Global | Publication | July 2016
The New Law has introduced some measures to facilitate secured lending transactions and to ease the security enforcement process. In particular, Articles 1 and 2 of the New Law introduce two new types of security arrangements: the “pledge on movable assets without dispossession” (pegno mobiliare non possessorio) and the “transfer of an immovable asset subject to condition precedent” (the Patto Marciano).
Companies registered at the Companies’ Register are entitled to grant a pledge on movable assets without dispossession to secure their or third parties’ payment obligations deriving from financings granted in connection with business activities.
The payment obligations - present or future, short, medium or long term - that can be secured must relate to the business activities of the company. Future payment obligations can be secured only if identified or identifiable and provided that the maximum secured amount is indicated.
This new form of security will increase financing opportunities for Italian companies, which will be able to use the movable assets strictly connected to their business and production activity as collateral.
The assets that can be pledged may be tangible or intangible provided, in each case, that they are used to carry out the pledgor’s business. Receivables deriving from or relating to the pledgor’s business may also be subject to this type of pledge.
Eligible assets may be existing or future assets and they must be either identified or identifiable. Identification of the asset to be pledged can be done also by making reference to a specific products sector or an overall value.
Registered movable assets (such as aircraft or ships) cannot be subject to this kind of pledge.
A pledge without dispossession is validly created by entering into a written document and, for the pledge to be enforceable against third parties, by filing that document in an electronic public register (the Register). The physical delivery of the pledged asset to the beneficiary of the pledge is not required for the security to be valid and enforceable.
The written document must include: (i) the name of the beneficiary of the security; (ii) the name of the debtor and/or the third party pledgor; (iii) a description of the pledged asset, (iv) the secured debt, and (v) the maximum secured amount.
The Register will be kept at the Italian Tax Authority (Agenzia delle Entrate). The rules on the Register shall be set out in a Ministerial Decree to be issued by 3 August 2016. Registration lasts for ten years and may be renewed before the expiry of this period.
Pledges without dispossession may have different rankings. If more than one pledge is granted, the pledges’ priority is determined on the basis of filing dates.
Unless the parties agree otherwise, the pledgor, who retains physical possession of the pledged asset, is entitled to ‘transform’ or sell the pledged asset while conducting its business activity. In this case the pledge is automatically deemed to extend to cover the assets deriving from such transformation, the sale proceeds and/or any new assets purchased with such proceeds.
The deed of pledge must be filed with the Register, which is publicly accessible online.
The Register will be kept at the Italian Tax Authority (Agenzia delle Entrate).
Upon the occurrence of an event of default, the pledgee must give prior written notice to the debtor and, if different, the pledgor. To the extent that the criteria and conditions to identify the pledged assets are clearly indicated in the deed of pledge, the pledgee may at its discretion enforce the pledge in any of the following ways:
The Patto Marciano is an agreement between the debtor (a company) and the creditor (a bank or other entity authorised to grant loans to the public and registered at the register of financial intermediaries authorised by the Bank of Italy under Article 106 of the Italian Banking Act), pursuant to which the parties agree that, if the debtor fails to perform the secured obligation, the creditor will become owner of an immovable asset or the rights on immovable assets given as security. No specific requirement for the secured obligation is provided since the New Law does not provide for any requirement of “connection with the business of the borrower”.
The Patto Marciano may be entered into when signing a new loan agreement or by executing a notarial deed amending a previously executed loan agreement. The Patto Marciano is enforceable against third parties when it is registered at the competent Land Registry.
The Italian Government predict that the Patto Marciano will reduce the timing for judicial enforcement from the current 40 months to 7/8 months.
The Patto Marciano is available only in the context of commercial lending transactions. It is not available in connection with credit agreements for consumers relating to residential immovable property, which fall under the provisions of Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014, as implemented by the Italian Legislative Decree No. 72 of 21 April 2016.
The validity and enforceability of the Patto Marciano is conditional upon the occurrence of a default by the debtor under the secured financing agreement.
In the case of financings to be repaid through monthly instalments, a default occurs when the debtor fails to pay at least 3 instalments, even if not consecutive, and such non-payment lasts for more than 9 months.
In the case of financings whose repayment schedule includes periods longer than a month (e.g. quarterly, half-yearly, annual), a default occurs when the debtor fails to pay one instalment, and such non-payment lasts for more than 9 months.
In the case of bullet financings, a default occurs when the debtor fails to repay the principal amount on the final maturity date, and such non-payment lasts for more than 9 months.
In the event that the debtor has already repaid 85 per cent of the financing, the period of 9 months is extended to 12 months.
Upon the occurrence of an event of default, the creditor notifies the debtor of its decision to enforce the Patto Marciano. After 60 days from the notification, the Court will appoint an expert to assess the value of the assets, which will be then notified to the debtor and the creditor.
The requirements for the agreement’s validity and enforceability are then satisfied, and ownership is then transferred to the creditor once the Court has notified the value of the asset to the debtor and the creditor or, if the value of the asset is more than the secured obligation, when the creditor has paid the relevant balance to the debtor/owner.
The creditor is entitled to enforce the Patto Marciano even where the debtor raises objections, provided that the creditor pays to the debtor/owner the balance of the value of the asset once the secured debt has been recovered if the objections are justified.
The notarial deed, which must be recorded in the competent Land Registry, in order to confirm the debtor’s default and the satisfaction of the conditions precedent to enforcement, can be executed by the creditor only.
This procedure may be also applied in the case of the debtor’s bankruptcy.
Publication
The US Supreme Court has ruled that a “pure omission” under Item 303 of Securities and Exchange Commission Regulation S–K cannot give rise to a private action for securities fraud under Section 10(b) and Rule 10b-5(b) of the Securities Exchange Act of 1934.
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