The distribution of resources in business continuity agreements is under scrutiny due to new legal provisions that enforce the absolute priority rule for liquidation value and relative priority for surplus distribution.
A contentious issue is the definition of 'liquidation value, ' a crucial element for structuring a continuity agreement and attracting third-party investors interested in business acquisitions.
Recent court rulings, such as those from Spoleto, Rome, and Milan, suggest that 'liquidation value' should be the potential realizable value of the debtor's entire estate at the time of the agreement filing.
This value includes the company's assets, non-business assets, liquidity, and potential recoveries from legal actions.
The 'value exceeding liquidation' includes the debtor's assets at the agreement filing and the continuity flows from ongoing operations, net of costs, in direct continuity cases.
In indirect continuity, it includes the potential higher value from selling or leasing the business compared to judicial liquidation.
The Spoleto court clarified that in business leases, the excess value over liquidation should include higher lease payments than those in judicial liquidation.
Lease payments that could be active in judicial liquidation should follow absolute priority.
In indirect continuity agreements with ongoing business leases, only the lease payment surplus is subject to relative priority.
This interpretation aligns with the Insolvency Directive's liquidation comparison and may limit relative priority to cases where business continuation value exceeds liquidation value.
If this interpretation solidifies, only the premium recognized by a buyer or lessee interested in the agreement's success may be distributed under relative priority.