Across the EUniverse

February 2017 N° 19 Fondo Atlante and the future for the financial institutions Tommaso dalla Massara Some news on insolvency procedures Fabio Marelli EU Commission first draft of ePrivacy Regulation Rocco Panetta Insurance Distribution Directive Guido Foglia ACROSS THE EUNIVERSE 2 In this Issue Editorial Giovanni Moschetta, Bernard O'Connor 3 What's App in Europe 4 Bernard O'Connor The next big thing for European data protection: EU Commission publishes first draft of ePrivacy Regulation to be discussed during GDPR transition period 6 Rocco Panetta, Francesco Armaroli Critical features of the Insurance Distribution Directive 9 Guido Foglia The Fondo Atlante rescue of two Venetian banks raises complex legal issues 13 Tommaso dalla Massara The Special Report of European Courts of Auditors on maritime transport in the UE and its impact on Italy 15 Alberto Rossi, Simone Gaggero The recast EU Regulation No. 2015/848 on insolvency procedures: a focus on group insolvencies 19 Fabio Marelli Russian Constitutional Court rules on the Yukos case: implications for investments protection in Russia 23 Marat Davletbaev Urgent measures to protect savings in the Italian banking system 26 Rodolfo Margaria The approach of Italy’s Consob to highly dilutive capital increases 30 Federica Ciabattini The liability of collective entities for foreign bribery 33 Francesca Angelilli ACROSS THE EUNIVERSE 3 Editorial As we settle into 2017 the drama of Brexit and Trump seem to have eased somewhat. While the drama might have lifted it doesn’t mean that the complexities that these two phenomena have introduced and are introducing into the practice of law have gone away. In fact, the more we reflect on what needs to be done to achieve Brexit the less clear the situation is. This week President Trump will outline what he means by the Wall and taxes on imports of goods. From a WTO law point of view it can only be disruptive and even destructive. The drama might have gone but the work is only beginning. In this issue we have a range of contributions covering how the Russian constitutional court has reacted to the European Court of Human Rights rulings in favour of the owners of Yukos, the OECD’s review of its own bribery rules, the EU’s new proposed ePrivacy Regulation, how the European Court of Auditors confirms our understanding of the responsibilities and obligations of Port Authorities in relation to concessionaires. We explain the new Italian Save the Banks decree and show how the EU Commission has a strong role in every step of the process and look at how the Commission proposes disciplining insurance distribution agents. Bernard O’Connor Managing Partner, Brussels Editor Across the EUniverse Giovanni Moschetta Of Counsel, Rome and Brussels Coordinator Across the EUniverse ACROSS THE EUNIVERSE 4 What’s App in Europe The EU is an agricultural superpower The latest figures for 2016 show that the EU exported Euro 130.7 billion or 7.5% of total EU exports of goods. The value of agricultural imports went down to Euro 112 billion giving a surplus of Euro 18.8 billion. This is nearly half of the total surplus in the export of goods which in 2016 was Euro 39.3 billion. This surplus in value reflects the gradual shift in EU agriculture and food production from production at any cost to the production of high value products like wine and spririts, beer and olive oil and food preparations. The export value of commodity type products (wheat and other cereals as well as milk powder) went down. And Trade Agreements boost agricultural trade The day after releasing the trade balance figures for food in 2016, the Commission issued a report by Copenhagen Economics showing that bilateral trade deals between the EU and third countries boosted agricultural trade. The report puts a figure of Euro 1 billion on the benefit. While these types of figures are notoriously difficult to defend the fact that the figures cited are positive and that the benefits flow to farmers cannot be denied. Canada trade deal gets approval from the European Parliament The approval of the Comprehensive Economic and Trade Agreement (CETA) with Canada by the European Parliament allows the new agreement to enter into force provisionally. The implementation will remain provisional until such time as all 28 EU Member States approve the agreement. Approval by both the EU and the Member States is necessary as the CETA is a mixed agreement. This means that it contains elements for which the EU has the legal competence to conclude international agreements and elements for which the Member States retain competence. Thus it is mixed. The whole issue of mixed agreements is currently being examined in a number of cases before the European Court of Justice with a ruling on the Singapore agreement expected in the Spring and a ruling on CETA itself expected in 2018. The Commission, on behalf of the EU seeks to ensure that it is the EU itself which should conclude agreements while some Member States seek to retain some sovereignty in this area. Bernard O´Connor Partner, Bruxelles email: b.oconnor@nctm.it ACROSS THE EUNIVERSE 5 Brexit, Greece and the Euro A new resolution from the European Parliament calls for a bringing together of the Eurozone economies so as to make them more resilient to outside shocks. Essentially the proposal is to give the Eurozone a fiscal capacity and thus a budget. The resolution is not binding as it is not part of any particular legislative proposal but it does reflect developments in France and Germany to tighten up the EU in the face of Brexit. A separate budget would allow for greater solidarity with struggling Eurozone countries like Greece. Germany, France and China China has become Germany’s biggest trading partner replacing the USA. In fact the US has fallen to third place behind France. German imports and exports to China amounted to Euro 170 billion in 2016. Combined trade with France was Euro 167 billion. If exports alone are taken into account then the US remains Germany’s biggest market with France second. These statistics are the background to an intense debate in Germany as to how to address China. Some argue that as China is not a market economy it has an unfair advantage in trade. Others consider that the Chinese market is so big that Germany must be part of it no matter what the restrictions China places on foreign investment and trade. In addition Germany could become a target of US trade retaliation given its large US$ 100 million trade surplus with the US. Solar Panels Nctm, representing the Council of the EU, was successful in defending the antidumping and anti-subsidy duties imposed by the Union on imports from China. The duties were imposed in December 2013 and were challenged by 26 exporting companies before the General Court. In a judgement dated 28 February 2017 the Court rejected all arguments put forward by the exporters and found that the Council was correct to consider that solar panels and modules were a single product as they had the same characteristics and functions and that the injury to the Union industry was caused by the dumped imports. Nctm is a regular litigator before the Union courts in Luxembourg. ACROSS THE EUNIVERSE 6 Rocco Panetta Partner, Rome E-mail: r.panetta@nctm.it Francesco Armaroli Associate, Rome E-mail: f.armaroli@nctm.it The next big thing for European data protection: EU Commission publishes first draft of ePrivacy Regulation to be discussed during GDPR transition period On 10 January 2017, a brand-new chapter in European data protection law was opened with the publication of a draft regulation on privacy rules for all electronic communications (Proposal 2017/0003 (COD) for a Regulation on Privacy and Electronic Communications, hereinafter the “Proposal”). So far, this area of law had only seen the adoption of Regulation 679/2016/EU (the so-called “General Data Protection Regulation” or “GDPR”) and in the replacement of the unfortunate EU-US Data Sharing “Safe Harbour Agreement” with the long-awaited and bombastic “Privacy Shield”. A reform of the legal architecture behind Directive 2002/58/EC (the “ePrivacy Directive”) and its subsequent amendments has long been a priority for EU regulators, especially in light of the significant and unstoppable growth of the electronic communications sector and the expected achievement of the Digital Single Market. Furthermore, since the GDPR will repeal and replace Directive 95/46/EC (the “Data Protection Directive”) only leaving untouched the ePrivacy Directive, a Proposal carrying new, consistent and more comprehensive instrument aimed at modernizing the rules applicable to data processing in the digital age was the logical follow-up to the 2016 Data Protection Reform Package (i.e. including the GDPR alongside Directive 680/2016 on data processing activities for judicial and police investigation purposes and Directive 681/2016 on Passenger Name Records processing for security and counter-terrorism reasons) and Network and Information Systems Directive’s final approval (so-called “NIS Directive” no. 1148/2016/EU). In addition, it can be generally said that the Proposal seeks to maintain the consistency between the ePrivacy Directive and the current regulatory framework on electronic communications and radio frequencies while opening further opportunities for discussion in the fields of data retention and limitations on Member States discretion. On the one hand, the high-level goal of the draft privacy Regulation, which has was leaked in December 2016 - whether on purpose or not it is hard to tell - to “feel the pulse” of all the interested stakeholders, might be considered the need to particularise and complement the newly adopted rules set forth in the GDPR; on the other, a specific privacy discipline for electronic communications with a broader territorial reach and applicability (i.e. thus including the services provided by the so-called “Over-The-Top” or “OTTs”, such as Facebook, WhatsApp, and Skype as well as traditional telecommunications services providers) should also be able to strengthen the protection of the flows of information related to the devices of end users located in the EU. In fact, the new legal tool being discussed aims at ensuring a high level of privacy for online users, while fostering the possibilities for electronic communications providers to collect and process communications data in accordance with the spirit of the GDPR. In this respect, the Proposal introduces a new set of rules affecting data subjects’ terminal equipment and how personal data is collected, stored and processed in that con- ACROSS THE EUNIVERSE 7 text by online and web service providers operating on an extra-territorial basis. Since providers may request users’ consent for reasons which may be unrelated to the provision of online services requested by them (e.g. including the transfer of information to marketers or data brokers and processing activities for targeting and re-targeting purposes through cookies), regulators deem it opportune to strengthen the current EU regulatory framework by including in the scope of the future Regulation also users’ metadata. It is clear that metadata can be considered the real key to interpret the ratio behind this attempt to introduce an ad hoc regulation on ePrivacy: in fact, with the processing of such pieces of information data controllers and processors can read more patterns of behaviour, networks of people, locations and online preferences than with traditional profiling tools. However, the exploitation of data subjects’ personal information provided in the digital environment, although generally legitimate and essential for the development of the digital economy, should always happen in compliance with all legal and regulatory guarantees provided for by EU law. As a consequence, the Proposal seeks to simplify EU’s current “soft opt-in” rule for online cookies (i.e. consent provision by “scrolling” or keep on with internet surfing) by means of the new requirements for which no consent will be needed for technical and configuration cookies, while “Do Not Track” technologies shall be configured by-default and by-design in all software and hardware products provided, either for free or not, to online end users. Consent provisions are also addressed by the draft Regulation. Article 9 of the Proposal provides that although the conditions for consent remain consistent with the ones provided for by the GDPR, end-users who have agreed to the processing of electronic communication data shall not only be given the possibility to withdraw their consent at any time but also on periodic intervals, as long as the processing continues. This apparent “opening” for a lighter version of the explicit consent provision set forth under the GDPR which may benefit business and direct marketing operators is, on the contrary, creating harsh discussions over the six months’ time limit apparently connected to data subjects’ consent duration. Such an unclear provision of the Regulation, although still under discussion at this early stage, might indeed risk undermining the GDPR’s architecture and therefore prejudice the overall consistency between the two norms on a more general basis. Moreover, despite the recent overturning of the EU Data Retention Directive by the European Court of Justice in 2014 and the 2017 follow-up in the “Tele 2 and Sverige AB” judgement on the invalidity of data retention obligations in the telecommunications sector (i.e. Joined Cases C-203/15 and C-698/15), EU legislators did not deem it opportune to introduce in the Proposal any clear rules either on the invalidity of data retention issues or on encryption, anonymization, pseudonymization or the exercise of the right to data portability with regard to metadata. In fact, this might be probably addressed by subsequent law or, where applicable, by the first interventions and opinions of the European Data Protection Board, the set-up and organization of which will be soon decided by the joint action of Member States’ national Data Protection Authorities and by the EU Commission. ACROSS THE EUNIVERSE 8 Finally, as far as sanctions are concerned, administrative fines and thresholds are very likely to remain the same as set forth by the GDPR (i.e. up to € 20 million or, in the case of undertakings, 4% of the total worldwide annual turnover), with the sole difference that the Proposal might extend that liability to hardware and software manufacturers, in addition to online service providers. Unlike the two-year transition time set forth for the GDPR, this first Proposal reads that it will be applicable only six months after the deadline (i.e. still to be decided), meaning that, in case of a particularly quick approval of the Proposal at an EU level – very unlikely to happen - both Regulations could potentially become enforceable at the same time in 2018, alongside an amended EU Regulation 45/2001 on data processing by EU institutions and agencies, and therefore somehow “squaring the circle” for the new European data protection framework. However, the battle for the Proposal has just begun and despite heavy lobbying, already taking place as expected and seen with the GDPR, the current draft may still undergo major changes before the Commission, the Parliament and the Council finally agree on a final text. As a final remark, it is important to underline that this is just the beginning of the formal legislative process and now that the Proposal is in the hands of the competent institutions for a first and thorough review, it is quite unpredictable to set a precise deadline for its final approval and subsequent entry into force. Only time will tell whether the EU will become even more a global data privacy champion and successfully launch the Digital Single Market or if the products of its reforms will only result, once again, in a difficult compromise between the need to better protect EU citizens’ fundamental rights and the interest of multinationals and tech-sector stakeholders. For further information, updates, comments and official news on this first Proposal of ePrivacy Regulation, please refer to the following link. ACROSS THE EUNIVERSE 9 Critical features of the Insurance Distribution Directive On 20 January 2016, the joint European legislators finally approved the Insurance Distribution Directive No. 2016/97/EU (hereinafter, the “IDD”). The aim of the IDD is the need to guarantee the uniformity of consumer protection, regardless of the entity proposing the acquisition of insurance products, as well as the need to harmonize treatment among operators and to curb any distortive effects of competition (Recitals 5 and 6). According to the definitions and scope set out in Articles 1 and 2, the IDD is addressed to a series of persons not expressly included in the previous Directive 92/2002/CE: i.e. all subjects involved in the sale of insurance products. This provides for insurance undertakings, insurance distributors, insurance intermediaries, and further players of the insurance market, including: (i) ancillary insurance intermediaries, who, for remuneration, take up or pursue the activity of insurance distribution on an ancillary basis, as secondary distributor; (ii) websites owners and managers offering a ranking of insurance products, when the customer is able to directly or indirectly conclude an insurance contract using the website. On the basis of Article 1, paragraph 3, the IDD reintroduces exemptions based on: a) the kind of risk covered (breakdown, loss, damage and non-use, or damage to, or loss of, luggage, or risks linked to travel); b) the amount of premium paid or the insurance products (that shall not exceed EUR 600 calculated on a pro rata annual basis). With regard to the subjects exempted from the application of the Directive, the IDD provides that each Member State shall ensure that insurance undertakings or insurance intermediaries: (i) inform customers of their identity, address and the manner in which claims are to be submitted; (ii) establish adequate mechanisms to ensure compliance with the obligations set out in Articles 17 and 24 of the IDD; (iii) provide customers with the information document relating to the insurance product in accordance with IDD Article 20, paragraph 5. Furthermore, Article 19 of the IDD introduces – without distinguishing between life and non-life insurance products or the nature of risk – the intermediary’s obligation to provide information about the nature of its remuneration, i.e. whether it is calculated on an hourly basis or on a lump-sum basis. With regard to the information to be provided prior the conclusion of an insurance contract, Article 20 of the IDD introduces two new documents: (i) a "personalised recommendation", through which the insurance distributor shall explain why a particular product would best meet the customer’s demands and needs; and (ii) in relation to the distribution of non-life insurance products, a standardised insurance product information document on paper or on another durable medium. Guido Foglia Partner, Rome Email: g.foglia@nctm.it ACROSS THE EUNIVERSE 10 Article 25, on product oversight and governance requirements, provides that insurance undertakings - and intermediaries which construct any insurance product for sale - shall maintain, operate and review a specific process for the approval of each insurance product, defining its contents and any significant adaptations, before the product is marketed or distributed to customers. It is easy to understand that this process requires a deep analysis of an identified target market, a consistent distribution strategy, as well as a regular review of both the products and the procedure itself, in order to ensure that the product constantly meets market requirements. In addition to the above, Chapter VI of the IDD is dedicated to the distribution of insurance-based insurance products, meaning those insurance products offering a maturity or surrender value and where that maturity or surrender value is wholly or partially exposed, directly or indirectly, to market fluctuations. In particular, this Section is applicable only to insurance-based insurance products distributed by (a) an insurance undertaking or by (b) an insurance intermediary. It has to be noted that these insurance-based financial products do not include: (i) nonlife insurance products as listed in Annex I to Directive 2009/138/EC (Classes of non-life insurance); (ii) life insurance contracts where the benefits under the contract are payable only on death or in respect of incapacity due to injury, sickness or disability; (iii) pension products which, under national law, are recognised as having the primary purpose of providing the investor with an income in retirement, and which entitle the investor to certain benefits; (iv) officially recognised occupational pension schemes falling under the scope of Directive 2003/41/EC or Directive 2009/138/EC; (v) individual pension products for which a financial contribution from the employer is required by national law and where the employer or the employee has no choice as to the pension product or provider. This Section involves obligations relating to conflicts of interest, information to customers and the assessment of suitability and appropriateness of the products (cf. Articles 28, 29 and 30). With regard to conflicts of interest, Member States shall ensure that insurance intermediaries and insurance undertakings take all appropriate steps to identify conflicts of interest between themselves, including their managers and employees, or any person directly or indirectly linked to them by control, and their customers or between one customer and another, that arise in the course of carrying out any insurance distribution activities. Article 28, paragraph 2, provides that in case the organisational or administrative arrangements made are not sufficient to ensure that risks of damage to customer interests will be prevented, the insurance intermediary or insurance undertaking shall clearly disclose to the customer the general nature or sources of the conflicts of interest, promptly before the conclusion of an insurance contract. ACROSS THE EUNIVERSE 11 Pursuant to Article 29, the information to customers shall include: (i) a periodic assessment of the suitability of the insurance-based investment products recommended to that customer; (ii) appropriate guidance on, and warnings of, the risks associated with the insurance-based investment products or in respect of particular investment strategies proposed; (iii) information on costs and charges, including the cost of advice - if any - and the cost of the insurance-based investment product, as well as the means of payment. Furthermore, insurance intermediaries and insurance undertakings shall in any case be considered to have complied with their obligations under the Directive, where they pay or are paid any fee or commission, or provide or are provided with any non-monetary benefit in connection with the distribution of an insurance-based investment product or an ancillary service, to or by any party except the customer or a person on behalf of the customer only where the payment or benefit: a) does not have a detrimental impact on the quality of the relevant service to the customer; and b) does not impair compliance with the insurance intermediary’s or insurance undertaking’s duty to act honestly, fairly and professionally in accordance with the best interests of its customers. Article 30 of the IDD also provides for the obligations concerning the assessment of the suitability and appropriateness of insurance-based investment products in the event of the provision or otherwise of advice. In particular, insurance intermediaries and insurance undertakings that provide advisory services, must: (i) reach the necessary information regarding customers’ knowledge and experience in the relevant investment field on the specific kind of product or service, their relevant financial situation and investment goals, and (ii) recommend to customers the insurance-based investment products that are suitable for those customers and that, in particular, are in accordance with their risk tolerance and ability to bear losses. In case no advice is provided, the intermediaries and undertakings shall restrict their information request to the customer’s knowledge and experience. Furthermore, the IDD allows Member States to introduce a simplified distribution system for insurance intermediaries or insurance undertakings, without providing any specific advice to the customer, in the following cases: (i) if the base of a product is a non-complex financial instrument, (ii) if the insurance distribution activity is started by the customer; (iii) if the customer has been informed that the insurance intermediary or the insurance undertaking is not required to assess the appropriateness of the product, and the customer has been informed that it does not benefit of such level of protection; (iv) if the insurance intermediary or insurance undertaking complies with its obligations with respect to conflicts of interest. Finally, for the sake of clarity, it has to be pointed out that, pursuant to Article 42 of the IDD, Member States adopt any laws, regulations and administrative provisions necessary to comply with the IDD by 23 February 2018. ACROSS THE EUNIVERSE 12 Davos China President Xi argued that protectionism was like closing oneself in a room to keep out the wind and the rain. The problem with this strategy, he said, was it also kept out the air and the light. Like all good politicians Xi is clever. He calls on the world to work against protectionism while practicing it himself. China is a closed market with the key sectors like capital (banking), communication, energy, mining, transport, and many manufacturing sectors exclusively in the hands of state owned enterprises operating within the confines of detailed five year plans which set targets the achievement of which determines success in society and in particular within the Communist Party of China. The market is closed to foreigners. At his inauguration, newly appointed US President Trump heralded the new era of putting the US first, and first and first. On trade, Trump advocates a new approach of closing the US market to foreigners. In other words, the Trump way is pretty similar to the Xi way. What both Trump wants, and Xi already has, is a system promoting specific businesses rather than creating a neutral market in which success is determined by fair competition. Trump wants to champion US enterprises and not the US market. Xi already does this at home in China. The worry today is that Xi is taking this business champion approach abroad so as to create global Chinese champions. Trump and Xi have the same concept of power. It must be used to bring specific preidentified gains that are mercantilist in nature and not based on vague ideas of comparative advantage and fair and free competition. That leaves the EU as the only liberal open economy of any size. Commissioner Malmström recently said in Paris that the EU should not be naïve about China. She said this in the context of how the EU should reform its anti-dumping and anti-subsidy laws, the limited means that the EU has to counter unfair trade practices. The EU and its Member States must ask if it is naïve to leave itself defenceless at a time when it is the only entity standing for open and fair trade. 2017 will see the EU debating modernisation of the trade defence instruments and the Commission’s proposal to change the way the EU deals with trade from markets that are distorted. Parallel debates will begin in February in the two EU legislative chambers, the Council (the 28 Member States) and the Parliament. Many thought the debate was really just about China. Is it? The debate must be about having the appropriate tools to ensure that the EU market remains free and open and can counter unfairness before it undermines the only free and open market remaining. ACROSS THE EUNIVERSE 13 Tommaso dalla Massara Of Counsel, Milano E-mail: t.dallamassara@nctm.it The Fondo Atlante rescue of two Venetian banks raises complex legal issues Two very important regional banks in the Nord-East of Italy are now under Fondo Atlante’s control – an investment fund that is financed by a variety of private and public investors: most notably, Cassa Depositi e Prestiti, Unicredit, Intesa – and the next step will be to strive for a merger of these two banks: Banca Popolare di Vicenza (BPVI) and Veneto Banca (VB). Two banks that are traditionally rooted in a region of Italy most commonly known for its rich, industrialized and export oriented industry. It should also be noted that the impact of this metamorphosis is not merely regional and therefore relevant only to a part of Italy, but – in view of the European bank crisis – could potentially affect the entire country and Europe as a whole. This quick makeover of the banking system has had far-reaching implications for Italy’s civil law system; and the general crisis of the Italian banking system has hit the aforementioned banks particularly hard. The present nominal value per share now amounts to almost zero and the prospect of positive change is unlikely. In this scenario, Fondo Atlante made a mediation proposal to the shareholders: an indemnity of about 15% of the original price per share (9€ for BPVi and up to 6,1€ for VB) for those who had purchased shares in the last 10 years. Thus, as the situation currently stands, 94.000 BPVi shareholders and 75.000 Veneto Banca shareholders now must decide whether to accept it or not. In these circumstances, acceptance of the proposal will, on the one hand, enable the recovery of the offered amount, while, on the other, – and much in the spirit of a proper transaction – entail a waiver of any further claims or actions; a decision on these matters must be made by 15th March 2017 which, in addition to the delicate (and consequential) nature of the decision itself, puts time pressure on the investors. Furthermore, the transaction can be executed only if 80% of the shareholders approve it. The aim of this compromise proposal is to avoid the threat of massive legal action against the financial institutions. The banks are especially exposed to liability stemming from a breach of articles 21 ss. T.U.F. and of the CONSOB regulation, art. 27 ss., reg. CONSOB 11522/1998, which both determine the intermediator’s duties. The main source of liability comes from a violation of information duties: for instance, the bank should have informed the investors of the inherent risks involved in the acquisition of unquoted shares (listing of said banks only occurred one year earlier). Interestingly enough, the BPVi has already been condemned for the exact same reason by the Bank Ombudsman (cd. Giurì bancario) and ordered to pay damages in favour of the appellant, who sued the bank before the ADR organ (decision 20.10.2016). The challenges being raised in Italian court cases are bound to play out not only on a national stage, but also have to factor in a European and international point of view. ACROSS THE EUNIVERSE 14 Furthermore, the financial and economic consequences will inevitably be dictated by the choices that judges will make: does the violation of information duties lead to the termination of contracts (with about 169.000 shareholders!) or is legal protection primarily concerned with the maintenance of the contract and therefore allow only for compensation of damages? The question is sophisticated and connected to the traditional rule of the Italian legal system, which allows for termination only in specific and nominated cases, while not intending it in cases of a general breach of information duties. However, in the last few years Italian case law has in various occasions shown proof for its appreciation of the general clause of good faith, fair dealing and transparency. The question is whether the breach of information duties may be considered only in terms of a pre-contractual liability – which for the Italian legal system only implies the compensation of damages – or if being in violation of such duties constitutes a proper breach of contract leading to termination. In practice, the bank and the client conclude a ‘frame-contract’ whereby the former must fulfil its information duties towards the latter, taking also into account the client’s situation, goals and readiness to assume risks. This ‘frame-contract’ should supply the necessary information for all the single financial operations that might follow. While some decisions – like the one I mentioned before – only compensate damages in cases of breach of information duties, in other cases the Italian Corte di Cassazione decided to terminate the contracts concerning the single operations because the bank hadn’t provided the adequate information in the frame-contract (see Cass. 09.08.2016, n. 16820). The impact of the choice between these two options is substantial and would lead to diametrically opposed consequences both for the banks and the investors. So, are we very close to a general revirement in this crucial field? The world of banking could be on the verge of a revolutionary change. ACROSS THE EUNIVERSE 15 Alberto Rossi Partner, Milan E-mail: a.rossi@nctm.it Simone Gaggero Associate, Milan E-mail: s.gaggero@nctm.it The Special Report of European Courts of Auditors on maritime transport in the UE and its impact on Italy The European Court of Auditors has recently published its special report regarding the maritime transport in the EU1 . In particular, the Court assessed the Commission and Member States maritime freight transport strategies and the value for money delivered by EU-funded investments in ports. The starting point is that the investments in port infrastructure are very costly and require long-term planning to ensure profitability. As a consequence, the Member States have to put in place a coherent long term strategy to develop their ports. The Court found that (i) the strategies put in place by the Member States failed to provide a coherent basis for planning the capacity needed in EU ports, and (ii) funding in similar port infrastructure in neighbouring ports has led to ineffective and unsustainable investments. Having considered the Italian scenario, we had already made similar comments in a previous issue of Across the EUniverse.2 In Italy, terminals are far from reaching their optimal level of utilization3 . In light of this, we had highlighted (i) the need of coordination among the different Italian Port Authorities4 in relation to their tender procedures for the awarding of concessions for the construction and operation of container terminals and (ii) that any project in European ports have to be subject to the prior notification to the EU Commission pursuant to Article 108 TFEU. The Court of Auditors recommended, amongst other things, (i) to increase the number of desk-based state aid investigations on ports, (ii) to follow up earlier state aid decisions to ensure the conditions present at the outset remain, and (iii) to notify the Commission of all public financial support to ports in accordance with EU state aid rules 1 “Maritime transport in the EU: in troubled waters – much ineffective and unsustainable investment” (special report pursuant to Article 287(4), second subparagraph, TFEU). 2 Number Ten – February 2016 – “State aids in European ports”. 3 In particular, the percentage utilization of the overall capacity of the Italian terminals amounts to about 57%. 4 We note that Italy has recently adopted a new port governance system providing the reduction in the number of locally-based governing bodies from 24 to 15, no longer called Port Authorities, but now Port System Authorities, headquartered in the ports that are strategically relevant at the EU-level (core-ports). This reform should ensure more coordination in connection with the Italian funding projects in port infrastructures. ACROSS THE EUNIVERSE 16 In our view, the crucial point here is the following: the Court highlighted that public funding of port infrastructure is not the only factor that distorts the competition in this industry. In fact, the financial support made available to the economic operators (i.e. terminal operators) or the funding of infrastructure - either with a specific user in mind or for the benefit of a particular concessionaire – also have to be considered state aid which, by providing a specific undertaking with a clear economic advantage, may affect competition. In Italy, one situation is more typical than others. This is the case of two or more terminal operators – working in the same port – who apply for state support to perform extraordinary maintenance works or to carry out modernization works in the areas granted by means of a concession. In such case, the Port System Authority has to make a choice as to which works are to be funded and – consequently – which operator or operators will be favoured by the improvement of their relevant area. We wonder whether such a choice is completely free and subject only to the discretion of the Port Authority, or whether it is in any way subject to legal restrictions. According to Italian and European case-law5 , the function of granting of authority over state-owned areas can be considered an activity of a private and economic nature. As a result, the Port Authority could be regarded as a active undertakings, subject to domestic and European provisions concerning, in particular, the protection of competition. In addition, Port Authorities are not merely undertakings managing the granting of ports and docks, but, have exclusive concessions to operate in the so-called «upstream market» (that is the market relating to the availability and modernization of port infrastructure), they could be considered companies holding a dominant position in the port market. The fact that Port Authorities may be considered to be in a dominant position, requires them, to behave in such a way so as not to jeopardize competition in the so-called «downstream» market in which terminal operators perform port operations and act like competitors. We have so clarified that the Port Authority is subject to domestic and European antitrust law and must allow the different operators to access port infrastructure on equal conditions6 . In fact, Italian and European law have carefully regulated the activity of 5 It is worth to mention, inter alia, decision no. 30175 of 30.12.2011 of the Italian Supreme Court and, at European level, (ii) the Aéroports de Paris judgements (T – 128/98 and C – 82/01 P) and (iii) the Leipzig-Halle judgement (decisions of the court of first instance of 24.3.2011, T‑443/08 and T‑455/08 and decision of the ECJ of 19.12.12, C‑288/11 P). 6 As known, the denial of access, or access granted on unfair and/or discriminatory conditions, compared to those granted to competitors, represents a breach of competition law pursuant to Article 102 TFEU and Article 3 of the Italian Law no. 287/90. ACROSS THE EUNIVERSE 17 concession of state-owned areas on the basis, first of all, of the principles of transparency and non-discrimination. In the light of above, the application of the aforesaid principles, which characterizes the issue of concessions, cannot but be extended also to the subsequent relationship that is established with the various concessionaires (all competitors and all interested in modernization and improvements in the areas granted in concession). This is not only logical but, in Italy, a direct consequence of a clear rule of law. This derives from Article 12 of the Italian Law no. 241/90, pursuant to which «the grant of subsidies, contributions, subventions and financial aids and the assignment of any kind of economic benefits to persons and public or private entities are subject to the predetermination, by the relevant authorities (…), of the criteria and methods to be complied with by said authorities». In light of the above, the Port Authorities’ decision as to which activities to fund (and therefore, de facto, of which concessionaires to favour) cannot be at the mere discretion of the Authority but is subject to specific rules and obligations. Thus in Italy, Port Authorities have to pre-determine and make public in advance the objective criteria that they are going to adopt for the allocation of available funds, as well as defining a «minimum level» of the activities to be financed that will be the parameter for a possible comparison between requests coming from different entities and exceeding the budgeted amount7 . Then there is the further question pointed out by the European Court of Auditors in its report: the Port Authorities must give notice of their financing projects (to be chosen according to the aforementioned procedure established by law) to the EU Commission as provided for by Articles 107 and 108 TFEU. In this regard, reference is made to a landmark case that was decided by the European Commission in 2015 concerning an investment project submitted by Germany to upgrade the existing cruise ship terminal in the port of Wismar8 . The project involved the public financing of the construction of a road to be granted under a concession - together with the adjacent State property - to a terminal operator operating in the cruise market. The Commission found that whenever a Member State intends to finance a given work in favour of a single concession holder in a port, such State (or rather, the authority 7 According to the Italian Council of State, the rule at issue «has to be considered a general principle of the legal system and, in particular, of the legislation on public aids, whose allocation must be governed at least by rules defining a minimum level of activities to be funded, which will then become the criteria for a potential comparison of a number of requests exceeding the allocated funds». (Italian Council of State, no. 1552 of 23/3/2015). 8 Decision of 30 April 2015, proceeding C (2015) 2824. ACROSS THE EUNIVERSE 18 managing the port concerned) must previously submit its funding project for review by the European Commission in order to assess its compatibility with the internal market. This finding by the Commission confirms that any Port Authority wishing to allocate funds for extraordinary or upgrade work to a concessionaire shall be required to draft a funding project and notify the EU Commission thereof pursuant to Articles 107 and 108 TFEU. Finally, we note that the Italian legislator has recently institutionalized the so-called Project Review under Article 202 of the Italian Legislative Decree No. 50 of 2016. The Project Review aims at a virtuous reallocation of available resources, providing the State’s power to revoke funds granted for projects which, despite being provided for by previous planning, appear no longer to meet the cost-effectiveness ratio requirements. The new Italian approach appears consistent with the recommendation of the European Court of Auditors to increase the number of desk-based state aid investigations and - especially -to follow up earlier state aid decisions to ensure the conditions present at the outset remain. ACROSS THE EUNIVERSE 19 Fabio Marelli Partner, Milan Email: f.marelli@nctm.it The recast EU Regulation No. 2015/848 on insolvency procedures: a focus on group insolvencies 1. Introduction The new Regulation follows on the path of Regulation No. 1346/2000, representing the last step of a process which has been started years ago. European Union authorities resorted also to other means in this direction: aside to the Regulation, a Recommendation has been issued in 2014, inviting Member States to adopt internal procedures more favourable to restructuring (rather than liquidating) distressed businesses. It should be noted that Regulation No. 2015/848, entered into force on 26 June 2015, but will be applicable only from 26 June 2017 and until then Regulation No. 1346/2000 will apply. 2. The recast Regulation: an overview The aims of the Regulation The Regulation aims at updating and improving rules already in place, as well as at adding new rules in areas which were not previously regulated, with respect to effects of the procedures opened in each Member State. The Recommendation No. 2014/135 is instead aimed at starting a process in order for the substantive rules in force in the various Member States to be harmonized. Of course, while the Regulation will be directly applicable in all jurisdictions, the implementation of the objectives of a more uniform substantive legislation in the various Member States will be left to the initiative of the same, but the relevant principles will work as a reference in the interpretation of insolvency rules in each jurisdiction. The main changes brought about by the Regulation The following main new features of the Regulation – among others – can be pointed out. i) developments in certain key principles of the Regulation An improvement is that relating to the restructuring and turnaround of the economic activities of distressed businesses: liquidation of the debtor’s assets is no longer representing, as it was still in the context of Regulation No. 1346/2000, the main aim of insolvency procedures. In this context, it should be noted that, accordingly, the notions of insolvency, limitation of the debtor’s management powers and participation by creditors have been adapted and, with respect to the previous Regulation, significantly widened. Indeed, the new Regulation is not only applicable to procedures based on full insolvency, but ACROSS THE EUNIVERSE 20 also to distressed situations still allowing for a turnaround and restructuring effort to be carried out. Moreover, insolvency procedures are now defined to include pre-insolvency situations and arrangements, which could not have fallen within the traditional definition (involving necessarily the generality of creditors and assets of the debtor, as well as limiting the debtor’s management powers). ii) fine-tuning of jurisdiction rules The proposal would stick to the “centre of main interests” (so-called COMI) notion, which would be better specified as “the place where the debtor conducts the administration of its interests on a regular basis and which is ascertainable by third parties”. In particular, while COMI has been confirmed as the test for determining in which jurisdiction the main insolvency proceedings should be opened, on the other hand it has been specified that (a) the guiding principle is now one referring to what is “ascertainable” and “on a regular basis”, thus codifying precedents in EU and domestic case law (such as that of the ECJ in the Interedil case and of the Italian Court of Cassation, with the decision No. 5945 of 2013), and (b) that a Court requested to open an insolvency proceeding shall on its own motion examine whether it has jurisdiction and it has to state on which grounds this is based. iii) improving secondary procedures These will be procedures no longer limited to liquidation procedures and also the definition of “establishment” allowing the opening the same is widened. It will also be possible to avoid the opening of a secondary procedure, by an undertaking within the context of the main procedure, whereby affected creditors will be assured a treatment equal to that to which they would have been entitled in the secondary procedure. iv) ensuring publicity to insolvency procedures In order to create a wider access to information on insolvency procedures, the Regulation provides that the Commission put in place a system of “interconnected” insolvency registers, accessible to the public through the web at national level and also through a European portal of electronic justice (this will be effective only from 26 June 2018 and 2019, respectively). 3. COMI and Coordination of Group Insolvency Proceedings in the recast Regulation EC Regulation No. 2000/1346 The current Regulation refers to the debtor's COMI as far as the main insolvency procedure shall be opened, while secondary proceedings can be opened in other Member States where the debtor has an “establishment”. The same Regulation does not provide specific rules for determining the COMI when the debtor is a company based in a Member State and controlled by another company based in another Member State. In other words, there is no provision for the insolvency of groups of companies. As a consequence, each company of the group is subject to a separate (main) insolvency proceeding in each Member State and entrusted to its own administrator. ACROSS THE EUNIVERSE 21 EC Regulation No. 2015/848 The As far as the COMI in groups of companies is concerned, no new specific rules have been introduced by the recast Regulation, as it was proposed by scholars and case law, relying instead on ways of cooperation among the administrators and the judges in charge of the procedure of each company. Commentators had tried to suggest ways to resolve the problems of the traditional approach. As an example of this effort, the so-called “Group COMI Approach” can be mentioned, which, by resorting to a sort of a legal fiction, located the COMI of a subsidiary in the same jurisdiction as its holding company. However, this theory implied certain drawbacks, which were likely the reason why the new Regulation did not uphold it: in particular, if on the one side the “Group COMI Approach” allowed for a single Court to open the main insolvency procedure of each of the companies of the group (with the appointment of the same administrator for all the procedures), on the other hand, opening the main procedure of subsidiaries in a place different from that where they conduct their business – being that an “establishment” – left open the possibility that territorial secondary proceedings could be opened, thereby the same problems arising of a loss of control by the administrator of the main insolvency proceedings. EU Regulation No. 2015/848 has indeed provided for new practical rules of coordination between the various actors involved in the different procedures of the companies of a group, in order to improve efficiency in handling such procedures. In particular, various ways of interaction are envisaged among receivers and judges involved in the various procedures regarding the companies belonging to a group, including the duty for receivers to share pertinent information and to cooperate in setting up a rescue or reorganization plan. The proposal would give each receiver the right to participate to the procedure of another company of the same group, in particular the right to be heard, to apply for a stay of the procedure and to propose a restructuring plan. 4. Group Insolvency procedures Italy No provisions of Italian insolvency laws allow for group procedures, but for the government-led extraordinary administration procedure reserved to large businesses. Lower Courts recently started to allow a single group concordato preventivo procedure (a flexible restructuring scheme of arrangement with creditors), but the Court of Cassation with a decision No. 20559 of 13 October 2015, decided that this is not admissible, as this involves a single proposal for all the creditors of the different companies, even if the relevant assets and liabilities are kept separated. From this point of view, the decision appears to be too inflexible and formalistic: a more permissive approach is arguably not barred, because the real critical factor is that of accounting for the different estates of each company of the group, and of allowing each creditor – also within the context of a single proposal – to assess whether it is treated more or less favourably in comparison with the alternative of a bankruptcy ACROSS THE EUNIVERSE 22 liquidation. In February 2016, the Government has sent to the Parliament a proposal to enact a law authorizing the Government to draw up a new comprehensive insolvency law, which would also follow the guidelines set by the Recommendation No. 2014/135 of the European Commission. On 1st February 2017 the law has been approved by the Chamber of Representatives and has now passed to the Senate for the required approval, before it can be enacted. The draft –among other things – is intended to introduce a new specific set of rules for conducting group insolvency procedures: this would be allowed by particular venue provisions, a single procedure all the companies of a group, provided that assets and liabilities of the various companies are not merged and are kept separated. ACROSS THE EUNIVERSE 23 Marat Davletbaev Of Counsel, Rome E-mail: m.davletbaev@nctm.it Russian Constitutional Court rules on the Yukos case: implications for investments protection in Russia On 19 January 2017 the Constitutional Court of Russia (CCR) issued a landmark decision on the infamous YUKOS case, where the CCR was asked by the Russian Government whether the performance of the decision of the European Court of Human Rights (ECtHR, or the Court) ordering Russia to pay circa 1.87 billion USD to exshareholders of the Yukos Oil Company as compensation for the breach of the European Convention on Human Rights (ECHR, or the Convention) protecting the right of private property, was compatible with Russian Constitutional law. The decision of the ECtHR was issued on 31 July 2014. In its decision the ECtHR held that Russia had breached its obligation to protect property rights imposed by Article 1 Protocol 1 of the Convention through the retroactive application of Russian tax laws and by imposing an excessive penalty (7% of gross claims) on the Yukos Oil Company which eventually lead to its bankruptcy. The Ministry of Justice argued that the enforcement of this decision would infringe the Russian Constitution. The CCR ruled that the implementation by Russia of the ECtHR decision would conflict with the Russian Constitution. In its rationale CCR reinstated the priority of the Russian Constitution over international treaties – a largely debated position previously taken by the CCR – and stated, literally, that “the payment to the shareholders of the company of an unprecedented amount from the budget, which ran short of enormous tax payments due from the same company necessary for the performance of public undertakings vis-a-vis citizens of Russia, contradicts to the constitutional principles of equality and justice”. The decision was widely criticised by independent legal scholars. It is the first time for the ECtHR and, arguably, in legal history that a state court prohibits its government to implement a decision of an international court. The stance taken by the CCR also raised concerns as to the ability and commitment of Russia to carry out its international obligations, in particular, in terms of investment protection under the mechanism of ECHR and bilateral and multilateral investment treaties. In the past, Russia had already refused to comply with the decisions of international tribunals – both commercial and public international, starting from the famous award issued by the Arbitration Institute of the Stockholm Chamber of Commerce in favour of Franz Sedelmayer in 1998, up to the final award issued by the International Tribunal for the Law of the Sea in respect of the Arctic Sunrise Case in 20159 . In both instances Russia had refused to comply with the awards with reference to the alleged lack of 9 http://www.pcacases.com/web/sendAttach/1438. ACROSS THE EUNIVERSE 24 jurisdiction of the tribunals. However, the case at hand is the first time where the ECHR investment protection mechanism has been successfully challenged in Russia. Even though there are legitimate grounds for such concerns, the CCR decision on the Yukos case is nevertheless perceived by many as an exceptional case: Firstly, it concerns de facto Russian applicants because the ultimate beneficial owners of the applicants were, in fact, Russian citizens, and this circumstance was successfully used by Russia to defend against the arbitral award issued by an arbitration tribunal in the Hague based on the Energy Charter in 2014. Secondly, those Russian citizens, presumably, stood behind the massive tax evasion schemes employed by Yukos in the late 90s – beginning of 2000s, as confirmed in the preceding Russian courts judgements, the CCR decision and was neither refuted in the ECtHR ruling. Thirdly, many consider the decision as politically biased as the dispute itself is closely connected with the political confrontation between the Russian current political leadership and the ex-majority shareholder of YUKOS Mikhail Khodorkovsky and his allies, where the former was jailed for 10 years on, allegedly, political grounds. Russia has been a party to the Convention for the Protection of Human Rights and Fundamental Freedoms since 1998 and, thus, recognised the jurisdiction of the European Court for Human Rights. To date, Russia has generally complied with operative decisions of the ECtHR while the compliance with general measures imposed by the Court has been traditionally weak. However, Russia has been increasingly irritated by the gradual broadening of the interpretation by the Court of the human rights protected by the Convention. The breaking point happened in 2013 in the Markin v. Russia10 case when the interpretation of the human rights protected by the Convention by the ECtHR contrasted the interpretation of the same rights protected by the Russian Constitution by the CCR. It is at this point where the CCR started to push for the precedence of the Russian Constitution over the Convention. The evolution of this stance ended in the adoption of a law allowing the CCR to review the decisions issued by the ECtHR as to their compliance with the Russian Constitution in 2015. The first time the above mentioned law was applied in respect of another case resolved by the ECtHR – Anchugov and Gladkov v. Russia11 – which concerned the right of the imprisoned persons to vote in state elections. At this point the interpretation of the Convention by the Court was in conflict with an express provision of the Russian Constitution. The CCR ruled not to comply with the ECtHR decision on the merits. 10 http://hudoc.echr.coe.int/app/conversion/pdf/?library=ECHR&id=001-109868&filename=001- 109868.pdf. The case concerned the right to maternity leave for a male on military service. 11 http://hudoc.echr.coe.int/app/conversion/pdf/?library=ECHR&id=003-4425069- 5319054&filename=003-4425069-5319054.pdf. ACROSS THE EUNIVERSE 25 However, the CCR made an attempt to find a compromise between the Russian legal system and the ECtHR decision and abolished some of the Russian legal practices which prevented convicted persons to vote in cases where they were not actually imprisoned. Notwithstanding the above, the CCR has been always reiterating the importance of the ECHR for the Russian legal system and legal practice and has consistently called for “dialogue” and “compromise” between the ECtHR and the Russian supreme court system. In particular, with the CCR itself. This is why, in particular, the CCR has always tried to find ways to “take into consideration” the positions of the ECtHR in its various decisions when ruling on the cases brought before the CCR in Russia. This should mean that the CCR will continue its efforts to “balance” between Russia’s public international obligations and internal political pressure to comply with the ECtHR decisions to the maximum extent possible. Considering the above, one may expect that Russia will continue to comply with the ECtHR decisions in respect of the property rights / investment protection, where they: • Do not run into direct conflict with the provisions of the Russian Constitution (which is unlikely); • Do not involve a sensitive political background; • Do not order to pay huge amounts of compensation sensitive to the Russian state budget. Nevertheless, it remains to yet be seen whether the ECHR mechanism will remain an effective instrument for the protection of rights of property and, in particular, foreign investment, in Russia, in the coming years. ACROSS THE EUNIVERSE 26 Rodolfo Margaria Associate, Milan Email: r.margaria@nctm.it Urgent measures to protect savings in the Italian banking system On 21 February 2017 the Law Decree no. 237 of 23 December 2016, so called “Decreto Salva Banche” (the “Law Decree”) - containing measures on the extraordinary public financial support for the reinforcement of the Italian banking system, in compliance with the Banking Resolution and Recovery Directive (Directive 2014/59/EU), the Regulation (EU) no. 806/2014 on the single resolution mechanism as well as the EU State Aid rules - was converted with amendments to Law no. 15 of 17 February 2017, which entered into force on the 22 February 2017. In particular, the Law Decree, in order to avoid or remedy a serious disturbance to the economy and with the aim to preserve financial stability, allows the Italian Ministry of Economy and Finance (the “MEF”) to support Italian banks through two main State interventions (12): (i) the State guarantee on newly issued debt; (ii) the precautionary recapitalisation of banks. 1. The State guarantee on newly issued debt The Law Decree allows the MEF to grant a State guarantee on: (A) newly debts of banks having their registered office in Italy; and (B) loans granted by the Bank of Italy to provide “emergency liquidity assistance” (ELA)13. (A) The State guarantee on new debt is onerous, unconditional, irrevocable and at first demand (14). It covers principal and interests (15) and it is limited to what is strictly necessary to re-establish the medium-long term financing ability of the beneficiary bank, for an aggregate maximum amount that cannot exceed, as a general principle, the bank’s own funds as required by the relevant prudential regulation. The guarantee may be issued by the MEF only after having received: (i) the positive assessment of the European Commission on the overall regime for the issuance of such guarantee; and (ii) the communication of relevant competent authority (the Bank of Italy or the European Central Bank, depending on the systemically importance of the bank, hereinafter “Competent Authority”)16 in which the MEF is informed that the 12 Such specific measures introduced by the Law Decree are compliant with Article 32, paragraph 4, letter d), of the Banking Resolution and Recovery Directive. 13 ELA is a specific credit line granted by Bank of Italy in case of temporary liquidity problems of Italian credit institutions as long as such a credit institution is solvent. 14 A first demand guarantee is a guarantee, generally issued by banks, which makes it clear that the guarantor must pay under the guarantee on first demand by the beneficiary, whether or not the guaranteed claim is legally due and unpaid. 15 For each bank the nominal value of the financial instruments having an outstanding duration higher than 3 years in relation to which the State guarantee may be granted cannot exceed one third of the aggregate nominal value of the financial instruments issued by the relevant bank and guaranteed by the Italian State. 16 In this respect, it has to be pointed out that the relevant State guarantee can be granted only after the positive assessment of the European Commission on the overall regime for the issuance of such guarantee. ACROSS THE EUNIVERSE 27 beneficiary bank: (a) Fulfils the requirement of the own founds set forth in Article 92 of the Capital Requirement Regulation (Regulation (EU) no. 575/2013), on both individual and consolidated basis, at the date of the last supervisory report available; and (b) Has not revealed deficiencies in the capitalization requirements (for operational risk) as a result of the stress test carried out at national level, in the European Union and in the Single Supervisory Mechanism (17). Notwithstanding the above, the State guarantee may also be granted in favour of banks, which do not meet the aforesaid requirements, when they have a positive net assets value but require liquidity support, following the positive assessment of the European Commission on the compliance of the measure with EU State aid rules. The MEF is authorised to grant the guarantee for a period not exceeding 6 months (30 June 2017) from the entry into force of the Law Decree that can be extended, with the prior consent from the European Commission, for a maximum of additional 6 months. The State guarantee may be granted on the debt financial instruments issued by Italian banks having all of the following characteristics: - Represent debt financial instruments issued after the entry into force of the Law Decree, also in the context of the pre-existing issuing programmes, and the outstanding period is not lower than three months and not higher than five years (seven years in the case of covered bonds); - Represent debt financial instruments, which provide for the bullet repayment of principal at maturity; - Represent fixed rate debt financial instruments; - Represent debt financial instruments that are denominated Euro; - Represent debt financial instruments that do not include subordinated clauses for the repayment of principal and the payment of interests; and - Represent debt financial instruments that are not structured debt securities, complex products nor embedding a derivative component. The State guarantee would have a cost for the beneficiary bank, a consideration to be paid to the MEF, and which is determined, on a case-by-case basis, according to the following scenarios: (a) In case of newly issued debts having an original duration of at least 12 months; (b) In case of covered bonds referred to in Article 7-bis of the Italian Securitisation Law; (c) For newly issued debts having an original duration lower than 12 months. According to the Law Decree, as amended by the Law no. 15 of 17 February 2017, the amount granted by MEF in favour to credit institutions to honour such State Guarantee is bound to this purpose and shall not be subject to any enforcement procedures initiated by other creditors based on different claims. 17 The Single Supervisory Mechanism (SSM), representing the first pillar of the Banking Union, places the European Central Bank (ECB) as the central prudential supervisor of financial institutions in the euro area and in those non-euro EU countries that choose to join the SSM. The ECB directly supervises the largest banks, while the national supervisors continue to monitor the remaining banks. ACROSS THE EUNIVERSE 28 (B) The State guarantee issued by the MEF in order to integrate the collateral posted by Italian banks to guarantee loans granted discretionally by the Bank of Italy with the aim of addressing serious liquidity crises, is irrevocable and benefit from the right of prior enforcement by the Bank of Italy of the guarantees granted by the beneficiary bank to obtain the emergency liquidity assistance. The beneficiary bank must fulfil the same requirements established for the related to the point (i) above. However, in this case, the Law Decree provides that the beneficiary bank shall submit to the MEF a restructuring plan in order to confirm the profitability of the same as well as the long term raising of capital capacity of the relevant bank without the recourse of the public support. 2. The precautionary recapitalisation of banks The second extraordinary public support introduced by the Law Decree, designed to remedy serious disturbances of the economy and preserve financial stability, refers to the possibility given to the MEF to subscribe for or purchase, before 31 December 2017, shares issued by Italian banks, belonging or not to a banking group, or by Italian holding companies of banking groups. The public support may be requested by any Italian bank that – in relation to a stress testing based on an adverse scenario carried out at national level, in the European Union and by the Single Supervisory Mechanism – needs to reinforce its own capitalization requirements (18). Italian banks intending to request State help must submit to the MEF and to the Competent Authority an application including, in particular, the following information: (i) the indication of the amount of shares to be subscribed for by the MEF; (ii) the indication of the net-working capital (on individual or consolidated basis as the case may be), as of the date of such request and the indication of the share capital required to meet capital requirements, if any, taking into consideration the implementation of the specific programme for its own capital reinforcement. Further the favourable assessment of the European Commission on the compliance of the State intervention with EU State aid rules, the MEF adopts - by its own decree enacted upon proposal of the Bank of Italy and to be published on the Official Gazette ( 19) - provisions on the allocation of the burden of the required recapitalisation among 18 In order for an Italian bank to request such State’s intervention it must have previously submitted to the Competent Authority a programme for its own capital reinforcement, mentioning capital needs to meet capital requirements, the measures that the Italian bank intends to adopt to obtain such capital reinforcement, as well as the timing the implementation of the relevant capital reinforcement programme. 19 More in details, the MEF decree will provide for: - The amount of the bank's capital increase for the subscription of shares by the MEF; - The subscription or purchase price and any other elements required for the management of any step of such subscription or purchase, and - The shares' price to be paid to the holders of instruments identified for the purpose of the burden sharing, based on their actual economic value as determined by an independent third party in accordance with the criteria and ACROSS THE EUNIVERSE 29 the various categories of investors (burden-sharing), and depending on the ranking of the relevant instrument. In particular, Article 22 of the Law Decree, as amended by the Law no. 15 of 17 February 2017, sets out the application of the burden-sharing as follows: (a) Mandatory conversion, in whole or in part, in ordinary Tier1 shares of the Additional Tier1 instruments (hybrid instruments); (b) In the event the measure referred to in previous point (a) is insufficient, mandatory conversion, in whole or in part, into Tier1 shares of the Tier2 instruments (subordinated instruments); (c) In the event the measure referred to in previous point (a) and (b) are insufficient, mandatory conversion in whole or in part, into Tier1 shares of the other subordinated instruments. (c-bis) instead of the mandatory conversion, the MEF may require the reduction to zero of the nominal value of the financial instruments referred to in the previous points and the assignment of newly issued ordinary shares included in Tier 1 with the following characteristics: no limited voting rights, no preferential right in the distribution of the net profit and not subordinated on loss suffered. In this respect, the Law Decree contemplates the possibility that the burden sharing and the recapitalisation measures adopted in favour of an Italian bank may include the settlement of potential claims by retail bondholder against the relevant bank (20). In such case the MEF may purchase the shares of those shareholders which became shareholders in the framework of the burden-sharing measures which included the settlement of the potential claim with the aim of allowing retail bond-holders to receive cash for the shares they will obtain as a result of the mandatory conversion under the burden-sharing regime. - The procedure set forth under the Law Decree. 20 Article 19 paragraph 2 of the Law Decree provides that, in case of settlement between the Beneficiary Bank and the holders of the bank shares subject to allocation procedure, the MEF may purchase such shares if all the following condition are met: (i) the transaction is aimed at terminating or preventing a claim on the distribution of instruments subject to the procedure set out in the Law Decree; (ii) shareholders are not qualified counterparties; (iii) the settlement envisages that the beneficiary bank acquires from the shareholders, in name and on behalf of the MEF, shares subject to the burdens allocation procedure and that such shareholders receive from the same beneficiary bank, as a consideration, non-subordinated bonds issued at par by the issuing bank for a nominal value equal to the price paid by the the; (iv) the shares purchase price to be paid by the MEF is the same paid by the beneficiary bank n relation to the bonds assigned by the same credit institution to the shareholders; and (iv) the settlement envisages that the shareholder shall waive its right and remedies relating to the distribution of the financial instruments converted into shares acquired by the MEF. ACROSS THE EUNIVERSE 30 Federica Ciabattini Associate, Milan Email: f.ciabattini@nctm.it The approach of Italy’s Consob to highly dilutive capital increases Over the last few years there have been cases, on the Italian financial market, of so called highly-dilutive capital increases. These are cases where existing shareholders are unable or unwilling to exercise the option rights allowing a right of purchase so as to avoid dilution of the shareholding. The result is significant dilution of the original shareholders holding. This effect comes about when companies need recapitalisation through the issuance of a significant number of new shares. It is, in fact, a concrete economic need which requires a sacrifice of shareholder interest. To address this problem as from 15 December 2016 the “Rolling Model” has entered in force. It represents a technical solution designed to correct some distortive effects of the highly dilutive capital increases (21). This model establishes an additional delivery windows for the distribution of the newly issued shares instead of only a single delivery window at the end of the offering period, in order to avoid a disruptive effect on the price of the shares. As pointed out by Consob (Comunicazione n. 0088305, October 5th 2016) the Rolling Model aims at avoiding price discrepancies during the offering period trying to encourage the rebalancing of shares price market dynamics. Practice has, in fact, showed that the conditions of highly dilution of a right issue create a shortage of equity securities during the subscription period, preventing the market dynamics to balance share prices until the end of the offering period. The Rolling model consists in an early issuance of the new shares in order to obtain a realignment of the share price and option rights on current values. The model, however, will be applicable solely to transactions qualifying as "highly dilutive" capital increases: such cases determines (i) the subscription of newly issued 21 See Consob Communication n. 0088305 of October 5, 2016 regarding highly dilutive capital increases and the subsequent implementation of the Rolling model. The newly amended provisions of art. 2.6.6, paragraph 4, of the Regulations for Markets Organized and Managed by Borsa Italiana S.p.A. provides that “In the event of operations, other than the payment of dividends, involving the detachment of coupons representing rights from listed financial instruments or splits or reverse splits of financial instruments, issuers must make the start of such operations coincide with one of the coupon-detachment days established by Borsa Italiana in the market calendar and comply with the related requirements laid down in the Instructions" ACROSS THE EUNIVERSE 31 shares price has a significantly lower level than the market price / or (ii) issuance of a large number of new shares, compare to existing ones. Consob, in the document containing the results of the public consultations regarding the implementation of the Rolling model, issued on 2 April 2016, clarified the opportunity to identify highly-dilutive capital increases those who has a K coefficient equal to or less than the threshold of 0.3. The K factor is the ratio between the theoretical exrights price of the shares (following detachment of the option right) and the price of the last cum trading day (before the option rights detachment) and consists of an adjustment following the financial hypothesis that the capital increase has already occurred and has been fully subscribed. Some recent examples of share issuance with K coefficient equal to or less than 0.3 are Saipem capital increase on January 2016 which amounted to 3.5 billion euros (k = 0.1) or Monte dei Paschi di Siena capital increase of May 2015 for an amount of 3 billion euros (k = 0.2). (22) In order to know in advance whether a right issue should be considered highly-dilutive, Borsa Italiana S.p.A., as the Italian stock exchange company, will determine a “conventional” K coefficient (based on the share price on the final price of the day when the issuer discloses final terms and conditions). Consob has also specified that, as to allow Borsa Italiana S.p.A. to calculate the “conventional” K coefficient, in accordance with European standards requirements, the issuer should disclose final terms and conditions at least two trading days before the operation begins (while, instead, when no Rolling model is applicable, the issuer must publish final terms and conditions by the end of the second trading day before the operation begins). Such anticipation will further allow Borsa Italiana S.p.A. to calculate the "conventional" K coefficient one day ahead. Below an overview of the indicative timing of a right issue which Rolling model applies. 22 Consob, Capital increases with significant dilutive effect. Results of the consultations, April 2, 2016, 7, available on the corporate website. ACROSS THE EUNIVERSE 32 When Rolling model applies, Consob has clarified that it will be sufficient the deposit in the Company Register a single statement on the execution of the capital increase (pursuant to art. 2444 of the Civil Code) a statement for each single and additional delivery window is not necessary. In this regard, the Ministry of Economic Development (MISE), consulted by Consob on the matter, considers as sufficient a single final deposit of the statement required under art. 2444 of the Civil Code, regardless of whether the subscription of shares takes place in a multiple delivery window, provided that the statement is filed within 30 days of the first subscription window. As far as reporting requirements of significant shareholdings are concerned, pursuant to art. 120 of the Consolidated Financial Act, Consob clarified that significant shareholders should be compliant with reporting requirements only at the end of the capital increase, following the deposit of the statement, pursuant to art. 2444 of the Civil Code. Consob will recommend intermediaries to provide for the delivery of the newly issued shares to investors in the last delivery window, lacking an express request of investors to take advantage of the early-delivery. In this event the intermediary must inform the investors of the consequences in terms of loss of the right of revocation the early delivery may cause. The market will be warned as well on the consequences on the loss of revocation rights, arising from the exercise option rights in one of the multiple delivery windows. In conclusion, Consob, in order to deal with a relevant economic phenomenon affecting shareholders of listed companies with significant capitalization needs and reducing high volatility in market prices of the shares, “imported” a now widely practice recognized among the so called “closed companies” (i.e. the gradual effectiveness of subscription of newly issued shares as part of a right issue). Generally, financial market regulation constitutes a “breeding ground for innovations” made into ordinary law. Here is the opposite, although with an aim – the reduction of price volatility – which features the only world of listed companies. ACROSS THE EUNIVERSE 33 Francesca Angelilli Associate, Rome E-mail: f.angellli@nctm.it The liability of collective entities for foreign bribery On 9 December 2016 - the world anticorruption day - an important report (hereinafter, the “Report”) was presented in Paris by the Working Group on Bribery (hereinafter, the “WGB”).23 The Report addresses the liability of collective entities24 with a special focus on international corruption. The aim of the Report is to provide a chronology and a comparative overview of the systems of liability of collective entities in the 41 Parties to the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (hereinafter, the “Convention”). The Report traces the development of collective entities liability systems across time and documents the characteristics of collective entities liability across all Convention jurisdictions. The first part of the Report is a historic reconstruction of the most important events for the development of a culture of liability of collective entities deriving from the commission of crimes, since the signing of the OECD Convention in 1997. Then, the Report lists the various categories of liability of collective entities in the international context, with systems ranging from the criminal liability in strict sense, the administrative liability and hybrid systems. The theme of liability of collective entities is fundamentally important for fighting the international corruption and other economic crimes. To ensure an EU contribution, the European Commission adopted as early as 2011, a Communication on Fighting Corruption in the EU25 establishing the EU Anti-Corruption report to monitor and assess Member States’ efforts in this area with a view to stronger political engagement to address corruption effectively. Later, on February 2014, the European Commission published the EU Anti-Corruption report26 providing an analysis of corruption within the EU’s Member States and of the steps taken to prevent and fight it. 23 The Working Group on Bribery is the OECD body charged with monitoring Parties’ observance of their commitments under the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. In support of this mandate, the WGB launched an online consultation on liability of collective entities in August 2016. 24 Collective entities are juridical entities that the law recognises as having rights and obligations separate from their members or owners. 25 See “Communication from the Commission to the European Parliament, the Council and the European Economic and Social Committee” on 6 June 2011, COM (2011) 308 final. 26 In line with international legal instruments, this report defines corruption in a broad sense as any “abuse of power for private gain”. It therefore covers specific acts of corruption and those measures that Member States take specifically to prevent or punish corrupt acts as defined by the law, and also mentions a range of areas and measures which impact on the risk of corruption occurring and on the capacity to control it. The report focuses on selected key issues of particular relevance to each Member State. It describes good ACROSS THE EUNIVERSE 34 While the Report is focused on the foreign bribery, it provides an important summary of the global framework – at regulatory and application level – on liability of collective entities. The study states that “the liability of collective entities is a key feature of the emerging legal infrastructure for the global economy. Without it, governments face a losing battle in the fight against foreign bribery and other complex economic crimes”.27 According to the Convention each member state shall (i) pursuant to Article 2 of the Convention “take such measures as may be necessary, in accordance with its legal principles, to establish the liability of collective entities for the bribery of a foreign public official” and (ii) pursuant to Article 3 require that Parties apply “effective, proportionate and dissuasive” penalties for foreign bribery by collective entities. In this regard, the companies are required to play role of active collaboration and cooperative surveillance in the process of anticorruption law enforcement. As regard to Article 2 each Party shall establish a system for holding collective entities liable for foreign bribery. Given the variety of legal traditions, however, the Convention does not require Parties to establish criminal liability when “under the legal system of a Party, criminal responsibility is not applicable to collective entities” 28. Under Article 3 of the Convention, “effective, proportionate and dissuasive criminal penalties” shall be applied to collective entities for foreign bribery, unless “under the legal system of a Party, criminal responsibility is not applicable to legal persons”. In the latter case, the collective entities liability regime must “ensure that legal persons shall be subject to effective, proportionate and dissuasive non-criminal sanctions, including monetary sanctions” 29. In 2009, the OECD Council adopted the 2009 Recommendation on Further Combating Bribery. Annex I of the Recommendation provides that collective entities liability systems should not “restrict the liability to cases where the natural person or persons who perpetrated the offence are prosecuted or convicted” 30. It also provides guidance on the “approaches” that the Convention Parties should take to attribute liability for foreign bribery to a collective entity based on the acts of a natural person or persons. practices as well as weaknesses, and identifies steps which will allow Member States to address corruption more effectively. 27 See OECD (2016), The Liability of Collective entities for Foreign Bribery: A Stocktaking Report. Available at the following link: https://www.oecd.org/daf/anti-bribery/Liability-Legal-Collective entities-ForeignBribery-Stocktaking.pdf 28 Commentaries to the Anti-Bribery Convention, comment 20; see also the Anti-Bribery Convention, Article 3. 29 Anti-Bribery Convention, arts. 3(1) and 3(2). Article 3(4) permits Parties to impose “additional civil or administrative sanctions” on legal or natural persons “subject to sanctions for the bribery of a foreign public official”. 30 Recommendation of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions (2009), Annex I, Part B. See Section B.4 for an excerpt of this provision. ACROSS THE EUNIVERSE 35 Settlements, compliance systems, self-reporting and sanctions on legal persons are closely linked issues. In fact, as said by the Association of Corporate Counsel, “one of the greatest benefits of an effective corporate compliance system – both for corporations and for governments – is the corporation’s ability to uncover and investigate instances of potential wrongdoing by its employees. Once discovered, the corporation is faced with the decision of whether or not to report the suspected wrongdoing to the government and cooperate with any investigation. Allowing the corporation to negotiate a more favourable resolution with the government is further incentive to report the violation and cooperate with the government investigation, and also adds to the value the corporation receives from its compliance system” 31. Notwithstanding, on this point there is agreement on the general idea of incentives, but not on the details. Providing legal incentives for company compliance efforts is considered useful, however, there is widespread disagreement on how exactly these should be implemented. The positions are quite variable on the question whether the company or the prosecution should bear the burden of proof concerning the adequacy (or inadequacy) of the firm’s preventive measures. In fact, some submissions called for only partial avoidance of liability for having adopted preventive measures, including effective compliance systems (as well as for selfreporting and cooperation). A few note, that settlement arrangements and available sanctions need to provide incentives for a complex array of behaviours, and therefore require carefully calibrated sanctions for each of the various types of behaviour. Others seemed to call for a complete exemption for having an effective compliance system alone. The Association of Corporate Counsel strongly feels that all jurisdictions should have a mechanism within their anti-bribery regimes that gives corporations with effective compliance systems some measure of leniency with respect to foreign bribery offenses. Such incentives act as a sort of government endorsement of the value of corporate compliance systems. Multi-national enterprises find such endorsements particularly useful when attempting to implement compliance systems in their international subsidiaries. It is easier to marginalize compliance when the government where the subsidiary operates has not made ethics and compliance in corporations a priority. Formal compliance incentives are a helpful tool for the lawyers and compliance officers who must convince executives to make the necessary investments in corporate compliance systems. The Federation of German Industries is in favour of a regulation that exempts a corporation from sanctions if it provides evidence that it has taken appropriate and adequate measures, in terms of organisation and manpower, to provide a general safeguard against such misconduct. This would also be a way of rewarding good corporate compliance systems. Adequate compliance systems that are already in place as well as 31 Public Consultation on liability of legal persons: Secretariat summary of responses. ACROSS THE EUNIVERSE 36 forward-looking investments in compliance, such as the establishment or tightening of compliance measures, should result in exempting corporations from liability. Individual cases of misconduct or failure to supervise can never be fully precluded. If the corporation has selected a decision maker with due care and has an adequate compliance system in place which is generally suited to preventing such misconduct, then the corporation should not be made liable for this misconduct. The Italian legislator has followed, pursuant to the legislative decree n. 231/2001, the same philosophy described above. Moreover, the Report is characterised by the special role accorded to the theory of economic environment legally oriented in a multi-level legal system. This kind of environment underlines how some regulatory frameworks in the field of liability of collective entities provide for incentives and benefits which induce the companies to have effective compliance programmes. The companies are called to play a central role of active collaboration and cooperative vigilance in the anticorruption law enforcement processes. Through such mechanism it is shaped the approach defined as “multistakeholder” in force of the contemporary active participation to the legality control by both stakeholders from the public and private sector. The above-mentioned approach is definitely crucial in order to boost the fight against corruption through the phases of: detection, prevention, investigation and resolution of cases of foreign bribery. Fifteen years after the entered into force in Italy of the legislative decree n. 231/2001, result of the Italian fulfilment of the OCSE convention, many critics points still remain. For this reasons too, the studies of the WGB, here briefly commented, have provided an important tool for the companies and for the legislator – not only the Italian one but the legislator of each OCSE member state – for a greater awareness of the future choices in such sensitive and important sector. ACROSS THE EUNIVERSE 37 Across the EUniverse Editorial Staff Giovanni Moschetta Of Counsel, Rome and Brussels Coordinator Across the EUniverse E-mail: g.moschetta@nctm.it Bernard O’Connor Managing Partner, Brussels Editor Across the EUniverse E-mail: b.oconnor@nctm.it Francesca Angelilli Associate, Rome Editorial coordinator Rome E-mail: f.angelilli@nctm.it Sandro Conte Business Development, Rome Editorial Staff, Rome E-mail: s.conte@nctm.it ACROSS THE EUNIVERSE 38 Nctm via Agnello, 12 20121 Milano nctm.it Milano Via Agnello 12, 20121 Milano T +39 02 72551.1 F +39 02 72551.501 Roma Via delle Quattro Fontane 161 00184 Roma T +39 06 6784977 F +39 06 6790966 London St Michael’s House 1 George Yard, Lombard Street EC3V 9DF, London T +44 0 2073759900 F +44 0 2079296468 Brussels Avenue de la Joyeuse Entrée 1 1040 Brussels T +32 0 22854685 F +32 0 22854690 Shanghai Room 4102, Hong Kong New World Tower N°300 Middle Huaihai Road, 200021 Shanghai T +86 2151162805 F +86 2123261999 The information and commentary herein do not and are not intended to amount to legal advice on a specific matter. They are supplied for information purposes only. Every reasonable effort is made to make them accurate and up to date, but no responsibility for their accuracy or correctness is assumed by our firm. Any reader is invited to obtain specific legal advice on any matter we treated here and is welcome to contact any member of our staff. www.nctm.it