Qualification of a Transfer of a Business as Going Concern

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15 Maggio 2014
Recently the Italian Supreme Court (Labour Department) ruled, with decision no. 8756 of April 15, 2014, on a transfer of business, specifically concerning the elements that qualify the transfer of a part of a business as a going concern and not simply as a sale of individual assets.

As a preliminary consideration the Court traced back previous jurisprudence concerning section 2112 of the Italian Civil Code, according to which the transfer of a going concern must consist of tangible assets, having an independent function aimed at carrying out the same business, or structures oriented to this purpose.

Then the Court stated that, even if a going concern (or a part of it) were constituted by intangible assets, it nevertheless could not be limited to those assets.

Indeed, the same definition of “going concern” pursuant to section 2555 of the Italian Civil Code is grounded on the necessity for an aggregate of assets/properties, organized by an entrepreneur in order to manage a business, to also include physical structures (in addition to intangible assets), as far as the same are not significant.

In addition to the above, the Supreme Court clarified that, even where the intangible assets prevail and constitute the main part of the business, in order to avoid the qualification of the deal as a mere transfer of employees, the same business must involve the stable organization and coordination of employees, who are able, through specific know-how, to carry out the necessary activities to run the business being provided ,or by the use of copyrights, patents, trade marks, or other means.

Furthermore, the Court explained that, by virtue of section 2112 of the Italian Civil Code, the subject of the transfer should be deemed as an independent line of business, and therefore suitable to be transferred. This implies any economic entity which is organized in a stable way and which would be able to maintain its identity after the transfer.

However, this circumstance assumes a preexisting productive entity functionally independent and not a productive entity created exclusively in view of the prospective transfer of business.

In light of the above, the Court decided that the transfer of business submitted to its judgment had to  qualify as the transfer of a service along with some of the employees in charge of such service, and not as the transfer of a going concern. As a consequence, such a transfer would be deemed unenforceable by virtue of the employee being party to the dispute. The relevant employment relationship would have to continue between the initial parties and not with the assignee.

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