Insolvency proceedings and human rights

In its judgment of 11 January 2018 in the case of Cipolletta v. Italy, the European Court of Human Rights held that there had been a violation of Article 6 § 1 (right to a fair hearing within a reasonable time) of the European Convention on Human Rights and a violation of Article 13 (right to an effective remedy).

The case concerned the length of an Italian “administrative liquidation” (liquidazione coatta amministrativa) proceedings. On 4 July 1985, the applicant (Mr Cipolletta) applied to the liquidator for the admission of his claim. The liquidation of the debtor company’s assets had not been completed by 24 December, 2010. At that time the proceedings were still pending and had thus already lasted more than 25 years.

The Court accepted that the proceedings in question had been particularly complex, but nevertheless considered that the Italian Government had not submitted any argument capable of justifying such a duration.

43. En l’espèce, la Cour note que la procédure a débuté le 4 juillet 1985, date à laquelle le requérant a adressé au commissaire la demande visant l’admission de sa créance. Elle relève que la liquidation des actifs composant le patrimoine de la société débitrice était encore pendante à la date des dernières informations fournies par le requérant (à savoir le 24 décembre 2010 – paragraphe 11 ci-dessus). À cette date, la procédure avait donc duré globalement près de vingt-cinq ans et six mois. Après avoir examiné tous les éléments qui lui ont été soumis, la Cour constate que la procédure en question a été particulièrement complexe, s’agissant notamment du recensement de l’activité économique de la société et de la transformation de chaque créance en liquidité par voie de vente ou de recouvrement. Néanmoins, elle considère que le Gouvernement n’a exposé aucun fait ni argument convaincant pouvant justifier une telle durée.

44. Partant, tout en reconnaissant en l’occurrence la complexité des procédures en matière de faillite, la Cour estime que la durée litigieuse est excessive et qu’elle n’a pas répondu à l’exigence du « délai raisonnable » au sens de l’article 6 § 1 de la Convention (voir, en matière de faillite, De Blasi c. Italie, no 1595/02, §§ 19-35, 5 octobre 2006, Gallucci c. Italie, no 10756/02, §§ 22-30, 12 juin 2007, et Viola et autres c. Italie, n7842/02, §§ 58-63, 8 janvier 2008)

In his concurring opinion, Judge Kosleko formulates the following interesting remarks about the nature and duration of insolvency proceedings, which can indeed not be considered as ordinary civil proceedings.

2. Insolvency proceedings are, in some key respects, different from most other kinds of proceedings within the purview of Article 6.
3. Firstly, the role and involvement of courts in such proceedings is usually more limited than in other types of civil proceedings. Although certain stages of insolvency proceedings take place before the competent courts and depend on judicial determinations and decisions, the courts, or other State authorities for that matter, are usually not in charge of other, crucial stages of such proceedings. In most cases, the liquidator or administrator who is responsible for managing the resolution of the insolvency is a private practitioner entrusted with the task of acting in the collective interest of the creditors. Although appointed by the competent court and subject to some form and degree of supervision, the liquidator or administrator is typically not an agent of the State but a trustee of the body of creditors. This has also been acknowledged by the Court – in the context of a complaint under Article 1 of Protocol No. 1 – in Kotov v. Russia [GC], no. 54522/00, §§ 99-107, 3 April 2012.
4. Secondly, the basic character of insolvency proceedings distinguishes them from most other kinds of civil proceedings in terms of their aim. Insolvency proceedings exist in different forms, as collective mechanisms for the enforcement of the totality of claims against a debtor, either through liquidation of the insolvent debtor’s assets, or through the reorganisation of corporate debtors finding themselves in financial distress, or through the rehabilitation of over-indebted individuals. Regardless of the type of insolvency proceedings, a common feature of such proceedings is that they are not only, or even mainly, concerned with the adjudication of disputes but with the overall resolution of complex situations arising from a debtor’s financial crisis, aimed at an outcome which is in the best interests of the stakeholders, in particular of the various classes of creditors.
5. Because of these special features, it would be a grave mistake to apply Article 6 in the context of insolvency proceedings as if such proceedings could be assimilated with other, ordinary kinds of adjudication proceedings. It is necessary to take into account the particular characteristics and aims of insolvency proceedings.
6. While both the opening and the closure of insolvency proceedings will usually require the involvement of courts, and even if issues may arise in the context of such proceedings which require the adjudication of disputes – for instance in determining the validity, amount or legal status of claims against the debtor or the enforceability of certain pre-insolvency transactions – the duration of the insolvency proceedings does not only depend on the time taken by those stages which take place before the courts. The overall duration of such proceedings, that is the period between the opening and the closure of the proceedings, is very much dependent on the time required by the actual liquidation, reorganisation or rehabilitation measures. The whole process is guided by the aim of achieving optimal results from the point of view of satisfying the creditors. This in turn may require measures over a long period of time. In this context, rapid action may not be the best option for reaching an optimal economic outcome for the creditors; in insolvency proceedings, fast resolution is not necessarily the best resolution. Thus, unlike in most other kinds of proceedings, a lengthy overall duration of the process of resolution may sometimes be well justified by the purpose of the proceedings and the best interests of the creditors. Obviously, this must be determined in the light of the circumstances of each case.
7. For these reasons, the time aspects of insolvency proceedings require special considerations to be taken into account, both in terms of the extent to which the duration can be attributable to the State at all, and in terms of the standards by which the reasonableness of the duration must be assessed, bearing in mind the nature and purpose of those proceedings. These specificities need to be borne in mind when assessing whether and how the responsibility of the State is engaged under the timeliness requirement enshrined in Article 6.

With respect to the violation of Article 13 (right to an effective remedy), the Court held that there had also been a violation on account of the lack of a remedy in domestic law by which Mr Cipolletta could assert his right to have his case heard within a reasonable time as guaranteed by Article 6 § 1.

The Cipolletta-judgment serves as a reminder of the influence of human rights on insolvency proceedings.


Author: Arie Van Hoe

Arie Van Hoe, Head of Legal VBO-FEB, voluntary scientific collaborator (University of Antwerp)

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