The recovery of monies from national and regional governments, municipalities and public bodies in general is commonly considered to be a “chronic” issue in Italy. The outstanding debts have been recently estimated ranging from Euros 70 to 90 billion .  The strict principles and limits fixed last year on public financial resources and payments to improve “stability” of public financial accounts led public buyers to delay payments well over the due date to avoid the breach of those rules.

As a result of the ongoing breach of contractual terms of payment by public bodies and the size of the outstanding debts, an increasing number of enterprises have had to dismiss employees, close offices and even consider liquidation. For businesses in the health sector, the situation is made worse by the precarious financial situation of many hospitals and public health bodies. The public health sector is commonly considered to be in a critical state.  Statistics suggest around Euros 40 billion is unpaid and, particularly in Southern Italy, sums have been outstanding for more than 2 years.

The new Government led by Prof. Mario Monti has expressed its commitment to seek financial resources to drastically reduce the long delay of payments due from public entities.  This has been given further impetus by the need for Italy to implement this year the principles set out in EU Directive 2011/7/UE (“the Directive”), which requires public health entities to make payments within 60 days at the latest.

At the end of 2011 the Italian Parliament charged the previous Government with the implementation of the Directive by November 2012, being 4 months earlier than the longer term granted by the Directive of  March 2013. The new Government of Prof. Monti has confirmed its will try  to meet the November 2012 deadline and at the end of January 2012 reserved Euros 3.7 billion for payment of outstanding debts due by public entities.  It also allocated Euro 2 billion of State bonds for assignment to creditors who opt for this alternative way of settlement. The lower chamber of the Italian Parliament has just approved the proposal to instruct the Government to try to implement the Directive even earlier - within the next six months - and the Government’s response is expected to be positive.

Despite the clear challenges of such a policy, everyone is aware in Italy that the overcoming of such longstanding issues has become a strategic target to enable Italy to compete with the other European countries.  The determination of the Government gives grounds for some confidence that the goal will be achieved. In the meantime, we advise our clients to ensure that any outstanding credit meets all the peculiar legal requirements established for setting up a valid contractual relationship with public administrations and bodies in Italy. In particular, any claim for payment for the supply of goods or services must be founded on a formal agreement in writing duly executed by the competent authority. Failing that, no valid contractual relationship will be deemed to exist and, thus, any request for an order of payment made would be rejected. For example, in the health care sector, a health care supplier may be asked by the manager of an hospital department or other public officer to perform its services on the basis of a mere purchase order.  However, normally such a document will not be sufficient to establish a valid contractual relationship with a public entity, resulting in the risk that no claim for payment can be pursued.

We therefore recommend that companies with claims for credits against public entities review their records with the help of their trusted lawyers before starting any action thereon, as there are legal and commercial issues to consider in determining the best strategy for recovery of monies.

Further, if you have issues in any jurisdiction outside of Italy with obtaining payment from an overseas entity (whether a public or private body), it is important to discuss your options with your lawyers at the outset, as they vary from jurisdiction to jurisdiction and there are commercial, legal, cultural and political considerations to the best strategy to pursue.