CORRESPONDENCE 449
80. TEE CO-AGENT OF TEE UNITED STAm OF AMERlCATO THEREGlSTRAR
27 February 1989.
Pursuant to Article 56 of the Rules of the Court, the United States submits
the attached document' so that it may be referred to by Mr. Lawrence this
afternoon at the hearing in the case concerning ElerrronicaSiculaS.P.A. (ELSI).
The document is a set of 19 pages comprising a list of the accounts receivahle
from customers of ELSl at 22 April 1968.The English translation of the title
appearing on the first page is: "List of Customers and their RespectiveAmounts
Due as of 22 April 1968."
1certify that the attached constitutes a true coov of a document adduced in
support of the contentions contained in the US pkadings.
Copies of this document have been provided to the Respondent
81. THE CO-AGENT OF THE UNITED STATESOF AMERlCA TO THE REGISTRAR
27 February 1989
Enclosed are the written answers to the questions posed by the Court to the
United States this moroing and on 23 February in the case concerning Eletfronica
SiculaSq. A. (ELSI).
Enclosure:As stated
Applicant'sAnswers ro Questions of27 February1989
Questionof Judge Schu,ebelz
In the process of the exhaustion of local remedies, did ELSI rely on the Treaty
and Supplement at any point? If not, why not? And, in so far as this is within
the knowledgeof the Applicant, did the trustee in bankruptcy, in his legalactions,
invoke the Treaty and Supplemeiit? If, as far as can be ascertained, the Treaty
and Supplement were not invoked before ltalian jurisdictions, what follows, if
anything?
Questionof Judge Oda3
1would like to add iust a suoolementarv auestion Io the United States for
clarification. The questioiis wheth& the attomey of Raytheon-ELSI, before the
District Court of Palermo in 1969,the Court of Appeals of Palermo in 1973,and
' No1 reproduced.
See p. 291supra.
See p. 312supra. CORRESPONDENCE 451
payment by ELSI's stockholders on those loans pending settlement - is that a
correct formulation of what the United States is contending on this point?
Answer
It is our contention that buyers could have heen found on the hasis indicated.
Under the orderly liquidation plan, ELSI's business would havebeen disposed
of either as a singleoperation or as a series of product lines. A purchaser would
have acquired only ELSl's assets, including its goodwill, leaving the liabilities
behind. This would havegreatly increased the attractiveness of the purchase from
the point of viewof the purchaser. The proceeds of the disposal would have been
available to pay of the liabilities.
QuestionofJudge Schwebel'
1would liketo ask you, as counsel, the following: it was stated that ELSI had
in fact applied for Mezzogiorno benefits.Can the Applicant provide documentary
support for this statement?
Answer
The fact of ELSi's claim, and resuhmission of its claim, for reimbursement of
300 million lireunder the ltalian "Mezzogiorno Investment Plan" is referred to
in to the affidavitof Joseph A. Scopelliti, Memorial, Annex 17,Exhibit A, p. IO2.
MI. Clare also attested to the efforts of ELSI's counsel,MI. Bianchi, to secure
the Mezzogiorno benefits to which ELSl was entitled (pp. 58-59,supra).
Raytbeon and Machlett do not have possession of the administrative claim for
Mezzogiorno benefits.The documentation of this claim was most likelywith the
other ELSl records that were seized bythe Respondent when it requisitioned the
plant.
QuestionofJudge Schwebe13
Could the Applicant tell the Court, or supply to the Court, figureson the total
sales and profits of Raytheon and its subsidiaries worldwide for the years 1967
and 1968? And in that regard it would be helpful, if it is feasible, to indicate
where among the electronic manufacturers of the world in those years Raytheon
ranked.
Answer
According to information filed with the Secunties and Exchange Commission
by Raytheon in respect of the year ended 31 December 1968,the consolidated
sales of Raytheon for the years 1967 and 1968 were $1,106,049,000 and
$1,157,963,000respectively.Net income was $28,602,000and $29,569,000,respec-
tively.
This information is found at Rejoinder, Annex 244, pp. 12 (1968) and 43
(1967).
' See p.299,supra.
1,pp. 193-194.
' Sec p.299,supra.
Not reproduced.452 ELETTRONICA SlCULA
In 1968Raytheon would probably have been among the top ten US companies
in the electronics sector, worldwide.
Questionof Judge Ruda'
In the course of the pleading of the ltalian delegation, they have maintained
that Raytheon charged ELSl for the patents, licences, and technical assistance
given; and they Saythat ELSl had to pay a lot of money to Raytheon for this
assistance. In your statement, Ms Chandler, you said that Raytheon had decided,
in the liquidation, to provide these licences, these patents, and this technical
assistance to the new buyer of the whole business or the buyer of the product
lines. My question is: was Raytheon going to charge the new buyers the same
amount as they had previously charged ELSI?
Answer
Raytheon and Machlett had set relatively low technical assistance and royalty
rates for ELSI in order to be heloful to ELSI. In the case of oros~ectivebuvers.
R~ytheon uould have rxpected io negotiatc a iolal parkagc',ncluding roy3lrics
and iechniial assistance iogethçr with the harc pnu on icrms agrceable IO both
buyer and seller
Questionof Judge Ruda2
On 28 March dismissal letters were sent to some 800 workers. if 1remember
si,rrcstly. H<iwmuch wÿs the amount or moncy. In Iialian lm. ihat ELSl uould
haie ha3 10 piiy.according io the labour law ofIiÿly, for the dismissal of rhesc
workers?
The balance sheet at 31 March 1968shows a reserve for severancepay of 584.9
million lire. Webelievethat this reserve wasadequate to cover al1of the workers.
We believe that 510 million lire would have been adequate to cover the 800
workers who were dismissed.
If the 510million lire. for anv reason. oroved inadeauate to fullv satisfv ltalian
lahor law requirements,'~aythéonwoul'd'haveincrease'dits fundini of théliquida-
tion program to take care of any shortfall.
Questionof JudgeJennings3
1 have a simple question of fact - 1 am no1 sure whether it is addressed to
Professor Bisconti or to the United States delegation, probably the United States
delegation willdecide how the question should be answered and when. It is simply
this: did ELSI sueceed in selling any of ils assets in pursuance of the orderly
liquidation before the requisition intervened in the process, or, indeed, did it
manage to seIlany of ils assets after the requisition, and before the bankruptcy?
' Seep. 299,supro.
' Ibid.
' See p. 304supra. CORRESPONDENCE 453
Answer
Except for sales of products to customers in the ordinary course of business,
ELSl did not seIlanv of its assets in pursuance of orderly liquidation hefore the
requisition intervened in the process; since the requisition occurred only three
days after the vote of the ELSl's shareholders on 28 March 1968, to proceed
with liquidation. ELSI did no1sel1any of its assets in Palemo after the requisition
and hefore the hankruptcy, hecause under the requisition order the assets could
not be transferred to a buyer, nor even he shown to prospective buyers.
Questionof Judge Schwebel'
Did 1understand Mr. Bisconti to sav that ELSI'svlan to uav offsmallcreditors
in full was lawful under ltalian law, aid that there ;as no me& to the contention
that such payment would have been an unlawful preference?
Answer
Within the framework of an orderly liquidation, such payments, ifmade, would
not have constituted a "preference". Technically, a "preference" is such only in
a hankruptcy situation. The stockholders planned on an orderly liquidation of
ELSI. One step in such plan would have heen the payment of the small creditors.
The stockholders met with the creditor banks on 1 April 1968 to seek their
understanding on the manner and timing of the orderly liquidation, including
the proposed payment to the small creditors. Without the banks' agreement on
the plan of orderly liquidation, there would have heen no payment to the small
creditors.
Questionof JudgeSchwebel'
1 understood Mr. Bisconti to maintain that the fact than an instalment on a
hank loan was due in late April of some 800million lire, 1believethe figurewas,
did not of itself indicate that hankruptcy at that juncture was inevitable, hecause
the stockholders of ELSI were prepared to meet such a loan if doing so was
pursuant to the sale of assets which would have realized, by the proceeds of the
sale, funds which presumably would have repaid the stockholders for advancing
funds to meet the loan payment. Now 1had earlier understood, from argument
of the Applicant, that the stockholders had transferred a sum of money sufficient
to pay small creditors. Had any steps been taken by the stockholders, which
evidenced the further intention of the stockholders to act in the fashion 1 have
just referred to with respect to the loan payment due in late Apnl?
Answer
After Raytheon and Machlett voted to proceed with the orderly liquidation
on 28 March 1968, Raytheon transferred 150million lire to Citihank Milan to
begin paying the small creditors. The Respondent requisitioned ELSI's plant and
assets only three days later; and did not take any actions to repeal it, in spite of
ELSI's protests, petitions, etc. At that point, Raytheon and Machlett did not
advance any other funds to ELSl as they had othenvise planned to do.
'Seep. 304,supra.
'Ibid.454 ELETTRONICA SICULA
Applicant'sAnswersto Questionsof 23 February1989
Questionfrom Judge Oda '
Suppose that the decision of the Prefect of Palermo (which was actually given
on 22 August 1969)had heen givenone year earlier, say in August 1968.Could
the trustee of ELSI, under ltalian law, have withdrawn the previous petition to
hankruptcy which had once heen filedon 9 April 1968and have proceeded to
liquidate in spite of the judgment of haukmptcy hy the Tribunal of Palemo,
which was delivered on 7 May 1968?
Answer
Since it is ELSI that filed the petition in hankruptcy, it would have been for
ELSI to withdraw the petition. By August of 1968ELSI could not have heen
hrought out of hankruptcy.
A lifting of the requisition order in August, however, would have allowed the
trustee to pursue liquidation of ELSI's plant and assets heginning in August,
rather than in Octoher of 1968.The trustee would have heen ohlieated to end
the occupation of the plant hy former ELSI workers and to take ste& to preserve
the condition of the plant and assets. The failure to overturn the requisition
resulted in the inabilitv of the trustee to sel1off ELSI's dant and assets until it
was clear that the reiuisition had ended, which thus delayed the first auction
until January 1969.
Questionfrom JudgeSchwebelz
Let us assume, arguendo,that it has not heen proved that the requisition was
the cause of the hankruptcy. Does it follow that ELSI and its stockholders
sustained no damage hy reason of the requisition?
Answer
Assuming. iiryue~idnthai bankruptcy would have still occurrcd ai a somc point
afier th? commenscmcni of the ordcrly Iiquidiiiion on 1 April 1968, Rdyihcon
and Machlett wt~uldstill have suffered suhitantial damaec from the cxisicnceof
the requisition. The orderly liquidation team planned toSecure commitments to
purchase ELSI's product lines within no more than two or three months. Thus,
by the time bankruptcy hypothetically would have occurred anyway, Raytheon
and Machlett probably would have sold off most, if not all, of ELSI's product
lines.
Yet with the requisition in place, there was no opportunity to show the plant
to prospective buyers after I April and no ahility to negotiate any deals for the
immediate disposition of the plant and assets. Under this hypothetical scenario,
compensation would have to he hased on the extent to which Raytheon and
Machlett would have heen able to seIlELSl's assets in the time availahle to them
before the bankru~tcv occurred. In so far as Ravtheon had made the conmitnent
to advance al1fukds Aecessaryto maintain ELSI'Sliquidity, this would have been
a suhstantial amount of time and might have resulted in a recovery close to
ELSl's book value.
' Seep. 276, supro.
'Ibid. CORRESPONDENCE 455
Further, after the bankruptcy had in Tactoccurred, the existence ofthe requisi-
lion prevented the prompt disposition of ELSI's plant and assets through the
bankruptcy proceedings. Onlyafter the six-month requisition ended on 30 Sep-
temher 1968could the bankmptcy court and the Trustee begin the process of
disposing of ELSI's assets,so that the first auction was only held in January of
1969.Obviously the saleahility of ELSl's plant and assets diminished significantly
the longer they lay idle and the longer former ELSl employees werepermitted
~ ~o~ ~ r,~ -~~lr~~~ ~ ~
The Respondent iook the opporiuniiy during the requisiiion IO announce in
11sParlixnrnt zhnt itintended IOiakc over ELSl's pl~nt ihrough one of the IRl's
subsidi;irics(Annex 46). Shoril! df1r.rihc reuuisiiion neriod ended. thc Reinon-
dent annoünced in ~ovember-that IRI-STET wouli intervene and take ;ver
ELSl's plant, and the former EISI employees were allowedto take down the
sign over the plant's entrance that said "ELSI" and put up a new sign that said
"STET". By December ELTEL had been formed to take over ELSI's plant and
assets. Regardless of whetherit was planned this way, the requisition provided
the Respondent ample time to determine how it wished Io proceed, with the
ultimate result that il obtained ELSl in 1969 for far less than il was wonh in
mid-1968.
Questionfiom Presideni Ruda '
If il was decided not to orovide new canital but to out the comoanv into
liquidaiion. would iibe possi'blein Iidltdn lai, toconduci ihe liquidati<n wiihoui
becomingbnnkrupi, 2nd. ifso. under preciselywh3i condiiions could bankrupicy
be avoided?
Answer
It would be possibleto conduct an orderly liquidation under ltalian lawwithout
going bankrupt even if it was decided no1 10 provide new capital in10 the
company. Raytheon and Machlett in fact had decided not Io provide new capital
for ELSl'soperations, but werecommitted to providing sufficientfunds necessary
for ELSI to meet its obligations during the orderly liquidation. Even if Raytbeon
and Machlett had been unwilling to contribute any funds Io ELSI, an orderly
liquidation would still have been possible through settlements with creditors
pursuant to procedures of Articles 160 et seq. of the Italian bankruptcy law.
Professor Bonellidiscussed in detail (pp. 65-71, supra) why it would no1 have
been necessary under ltalian law to place ELSI in hankmptcy during the orderly
liquidation process. Under Anicle 5 of the ltalian Bankruptcy Law, a company
is ohligated to file for bankruptcy if il is in default of payments due or if there
are other external acts which would demonstrate that the company is no loneer
in a position to satisfy ils own obligations in a regular mariner.-~h buasknipïcy
can be avoided if the company avoids default on payments due and othenvise is
capable of satisfying its obligations in a regular manner.
At al1times pnor to the requisition ELSl paid ils obligations as they became
due. Raytheon and Machlett were committed 10 supplying necessary funds io
accomplish the orderly liquidation without the necessity of placing ELSl in
bankruptcy. Consequently ELSI would have remained capable of satisfying its
obligations in a regular manner.
'See p. 278.supra.456 ELETTRONICA SICULA
Question/rom Judge Ruda '
For the purpose of determining whether the requirements of Italian law as to
the impact of losses on the capital of the company were satisfied, was the
management of ELSI entitled, as a matter of Italian law or of sound accounting
practice, to base itself on the book values in the September 1967balance sheet
(first column\ so lone as the adiustments (second column) had not been made in
ihe compan;'s book;, or was ;t ohliged for that purpose either to make those
adiustments forthwith in the company's books or to use the adjusted figures
(third column) to determine the company's financial and legal position?
Answer
The book valuesthat appear inthefirst column of page three2 of the September
1967 balance sheet reflect the amounts appearing in the company's records
prepared in accordance with Italian legal requirements. The values that appear
in the third column of that balance sheet reflect adjusted values arrived at by
using US accounting principles, as required by ELSI's US parent companies.
There was no obligation under Italian law or accounting practice to make these
adjustments in the company's statutory accounting records prepared in accor-
dance with ltalian legal requirements.
Whether the capital of an Italian company fell below the legal minimum
provided by Articles 2447 and 2448 of the Italian Civil Code was a matter to be
determined by reference to the statutory accounts of the company drawn up in
accordance with Italian legal requirements.
27 February 1989
1 have the honour to transmit to Yonr Excellencv herewith the text of the
wriiien repliesoiihe Uniicd Siaies 10 quçsiions put h<Menikrs olihe Chiirnher
in ihe s;i,c conccrning ~I~~llronS~culu 5.p.A ELSI,. rcferred IO hv the United
States Agent during the hearing this afternoon
83. THE CO-AGENTOF THE UNITED STATESOF AMERICATO TlE REGISTRAR
27 Fehruary 1989.
Pursuant to Article 60. naraeranh 2. of the Rules of the Court. 1 have the
honor to enclose a signed Cop;of' the final submissions of the ~overnment of
the United States of Amenca in the case concerning Elettronica Sicula S.P.A.
(ELSI).
Enclosure:As stated.
-
. ,
' See p. 278, supra.
' P.434, suprn.
Written responses of the United States of America to the questions put by the Chamber of the Court on 23 and 27 February 1989