The case, explained
Relative Priority Rule in Composition with Creditors: the Cassation Turning Point
5 min read · Updated July 2026 · Editorial oversight: Avv. Federico Papa
The legal framework governing composition with creditors reached a major milestone with a recent decision by the Court of Cassation, which defined the criteria for applying the Relative Priority Rule (RPR). As noted by specialized commentators in recent years, the transition from the rigid hierarchy of absolute priority to the flexibility of relative priority represents the core of the reform aimed at preserving business continuity and safeguarding employment. In the following sections, we analyze how the distinction between liquidation value and continuity surplus has become pivotal to the legal feasibility of restructuring plans. By reconstructing the regulatory framework and recent lower-court case law, this article clarifies the boundaries within which a debtor may depart from the traditional order of priority. Finally, we present an illustrative twin case to demonstrate the practical application of these complex legal and financial principles.
In brief
This article examines the evolution of the Relative Priority Rule (RPR) in compositions with creditors following the recent ruling of the Court of Cassation. It analyzes the distinction between liquidation value, subject to absolute priority, and continuity surplus, distributable under relative priority. The article delves into the debtor's disclosure obligations and the dynamic valuation criteria for business assets, offering operational guidance through an illustrative case study and an analysis of the potential outcomes of cross-class cram-down.
The facts
The matter stems from several appeals during the confirmation of concordati preventivi in continuity, culminating in a recent Court of Cassation decision. According to reports from specialized outlets such as Diritto e Giustizia and Il Sole 24 Ore, the Supreme Court intervened to resolve conflicts arising in lower courts regarding the determination of liquidation value.
Previously, in various first-instance proceedings, judges had rejected proposals because the debtor had underestimated the value of assets in a forced sale to artificially inflate the surplus distributable via the RPR. The Cassation, in the interest of the law, has thus established a firm boundary for the protection of dissenting privileged creditors.
The legal framework
The core legal framework is set out in the Code of Business Crisis and Insolvency (CCII). Article 84, paragraph 5, imposes the Absolute Priority Rule (APR) regarding the liquidation value: senior creditors must be paid in full before any distribution can be made to junior creditors.
However, Article 84, paragraph 6, introduces the Relative Priority Rule (RPR) for the plusvalore generated by business continuity. Finally, Article 112 governs the cram-down, granting the court the power to confirm the plan even against the dissenting vote of certain classes, provided that the RPR criteria are mathematically respected.
What the case law says
Established case law has determined that the RPR is not a "blank check" for the debtor. Courts have clarified that the continuity plusvalore is a residual concept: privileged creditors must first be guaranteed what they would receive in an efficient judicial liquidation.
Case law has also specified that external finance provided by third parties or shareholders can be distributed with greater flexibility. Finally, the failure to disclose received purchase offers renders the proposal inadmissible for lack of transparency, preventing creditors from casting an informed vote.
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Lessons for professionals
- The valuation of liquidation value must incorporate realistic scenarios of unitary business sales.
- Applying the RPR does not allow for bypassing privileged creditors regarding the asset's liquidation value.
- Any expressions of interest or purchase offers must be explicitly documented in the report of the independent professional.
- Providing external finance remains a highly effective mechanism to complement creditor distributions and navigate APR requirements without encountering inadmissibility rulings.
References: Art. 84 CCIIArt. 87 CCIIArt. 112 CCIIArt. 2741 c.c.
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Frequently asked questions
Do privileged creditors always have to be paid 100%?
No. If the liquidation value of the assets subject to a privilege or security interest is lower than the total debt, the claim may be satisfied partially up to that value (APR); the remaining unsecured portion of the claim is then treated under the relative priority rule (RPR).
What is the continuity surplus in the composition?
It is the incremental value generated by continuing business operations compared to the proceeds obtainable through a piecemeal judicial liquidation. This surplus can be distributed among creditor classes in departure from the strict absolute priority rule, provided the RPR criteria are satisfied.
What happens if the debtor hides a purchase offer?
The composition proposal risks being declared inadmissible or revoked for lack of truthfulness and transparency. Case law requires asset valuations to account for binding or concrete purchase offers, preventing artificial suppression of liquidation values to the detriment of creditors.
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