The Law Decree dated 3 May 2016, no. 59, which has been published on the Italian Official Gazette ("Gazzetta Ufficiale") no. 102 dated 3 May 2016 (the Decree), sets forth certain substantial innovations on the Italian legal framework, security interests granted by borrowers and/or third parties to banks and/or financial institutions in the context of financing transactions.

The Decree is currently entered into full force and effect but is subject to conversion in law to be implemented by the Italian Parliament no later than 60 days from the date of the publication of the Decree before the Official Gazette (i.e. 9 July 2016). In the event that no conversion in law is published within such date, the Decree will become ineffective on a retroactive basis.

The Decree provides for a non-possessive pledge granted by entrepreneurs ("imprenditori") in connection with receivables arising from the exercise of the entrepreneurship (hereinafter, the Non-Possessive Pledge), and (for conditional assignment agreements of immoveable assets granted by entrepreneurs ("imprenditori") in favor of banks and other financial institutions authorized to carry out lending activities in public in with the context of financing transactions (hereinafter, the Conditional Security Assignment Agreement.)

1. Non-Possessive Pledge

Regarding the Non-Possessive Pledge, pursuant to Article 1 of the Decree, entrepreneurs ("imprenditori") enrolled before the entrepreneurships’ register ("Registro delle imprese") are entitled to grant Non-Possessive Pledges for the purposes of securing present or future receivables in connection with the exercise of the entrepreneurship ("esercizio dell’impresa") over any moveable asset (save for moveable assets to be registered before a public register), including receivables and future assets, to the extent that (a) the relevant pledged collateral is dedicated to the exercise of the entrepreneurship ("esercizio dell’impresa"), (b) in the event of Non-Possessive Pledge granted over future assets and/or receivables, the collateral is or may be determined by reference to goods categories or an aggregate monetary amount is made, and (c) the agreement setting forth the terms of the Non-Possessive Pledge expressly provides for a maximum secured amount.

In particular, as a derogation to the general principles set forth under the Italian Civil Code, pursuant to which, subject to certain exceptions (a) pledges are perfected and enforceable vis-à-vis third parties subject to dispossession ("spossessamento") of the pledge collateral by the debtor, and (b) no disposals shall be made over the pledged collateral for the entire duration of the pledge, the pledgor under a Non-Possessive Pledge is entitled to, among other things, dispose the pledged collateral to the extent that the relevant disposal is made in compliance with the economic destination of the pledged collateral, and the Non-Disposal Pledge shall continue over any result of the disposal of the pledged collateral by the debtor without new security interests required to be granted by the pledgor.

As to the perfection formalities, the Non-Possessive Pledge Deed shall be executed in writing and registered before a newly issued register named “Registro dei pegni non possessori” held before the competent Tax Authority. Upon such registration, a rank is provided for the Non-Possessive Pledge and, for the entire duration of the registration thereof (i.e. ten years, subject to prior renewal), the security will be enforceable vis-à-vis third parties, save for creditors (a) having financed the acquisition of the relevant pledged collateral, and (b) having a retention of title ("riserva di proprietà"), or being pledgees under a pledge and/or a Non-Possessive Pledge, over the pledged collateral.

Upon occurrence of an enforcement event of the Non-Possessive Pledge, the pledgee is entitled to procure (by means of competitive procedures, also with the assistance of specialized advisors) the forced sale of the pledged collateral, or enforce the amounts thereunder upon full satisfaction of the secured obligations, and, if applicable, lease the pledged collateral or repossess the pledged collateral, with no opening of judicial proceedings nor arrangements of public auctions.

2. Conditional Security Assignment

As to the Conditional Security Assignment Agreement, Article 2 of the Decree sets forth the terms of the new Article 48-bis of the Legislative Decree 1 September 1993 no. 385 with the aim to extend the security interest schemes available to the parties in connection with lending transactions. Pursuant to such provision, among other things, a facility agreement (irrespectively of the tenor of the relevant facility) entered into by and between a bank and/or other financial institution authorized to carry out lending activities in public, as lender, and an entrepreneurship ("impresa") as borrower, may be secured by means of Conditional Security Assignment Agreement in favor of the lender or any of its subsidiaries and/or affiliates of the property or other in rem right over immoveable assets.

In particular, the Conditional Security Assignment Agreement shall be executed by way of notarial deed on or about the date of the underlying facility agreement, or afterwards in the context of amendments to existing facility agreements: if the case is the latter, as a derogation of the general principle set forth under Article 2644 of the Italian Civil Code, Article 2 paragraph 1 of the Decree provides that, in the event that the original facility agreement is secured by mortgage, the registration of the subsequent Conditional Security Assignment Agreement shall prevail over any registration made in respect of the same collateral made after the original registration of the relevant mortgage.

The enforcement of the Conditional Security Assignment Agreement may be activated by the lender upon occurrence of the following selected non-payment default:

  1. of three non-consecutive repayment instalments being due and payable for a period longer than six months, in the event that the relevant instalments are to be repaid by the borrower monthly; or
  2. of one repayment instalment being due and payable for a period longer than six months in any other case; or
  3. of any payment obligations being due and payable for more than six months, in the event that the repayment, if no repayment instalments are set forth under the underlying facility agreement.

Upon occurrence of any of such events, the collateral shall be transferred to the secured creditor without that the same is required to apply to a judge nor to take part to public auctions. In this respect, pursuant to Article 2 paragraph 8 of the Decree, the Conditional Security Assignment Agreement is perfected subject to (i) receipt by the debtor of a notice reporting the monetary value of the collateral made by an independent expert appointed in accordance with the Decree, or (ii) if applicable, the payment of the assignee of the amounts (if any) resulting from the value of the collateral net of the outstanding secured obligations. In addition, the Decree sets out that, subject to certain conditions, the rights of the assignee under the Conditional Security Assignment Agreement shall prevail also vis-à-vis creditors having commenced judicial enforcements over the secured collateral and also in the event that the valuation of the expert is challenged before a Court by the assignor.

The above provisions under the Decree should prima facie be likely to play a key role in connection with asset-backed financing transaction (including, by way of example, real estate finance schemes), as they should entitle the secured creditor to strengthen its enforcement powers vis-à-vis the debtor and, in a default scenario, satisfy itself in a considerably shorter timeframe as in the context of ordinary pledge enforcement and/or mortgage foreclosure proceedings, whose completion are generally time consuming and uncertain, and may vary significantly depending upon, inter alia, the type and location of the assets and other factors.