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Enforcement

Criteria for enforcement
What are the common enforcement triggers for loans, guarantees and security documents?

Assuming that the debtor is solvent, following an event of default the loan is usually accelerated and the secured creditors are entitled to enforce any security. Events of default are usually negotiated in the loan documentation, but generally follow Loan Market Association standards.

Process for enforcement
What are the most common procedures for enforcement? Are there any specific requirements with which lenders must comply?

Security must be enforced according to the applicable procedures for each security or collateral.

Mortgages are enforced through a lengthy court-administered enforcement procedure. There are no self-help rights for the secured creditor to take possession of the asset outside this procedure. The foreclosed asset can be sold, at the court’s discretion, either by allowing any interested party to present purchase offers or, if this procedure fails, by public auction. In both cases the value of the mortgaged real estate is determined by the court through information given by the parties or an estimate issued by an expert consultant, or both. Following the sale, the proceeds are distributed among all creditors in the enforcement procedure in accordance with the priority of their respective security.

The recently introduced conditional security assignment agreement (the ‘patto marciano’ agreement) may be enforced by the lender where:

  • three non-consecutive repayment instalments have been due and payable for more than nine months, where the instalments are to be repaid monthly;
  • one repayment instalment has been due and payable for more than nine months in any other case; or
  • any payment obligations have been due and payable for more than nine months, if no repayment instalments are set forth under the underlying facility agreement.

Upon the occurrence of any of the above, the collateral can be transferred to the secured creditor without applying to court or having to commence a public auction.

Pledges over moveable assets are enforced either through a court-supervised procedure (under the general rules relating to the seizure of personal property) or through a private enforcement procedure where the parties have agreed in the deed of pledge that the forced sale will be carried out directly by the secured creditor.

Pledges over receivables are enforced by the secured creditor either taking action seeking a forced sale of the receivables or collecting moneys directly from the debtor up to the amount of the secured creditor’s credits.

Pledges over cash deposits are irregular pledges under which ownership of the pledged asset is transferred to the secured creditor, so there is no need for the creditor to commence enforcement proceedings. The depository bank will be pre-authorised to distribute the credit balance in favour of the secured creditor on default, up to the amount of the outstanding secured obligations, with any excess being returned to the debtor.

Pledges over intellectual property are usually enforced through a court-supervised procedure.

Pledges over shares and quotas can be enforced by sale of the shares either through an authorised intermediary at their market price (provided that the relevant criteria and formalities are set out in the deed of pledge) or through a court-supervised procedure.

Ranking in insolvency
In what order do creditors rank in case of the insolvency of a borrower?

Creditors have equal rights to be paid out of the estate of a debtor, subject to pre-emption rights provided under the law granted to holders of liens, mortgages and pledges. In an insolvency scenario, subject to certain exceptions, claims of unsecured creditors will therefore rank behind those of secured creditors.

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