipt indicating the sender, the IUN, instructions to access the platform and to obtain a hard copy.
It should be underlined that the following cannot be notified through the digital platform: acts relating to civil, criminal, preventive measures enforcement, administrative, tax and accounting proceedings and related communications; acts of forced expropriation proceedings (Presidential Decree No. 602/1973); acts of proceedings under the jurisdiction of provincial public security authorities relating to public manifestations, personal and property preventive measures, authorizations and other measures with enabling content, residence, expulsion and removal from the national territory of foreigners and EU citizens.
Hence, some people will say finally, it’s about time! No more registered letters! …. Others, more affectionate to paper and tradition, will instead greet with nostalgia the abandoning of registered mail…. the fact remains that we live in the age of technological progress, and the hope is that the new technologies will facilitate the not always amicable relations between taxpayers and the Tax Administration…
DISCLAIMER: This newsletter merely provides general information and does not constitute legal advice of any kind from Macchi di Cellere Gangemi. The newsletter does not replace individual legal consultation. Macchi di Cellere Gangemi assumes no liability whatsoever for the content and correctness of the newsletter.
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