A law decree providing for urgent measures on guarantees, foreclosure and insolvency proceedings and aiming at restoring damages suffered by investors of banks under liquidation, was published on the Italian Official Gazette n. 59 on 3 May 2016 (the Decree). The Decree must be converted into law by the Italian Parliament by 2 July 2016 (i.e. within 60 days from the date of its publication) to become fully effective.

“Pegno mobiliare non possessorio”, an Italian floating security interest

In line with what already existing in other jurisdictions, a new security interest over movable assets (“pegno mobiliare non possessorio”) has been introduced in order to improve the businesses’ access to financing and boost growth.

Pursuant to the “pegno mobiliare non possessorio”, any business (“imprenditore”) registered in the Companies’ Register (“Registro delle Imprese”) is now allowed to grant a security interest over its assets to a broad range of creditors, without losing the right to use and/or trade the assets (as it would happen for ordinary Italian pledges).

In the past, under Italian law the only security interest which allowed the security giver to dispose of the secured assets was the special lien (“privilegio speciale”) under the Italian Banking Act. However, the special lien is only available to (i) banks as a security for medium-long term loans and (ii) qualified investors (“investitori qualificati”) as a security for medium-long term bonds. On the contrary, the new “pegno mobiliare non possessorio” can be granted to any creditor and is available as a security for any obligations (including those arising from short term credit lines and future obligations, as long as a maximum amount is indicated).

The “pegno mobiliare non possessorio” can be created over existing and/or future assets, to the extent they are used for the conduct of business and are sufficiently described (a general reference to a category of assets would suffice). Question is whether receivables originated in the course of business (and which are not originated by the sale of the pledged assets) fall or not into this basket; the conversion law may (hopefully) shed some light on this.

As mentioned above, the businesses are allowed, in the course of the business, to use and/or dispose of the assets subject to “pegno mobiliare non possessorio”. Furthermore, the assets deriving from the use and/or proceeds of the disposal shall be subject to the same security interest without the need to carry out any formality.

This new security interest must be registered with a new online register held by the Italian tax authority (“Agenzia delle Entrate”) and is enforceable vis-à-vis third parties as from the date of registration.

In the context of insolvency, the “pegno mobiliare non possessorio” may be enforced by the creditor, provided that the secured obligations have been admitted as priority claims (“crediti privilegiati”) in the bankruptcy. The new security interest is subject to the claw back provisions applicable to ordinary pledges.

Notwithstanding the effectiveness of the Decree, the possibility to obtain a valid and enforceable “pegno mobiliare non possessorio” is still subject to technical implementation rules to be issued by a 30 day non-compulsory deadline from the conversion of the Decree into of law.

Transfer of title over real estate assets upon default

The new measures expressly provide for an exception to the general Italian rule, pursuant to which a secured creditor is not allowed to repossess a pledged or mortgaged asset upon the borrower’s default.

It is now possible for banks and other authorised financial institutions to agree in the financing arrangements with businesses to obtain, in case of default, title to a designated real estate asset(s) (real estate assets where the owner, her/his spouse and/or strict relatives live are not eligible).

Repossession upon default can be exercised directly by the creditor or by designating a real estate affiliate.

In order to repossess, a payment default needs to be outstanding and continuing for more than six months (from the date on which the third instalments is due, in case of monthly instalments, or from the date on which any payment is due for longer instalments or bullet financings).

Upon the occurrence of a default, the creditor is entitled to notify the debtor (or the third party security giver) and other secured creditors, of its intention to proceed with the repossession of the asset(s). After 60 days from such notification, the creditor may ask the competent court to appoint an appraiser.

In the event that the appraisal value exceeds the outstanding debt and the transfer costs, the creditor shall pay to the debtor the relevant difference.

It is not clear from the text of the Decree if, in the event that the value of the asset(s) is lower than the outstanding debt and the transfer costs, the creditor will continue to benefit of an unsecured claim against the borrower. However, it is worth mentioning that, in the official press release anticipating the text of the Decree, it was stated that in such a case no additional payments are owed by the debtor to the creditor. Hopefully clarifications on this point will be given when the Decree is converted into law.

The transfer is perfected on the date on which the appointed appraiser communicates the value of the real estate asset(s) or, should the value exceed the outstanding debt, on the date on which the creditor pays to the debtor the difference.

Even if the borrower (or the third party security provider) challenges the appraisal value, repossession is not suspended. If the opposition is successful, the borrower will be entitled to receive the difference between the outstanding debt and costs and the updated value.

If foreclosure on the real estate asset(s) is ongoing, the creditor may still obtain repossess the asset by filing an application to the judge and paying the difference between the appraisal value and the amount of its claim (if positive). Under the Decree the creditor may repossess the assets also in the context of an insolvency scenario, provided that the secured claim has been admitted in bankruptcy.

Rules on credit recovery procedures

The Decree also aims at further accelerating (following the recent amendments in enforcement proceedings) credit recovery through more efficient enforcement proceedings.

  • no oppositions to enforcement procedures is allowed (with limited exceptions) if the sale process for the asset has already been launched;
  • courts must (with no discretion) order provisional execution of an injunction order for the portion of the claim which has not been challenged by the debtor;
  • a bidder in an auction may identify a third party assignee to become the owner of the asset. Sums deriving from foreclosure can be distributed to creditors before the completion of enforcement up to 90% of the sums available for distribution.

Amendments to the bankruptcy law

In order to accelerate insolvency proceedings, the Decree sets the possibility to hold hearings and creditors meetings (for exam of the debtor’s liability or the composition plan) via web or similar electronic means. In addition, sanctions for judicial receivers failing to comply with the established milestones of the proceedings have been introduced.

Registry of foreclosure and insolvency proceedings

A digital registry for foreclosure and insolvency proceedings (where extra judicial agreements governed by article 182bis and restructuring plans under article 67, paragraph3, letter d) of Italian Insolvency Law shall be included too), will be set up by the Ministry of Justice (the access will be partially granted for free to the public too but the Court may order, for confidentiality reasons, to hidden specified information). In addition, auctions on real estate assets shall always take place on line (if not prejudicial to the creditors or causing undue delay).

Special measure re deferred tax assets (DTAs)

Italian banks and other companies have significant amounts of DTAs accounted in their financial statements.

In order to mitigate the effects of the Basel III rules requiring the deduction of DTAs from regulatory capital, the Italian lawmaker has enacted Law Decree No. 225 of 29 December 2010 (the Decree 225). Under Decree 225, certain DTAs (the Eligible DTAs) are converted into tax credits upon the occurrence of certain events. This feature allows Italian banks and intermediaries not to deduct their Eligible DTAs from regulatory capital.

Pursuant to Article 11 of Law Decree No. 59 of 3 May 2016, the full conversion into tax credits of the Eligible DTAs accrued as of 2008 is now conditional upon payment, until 2029, of an annual 1.5% fee (the Optional Regime). The fee is deductible for income tax purposes.

The Optional Regime is fairly complex. In a nutshell, the annual 1.5% fee applies to the difference (if positive) between (i) the Eligible DTAs accrued as of 2008 and (ii) the income taxes paid during the same period. Special rules apply to companies belonging to an Italian fiscal unit, and to entities involved in merger or demerger procedures.

If the Optional Regime is not elected for, the excess of the Eligible DTAs accrued as of 2008 over the income taxes paid during the same period is no longer convertible into tax credits under Decree 225. The excess would therefore need to be deducted from regulatory capital under Basel III.

The election for the Optional Regime shall be made by 4 June 2016. The election is not revocable.