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Italy: Legislation on Debtor-Creditor Relationships

(June 21, 2016) On May 4, 2016, new legislation introducing provisions related to debtor-creditor relations, bankruptcy procedures, executive debt collection procedures, and procedures for the protection of investors in banking institutions that are under liquidation entered into effect in Italy. (Decree-Law No. 59 of May 3, 2016, Urgent Provisions Concerning Executive and Bankruptcy Procedures, as Well as Provisions Benefiting Investors in Banks Under Liquidation (D.L. No. 59), GAZETTA UFFICIALE No. 102 (May 5, 2016), available at NORMATTIVA (in Italian).)

Non-Possessory Liens

To give more flexibility to business owners in receiving loans from investors, the new law allows for the creation of guarantee liens, other than those involving possession of key assets needed for the business, by entrepreneurs to back up credits granted to them by investors. Known as “non-possessory pledges” (similar to liens), they may by placed on movable property used for business purposes other than registered movable property. (Id. arts. 1(1) & 1(2).) Unless otherwise provided by contract, the debtor or the third party granting the lien is authorized upon nonpayment of the debt to transform or dispose of any of the property subject to the lien, in keeping with the borrower’s original economic purpose. (Id. art. 1(2).)

In order to be enforced, the contract must be registered in a computerized register maintained by the tax authorities, called the “Register of Non-Possessory Liens.” (Id. art. 1(4).)  Non-possessory liens must be registered in order to be enforceable. (Id. art. 1(5).) The registration lasts for ten years and is renewable by means of an annotation in the registration record made before the expiration of the ten-year term. (Id. art. 1(6).) The registration may be cancelled by the consent of the parties or by judicial order. (Id.)

When an event occurs that triggers the enforcement of the lien, the creditor has a number of alternatives to satisfy his credit up to the amount guaranteed, including the sale of the asset subject to the pledge, the enforcement of the credits that are guaranteed by the liens, the lease of the assets under lien, or the appropriation of the assets under lien. (Id. art. 1(7).) In all circumstances, the creditor must provide due notice to the debtor to allow him to recover any damages caused by the debtor’s violation of the aforementioned provisions. (Id. art. 1(9).)

Financing by Conditional Transference of Rights over Real Estate

The new legislation creates other legal instruments aimed at giving flexibility in the provision of non-traditional commercial guarantees to lenders by investors. One of these instruments is the conditional transfer of rights over real estate. This is a loan agreement between an entrepreneur and a public banking institution that includes a guarantee of the transfer to the creditor or a related company of property rights of the entrepreneur or a third party, based on set requirements such as payment of an agreed amount in installments. (Id. art. 2(1).) In the case of default, the creditor has the right to make good on the loan based on the property rights given to him in guarantee for an amount equivalent to the debt. (Id. art. 2(2).) Certain real estate is excluded from these transactions (e.g., family dwellings). (Id. art. 2(3).)

Registration of Real Property Under Repossession or Insolvency Procedures

The legislation establishes an electronic registry of real estate under repossession or insolvency procedures and creates crisis management tools to handle such situations. The Italian central bank has access to the registry, to perform supervisory functions over activities related to the property. (Id. art. 3(1).) The registry – which must contain detailed information as established in the new legislation – consists of two sections, one open for free, public access and another with restricted access. (Id. art. 3(1 & 3).) The legislation provides for access by the organs of the bankruptcy proceedings to the information contained in this registry. (Id. art. 5(1).)

Measures to Expedite Bankruptcy Proceedings

The law provides new measures to expedite bankruptcy proceedings, including the creation of creditors’ committees, the holding of judicial hearings through electronic means, and the convening of creditors’ meetings. (Id. art. 6(1)(a), (b) & (c).)

Expanded Access to the EU Solidarity Fund

The law expands access to the European Union Solidarity Fund (EUSF) for investors who acquired financial instruments in banking institutions after June 12, 2014, and who still held them by the date when such banking institutions were declared to be under liquidation. (Id. art. 9(1).) In some circumstances, such investors may now request the disbursement of money from the Fund. (Id.) The EUSF was set up to respond to major natural disasters and show European solidarity with disaster-stricken regions in Europe. (EU Solidarity Fund, European Commission website (last visited June 17, 2016).)

The legislation also creates a fund for the re-training and re-qualification of banking personnel who go into retirement due to age or who anticipate retirement within seven years after the entry into effect of the new legislation. (D.L. No. 59, art. 12(1).)