Under the current trade practice, the letters of patronage are widely used for purposes of warranty. They consist of statements, usually written in epistolary form, issued by the so-called “patronnant” (generally an holding or a parent company), to a bank or another credit company in order to obtain, renew or maintain a loan in favor of the so-called “patron”.

In other words, letter of patronage is an atypical warranty, through which a patronizing company communicates its sinificant influence over the subsidiary, claiming to hold a block of shares, as well as to be interested in maintaining the credit lines granted to the latter company and to be bound not to sell its shares before repayment of debtor’s loan. Therefore the typical function of these statements (contained in the letters of patronage) is not, properly, to ensure patron’s fulfillment – infact the guarantor doesn’t assume the obligation to extinguish subsidiary’s debt –, but to strength the lender’s belief that the patron will fulfill its obbligation.

With the judgment of October 7, 2015 (n. 20107), the Italian Supreme Court of Cassation, focusing on letters of patronage, recently ruled where the granting of this atypical warranty, in favor of a subsidiary, by an insurance company subject to an insolvency procedure allows (or not) to subsidiary’s creditor to participate in the latter insolvency procedure. In particular, it was necessary to establish if such granting of atypical warranty fall within the corporate purpose of the insurance company, or if it is an infringement of Article 5 of Law n. 295/1978, with all consequences concerning the validity of the same letters of patronage. In fact, as known, according to an established case law of the italian Supreme Court of Cassation in Joint Session (see judgment n. 30174/2011), the express “prohibition”, as contained in the second paragraph of the abovementioned Article 5 (“The companies referred to in the preceding paragraph shall limit the corporate purpose of insurance, reinsurance, capitalization and operations inherent in such activities, excluding any other commercial activity”) leads to the nullity of all those acts taken in its violation.

The Italian Supreme Court helds, in relation thereto, that the aforementioned rule aims only to limit the business area of the insurance company (due to prevent that activity takes an incompatible scope respect to specific and typical function of such a business), and not to limit its capacity to act that, therefore, retains its natural extension. In other word: one thing is undertaking business activity in excess of the abovementioned legal limits, another one is making individual and specific acts (such as granting atypical warranty), which in itself does not suggest anyway a specific entrepreneurial activity.

Therefore, it is not forbidden that an insurance company invests in other companies with a different business purpose, especially when it is aimed – as in this case – at keeping capital reserves of which that insurance company needs to carry out its duties. Consequently, the act to provide warranty in itself considered (for example through two letters of patronage), far from constituting an incoherent and incompatible economic activity respect to patronnant’s corporate purpose, is aimed at the preservation of patronnant’s shareholding and, therefore, shares the same purpose of shareholding’s detention.