Banking & Finance 2019 Second Edition

Last Updated September 10, 2019


Law and Practice


Grimaldi Studio Legale is an independent Italian law firm with four offices in Italy (Milan, Rome, Parma and Bari) and four abroad (London, New York, Brussels and Lugano). The banking and finance practice is based primarily in London, Milan and Rome, and offers strong expertise in private debt, the acquisition of NPL/UTPs, leveraged finance, securitisation, debt restructuring, real estate finance, project finance, financial regulation and general banking and finance.

Regulatory and capital requirements applicable to European banks coupled with the unwillingness of treasurers of Italian non-financial companies to rely excessively on bank lending have facilitated the development of alternative financing options. Based on ECB data, between 2009 and 2017 bank debt in Italy shrunk by EUR118 billion, while debt securities issuances in the country increased by EUR83 billion. Bank loans were falling rapidly until 2017, but the trend has since reversed. The transition to disintermediated market-based alternatives is likely to continue in the coming years due to LPs, such as insurance companies, pension funds and sovereign funds, seeking to enter the private debt market directly. It is mostly large borrowers that tend to benefit from such disintermediation, while SMEs continue to rely mainly on local medium-sized banks, but these are under stress due to lack of investments in technical innovation, disproportionate capital requirements and the need to dismiss or restructure non-performing exposure vis-à-vis non-financial debtors.

The Italian high-yield market is still doing well, although the lion’s share is made up of repeat issuers, despite more issuers accessing the market. It remains to be seen whether such high-yield resilience will be affected by the reduction in the average size of PE deals and by the debt-to-EBITDA ratio being generally between 2 and 4 (well below the pre-financial crisis peak). Major players in the Italian loan market have not generally loosened their maintenance covenants to challenge or at least counter-balance the attractiveness of high-yield bonds for repeat issuers.

In the last two years, there has been a significant surge in the private debt market in bond format, especially in leveraged finance mid-market sponsor-led deals having around a notional EUR50 million. Private debt covenants in LBO transactions tend to be slightly more relaxed than those of bank providers. In addition, there has been a steady increase in green and climate bonds.

There is an increasing use of escrow and tap issuance features in the private debt bond market. Private debt bond structures are also being used in lieu of real estate loans, specialised lending (such as in project finance) and distressed bank loans. In order to assist SME borrowers, there has been an increasing number of basket bond programmes since the end of 2017 (the first being the Elite Basket Bond I transaction), which are essentially CDO structures with a large number of issuers whose notes are subscribed by a CDO securitisation SPV. The CDO noteholders often benefit indirectly from a cash reserve security and a guarantee from the underlying bond issuers.

2019 saw the first sizable "pay if you can" (PIYC) super-senior court-approved financing to a company (Astaldi S.p.A.) in a concordato preventivo procedure. This distressed financing was in the form of a listed private placement bond documented by using the Italian law-governed LMA private placement forms of subscription agreement and terms and conditions, which are increasingly being used in the market.

There have been two very significant developments in Italy in 2019 that will undoubtedly affect the loan market in the foreseeable future, as follows:

  • The ‘Code on business crisis and insolvency’ will come into full force on 15 August 2020 (some provisions on directors’ liability came into force on 16 March 2019), replacing the insolvency framework of the 1942 Bankruptcy Act and, inter alia, adopting Directive (EU) 2019/1023 and following the principles set out in Recommendation (EU) 2014/135. The main objectives of this new legislation are to predict and address the business crisis before it can develop into an insolvency crisis, and to protect the going concern. In this respect, the Code introduces procedures that are similar to the French procédure d’alerte and procedure de conciliation. Loan agreements with Italian obligors will likely include covenants to this effect. In addition, the Code reforms out-of-court procedures, providing for new majorities that are likely to have an impact on ‘majority lenders’ language in syndicated loan documentation. Procedures (also at pre-insolvency level) can be consolidated at group level, which is likely to affect the scope of the guarantees and the security package that lenders will require in order to protect their position in case of insolvency.
  • The publication of the first Italian Supreme Court (Corte di Cassazione) decision on fronting structures (no. 12777 of 22 March 2019), in which the Court held that an unauthorised lender would be deemed to be acting in breach of banking monopoly rules if:
    1. it assumes in whole or in part the insolvency risk of the borrower;
    2. it makes a credit-worthiness assessment of the borrower;
    3. the exposure of its loan participation or sub-participation (in aggregate with those of other unauthorised lenders) is larger than the one held by the fronting lender; or
    4. it enjoys voting rights.

These indicators would need to be considered by lenders wishing to consider setting up a fronting structure.

Italy has stringent banking monopoly rules that are applicable to lending transactions, which require lenders carrying out such business on a professional basis to be expressly authorised to this effect.

From a contractual standpoint, any loan agreement violating banking monopoly rules would be null and void under Italian law. In addition, the lending entity and the individuals in breach may be subject to criminal sanctions.

Indirect lending through fronting structures where unregulated participants or sub-participants lend though a lender of record potentially raises regulatory and legal issues, especially after Supreme Court (Corte di Cassazione) decision No. 12777 of 22 March 2019 ruled that a fronting structure was illegal due to the breach of banking monopoly rules, and set out a number of indicators of fronting structures that would ordinarily trigger illegality.

Fronting structures were quite common in large international syndicated loans until a few years ago, but they have become much less common due to such regulatory and legal risks, and to the fact that participants in the market have become generally reluctant to accept the insolvency or resolution risk of the fronting lender. The above Supreme Court decision constitutes a significant blow, and will arguably impinge on the use of such structures in the future, potentially prompting a collapse of such structures.

Entities authorised to provide lending in Italy include:

  • banks incorporated in Italy and authorised by the Bank of Italy;
  • passported EU banks;
  • non-EU banks authorised by the Bank of Italy, either directly or through an authorised branch;
  • financial intermediaries incorporated in Italy registered with the Bank of Italy under Article 106 of Legislative Decree No. 385 of 1 September 1993 (the “Italian Banking Act”) (“106 Intermediary”);
  • non-EU financial intermediaries acting through an Italian subsidiary registered with the Bank of Italy;
  • EU financial intermediaries acting through an Italian branch registered with the Bank of Italy under Article 106 of the Italian Banking Act;
  • passported EU financial intermediaries that are part of a banking group;
  • Italian securitisation vehicles;
  • Italian insurance companies; and
  • Italian and EU alternative investment funds (AIFs).

In the last few years, legislation has been enacted to facilitate lending to Italian borrowers by new players such as Italian securitisation vehicles and EU AIFs.

In particular, securitisation vehicles may grant financing to entities other than individuals and/or micro-enterprises if the following conditions are met:

  • the borrowers must be identified by a bank or by a 106 Intermediary, which may also carry out the servicing activity in the context of the securitisation;
  • the holder(s) of the notes must be qualified investors; and
  • the bank or 106 Intermediary that identifies the borrower must retain a “significant economic interest” in the transaction (ie, a 5% stake), which must exist at the beginning of the transaction and shall continue to exist throughout the entire duration of the loan.

The master servicer of the securitisation must then verify the compliance with the above requirements and the correctness of the information provided to the investors.

The purpose of the above requirements is, essentially, to make sure that the banks and financial intermediaries continue to carry out their task of assessing the creditworthiness of the borrowers and to prevent any moral hazard in lending; therefore, the law requires that they identify, on behalf of the securitisation vehicle, the borrower(s) to whom the financing shall be made available and retain an “economic interest” in the transaction (so-called “retention”).

Indirect lending through securitisation vehicles is still a recent scheme in Italy, the attraction of which is limited by the complexity of the scheme, the retention rule requirement and the need to involve a servicer. While this scheme would allow non-regulated entities to lend in Italy, it remains unpopular.

An EU AIF needs to meet certain requirements in order to be authorised to lend into Italy. First of all, it needs to have completed a notification procedure with the Bank of Italy, which should confirm that the notice (and attached documentation) is complete. Pending such confirmation, no lending activity can be carried out.

The EU AIF also needs to be authorised by the competent authority in its home jurisdiction to disburse and invest in loans, and:

  • must be a closed-ended AIF;
  • its operating rules, with particular regard to the holding of the relevant units/shares, must be analogous to those governing Italian AIFs investing in loans; and
  • the rules of the country of incorporation of the EU AIF in relation to credit risk mitigation, including the limits to leverage, must be equivalent to the corresponding Italian provisions applicable to the Italian AIFs investing in loans.

In the last few years, lending through private placement bonds has become more and more frequent. Banking monopoly rules do not apply to debt capital market transactions where the issuer is an Italian S.p.A. (società per azioni). However, the issuance of bonds by an S.p.A. is subject to certain requirements – in particular, the ratio between the bond (and any guarantee issued by the company for any other company’s bonds) and the equity of the issuer must not be higher than 2:1 (the “Ratio”). If this is not the case and the Ratio is not met, the bonds can still be issued if one of the following circumstances occurs:

  • the bonds exceeding the Ratio are subscribed for by one or more professional investors, subject to domestic or foreign prudential supervision;
  • the bonds are secured by first ranking mortgage, up to a 2/3 Loan-to-Value;
  • the bonds are convertible into equity; or
  • the bonds are listed on a regulated market or multilateral trading facility (or, in the case of bonds subscribed by a securitisation vehicle, the securitisation notes are listed on a regulated market or multilateral trading facility, even if the relevant bonds are not listed).

Since the Ratio is not often met, and the granting of a mortgage raises some material tax considerations, a relatively frequent approach in the Italian market is to have the bonds listed. One of the options that is often considered is to have a listing on the Vienna MTF, which effectively does not require the submission of a prospectus (and therefore does not trigger any prospectus liability for the issuer), although it does attract the application of EU market abuse regulations. While the issuance of a bond is the route more frequently followed by unregulated lenders to finance Italian companies, it is not unusual to encounter some initial resistance from certain corporates that are less familiar with a bond structure and consider it more complicated to manage than loans (especially if an amendment or waiver is needed).

As stated above, unauthorised lenders (whether foreign or domestic) are prevented from granting loans.

Under Decree of the Ministry of Economy and Finance No. 53 of 2 April 2015, lending activity also comprises the purchase of receivables for a consideration; as such, it includes the holding of loan participations post-drawdown, if the participant carries out such activity on a “professional basis”. Given the current strict interpretation adopted in certain Italian Supreme Court cases, the purchase of a single loan may also fall within such restrictions. The breach of such restriction potentially triggers the application of criminal sanctions and the invalidity of the relevant assignment agreement.

No authorisation is required for the acquisition of receivables owed by an entity belonging to the same group of the purchaser.

The taking of security/guarantees does not generally require any licence to be held by the secured party (but see the above paragraphs on restrictions to lending).

Italy has not implemented any foreign currency exchange controls. There are no restrictions on currency transfer, but there are reporting requirements for banks due to money laundering and terrorism concerns.

General public order restrictions apply, such as money laundering, criminal activities, and prohibition of financial assistance.

It is not possible for the security agent/trustee to hold Italian law-governed security on behalf of secured lenders. However, the secured parties may grant authority to the security agent to exercise their rights in their name and on their behalf, substantially reaching the same effect. This can be achieved either by granting the security agent/trustee a separate power of attorney, or by including the provision conferring a mandate (mandato con rappresentanza) in a finance document – usually in the facility agreement or the intercreditor agreement (as well as in the relevant security document). The use of parallel debt obligation/joint creditorship structures does not help to address the issue as such structures are untested in Italian courts and/or their enforceability under Italian law is heavily disputed.

It is usually provided under the security document that the enforcement/release of the security may be carried out by the security agent, in the name and on behalf of all the secured parties, by means of a specific mandate to do so. In such case, enforcement is carried out by the security agent without the need of any specific action by the individual lender, subject to the mandate having been granted in a notarised document (if this is not the case, the individual lender may have to grant a notarised mandate to the security agent to act in court).

However, it is possible in bond issuances for security agents appointed under Italian law to hold the security on behalf of the noteholders, without the need to rely on a mandato con rappresentanza structure.

Assuming that the relevant loan agreement is governed by Italian law,  the most common loan transfer mechanisms in syndications are as follows:

  • Assignment of receivables: a transfer of the benefit of claims (but not the obligations nor the contractual rights) of the transferor lender under the loan agreement.

The assignment of receivables may be made in the framework of securitisation structures (providing for specific protection from claw-back actions and simplified formalities for the perfection of the assignment). However, in this kind of transaction, the purchaser of the loan receivables would need to be an Italian securitisation vehicle operating under the framework of Law 130/1999 (third-party investors may only subscribe for the notes issued by the vehicle).

  • Assignment of contract: a transfer of the rights and obligations under the loan agreement whereby the transferee assumes the same legal position as the transferor. Consent of the assigned third party borrower is required in this case.

Under Italian law, the assignment of loan receivables entails the transfer of any security and guarantee assisting such loan. This general principle does not apply to the so-called contratti autonomi di garanzia (Italian law-governed first demands guarantees that are independent from the guaranteed obligations), which must, therefore, be subject to a specific assignment agreement.

In order to allow the new lender to benefit from all the provisions set out in the security agreement (eg, representations, undertakings) and not only from the security itself, and to ensure that perfection formalities are refreshed in favour of the assignees (thereby ensuring that they will be independently capable of enforcing the relevant security interests), it is common practice in the Italian market to request the grantor of the security to enter into a deed of acknowledgment and extension of the security for the benefit of the new lender (such deed is to be entered into by all secured creditors or by the security agent acting in the name and on behalf of such secured creditors).

Buy-back of loan participations is permitted as long as the entity that carries out the buy-back belongs to the borrower’s group, as set out in 3.1 Restrictions on Foreign Lenders Granting Loans, above.

For acquisitions of public companies, Article 37-bis of regulation 11971 of 14 May 1999 issued by CONSOB, the Italian Stock Market Authority, requires the certain funds requirement to be satisfied at the time the tender offer is first announced to the market by submitting a fully executed unconditional and irrevocable cash confirmation to CONSOB.

Interest payments made by an Italian company to a non-tax resident lender are, in principle, subject to a 26% outbound withholding tax, which can be reduced under the applicable double tax treaty.

An exemption from withholding tax may apply in certain circumstances, such as:

  • under Directive 2003/49/EU (the so-called “interest-royalties” directive), where the lender owns a minimum percentage in the share capital of the borrower and provided that the relevant conditions are met; and
  • under Article 26, para. 5-bis of Presidential Decree No. 600/1973, where:
    1. the lender is authorised to carry out lending activities in Italy and is either a bank established in the EU, an insurance company established and authorised in accordance with the laws of an EU Member State, or an institutional investor incorporated in countries that allow an adequate exchange of information with Italy and subject to prudential control therein;
    2. the borrower is an Italian-resident enterprise; and
    3. the loan is a medium-term loan – ie, a loan whose duration is at least 18 months plus one day.

Interest payments made by an Italian company to an Italian-resident corporate lender (such as an Italian bank) are not subject to withholding tax.

Interest payments made by an Italian-resident guarantor upon a claim under a guarantee or an enforcement of a security may be subject to withholding tax as if they were made by the borrower, and the application of exemptions shall be verified on a case-by-case basis.

The levy of ad valorem registration taxes in Italy is a key factor in determining the scope of the security package to be granted in the context of transactions involving Italian obligors.

In particular, real estate mortgages are subject to a mortgage tax equal to 2% of the secured amount. Due to customary over-collateralisation (ie, the mortgage securing 150/200% of the loan), the taxable base may be higher than the principal amount of the loan to be secured. To the extent that the mortgage secures obligations of a third party other than the relevant mortgagor, a registration tax equal to 0.5% of the secured amount is also due. Should the mortgage only secure the obligations of the relevant mortgagor, the registration tax due is EUR200. A nominal stamp duty and administrative fees are also payable. As a notary public has to be involved in the process (to draft or notarise the deed, to carry out all the filings with the competent tax office and land register, and to carry out all the relevant title searches), notarial fees should also be considered. Such fees are usually calculated on the basis of the value of the transaction in accordance with a tariff. Other security interests are subject to an ad valorem registration tax (imposta di registro) under certain circumstances.

Imposta Sostitutiva

If the underlying facility agreement meets certain requirements, a specific “substitute tax” regime (Imposta Sostitutiva) may apply to both the facility agreement and the security granted in relation to it. In particular, the parties to the facilities agreement may opt for such Imposta Sostitutiva if the relevant facility agreements: (i) are granted by an Italian or EU resident bank and a number of other entities specifically identified by Italian law (eg, Italian securitisation vehicles, etc); (ii) have a duration of more than 18 months; and (iii) are signed in Italy.

If the above conditions are met, Imposta Sostitutiva would be due at the flat rate of 0.25% calculated on the amount of the facility, and the same facility agreement will be exempt from otherwise applicable registration tax (imposta di registro), stamp duty (imposta di bollo), cadastral and mortgage taxes (imposta ipotecarie e catastali) and government franchise tax (tassa sulle concessioni governative) (collectively, the “Excluded Taxes”). In particular, according to the above regime, the assignment of the loan and the acknowledgment of all the security and guarantees of any kind assisting the loan shall also not be subject to the Excluded Taxes. Imposta sostitutiva also applies to bonds, subject to the satisfaction of certain conditions.

Financings to Italian borrowers or guaranteed by Italian obligors are subject to usury rules. Lenders are prevented from applying to an Italian obligor a remuneration that is higher than the applicable relevant rates set forth on a quarterly basis by a decree issued by the Italian Treasury (the “Usury Decree”). Usury law provisions are of mandatory application and would apply in respect of amounts owed by an Italian obligor regardless of the law applicable to the relevant agreement.

Remuneration will also be deemed to be of usury nature when the following two conditions are concurrently met:

  • it is disproportionate to the sum lent (taking into account the specifics of the case and the average rate usually applied for similar transactions); and
  • the person or entity who paid or agreed to pay such remuneration was in financial and economic difficulties.

The provision of usury remuneration in a finance agreement carries sanctions at criminal and civil law. If a finance contract contains a clause providing for usury remuneration, no remuneration would apply to the financing. For this reason, finance agreements generally contain “safeguard clauses” that limit the remuneration within the relevant thresholds imposed by the applicable Usury Decree, aimed at avoiding such consequences.

In Italian finance transactions, security is generally taken over shares and quotas, real estate, equipment and machinery, intellectual property, receivables arising from contracts, and bank accounts. The methods of taking security over such assets vary depending on the type of asset concerned. 

Shares and Quotas

Most Italian limited liability companies belong to two categories: società per azioni (S.p.A.) and società a responsabilità limitata (S.r.l.). While the share capital of an S.p.A. is represented by share certificates, the corporate capital of an S.r.l. is divided up into quotas, which are dematerialised instruments (ie, they cannot be represented by certificates) and each quotaholder owns a quota corresponding to its interests in the corporate capital of the company.

A deed of pledge is required in order to grant a pledge over shares in an S.p.A. or over quotas in an S.r.l.. In order to perfect a pledge over shares, the relevant deed has to be notarised (or in any event the date of the deed should be ascertained by other means in order to satisfy the so-called “data certa” requirement) and a director of the company whose shares are pledged would need to annotate the pledge over the shares certificates and in the company’s shareholder ledger. In order to perfect a pledge over quotas, the relevant deed has to be notarised and filed with the competent Companies’ Register. If it has been executed before a foreign notary public, the deed of pledge would also have to be apostilled (where necessary) and filed with an Italian notary public together with a sworn translation if it is not drafted in Italian.

Real Estate

A deed of mortgage is required in order to grant a mortgage over land/property and must be notarised and registered in Italy, so it is usually executed in Italian before an Italian notary public. In principle, it is possible to execute the deed before a foreign notary public but the latter would not be able to carry out all the necessary title searches. The perfection of the mortgage requires the registration of the mortgage with the competent land register (to be carried out by the Italian public notary). Under Italian law, there is no concept of freehold and leasehold as title to property is absolute, although third parties may be granted rights of enjoyment that may coexist with the property title. The owners of certain enjoyment rights (eg, usufruct – but not a mere tenancy) may only grant security over their enjoyment rights (hence, subject to their limits).

Equipment and Machinery

A pledge over equipment and machinery (as well as raw materials) may, in principle, be granted. However, due to the possessory nature of this type of security, in order for a pledge to be created, the pledged assets (or the document conferring the power to dispose of such assets) would have to be delivered to the lenders or to a third party designated by both the lenders and the grantor. As an alternative to the pledge, a privilegio speciale may be created (a form of floating charge provided for by Article 46 of the Italian Banking Law), which is filed with the relevant court where the assets are located and the grantor has its registered office.

Intellectual Property Rights

Security over Italian patents, designs, trade mark registrations and trade mark applications is typically given in the form of a pledge. A deed of pledge is required for this purpose. The perfection of the pledge requires the filing of the deed of pledge with the Italian Patent and Trademark Office. Accordingly, the deed of pledge has to be notarised, so it is usually executed in Italian before an Italian notary public. In principle, it is possible to execute it before a foreign notary public, but the deed would then also have to be apostilled (where necessary) and deposited with an Italian notary public together with a sworn translation if it is not drafted in Italian.

Receivables Arising from Contracts

Receivables shall be construed as including, inter alia, the balance on bank accounts, rental income and insurance proceeds. Security over receivables may be granted in the form of an assignment by way of security or pledge. A notarised deed is not technically required. The perfection of the pledge requires the notification of the pledge to the relevant debtor, or its (notarised) acceptance by the relevant debtor. The debtor’s notification or notarised acceptance is also necessary in order for an assignment of receivables by way of security to be enforceable vis-à-vis third parties. In the case of insurance proceeds, as an alternative, a loss payee clause (clausola di vincolo) – providing, inter alia, that in the event of a payment being made under the insurance policy, such payment would have to be made to the secured creditors – may be included in the insurance policy. Should the rental income be assigned by way of security, the registration of the assignment with the competent land register(s) may be required in certain circumstances, hence requiring the document to be entered into before a public notary.

Bank Accounts

This type of security would be qualified as security over receivables (namely the balance on the relevant bank accounts). In the case of security over the balance on bank accounts, an annotation is to be made by the depositary bank on its books in accordance with the EU Collateral Directive, if applicable.

Under Italian law, public notaries notarising any of the above notarial deeds are obliged to register them promptly in the competent registry, and are subject to fines if the registration does not occur within 30 days of the date of the relevant deed. The timing required for the actual registration by the relevant office varies depending on the relevant type and competent registry, but in any case it could take days.

Law Decree No. 59/2016 (the “Law Decree 59”) has introduced the following:

  • a new type of floating charge – the pegno non possessorio (non-possessory pledge over movable assets) – which is an alternative to the privilegio speciale and can be created over movable assets used by an entrepreneur (imprenditore) for its business (the “Non-Possessory Pledge”). This security is registered with an ad hoc online register to be held by the Italian Tax Authority (Agenzia delle Entrate), subject to the enactment of ministerial regulations, which is expected in the coming months; and
  • the “Financing to enterprises secured by the transfer of real estate asset subject to condition precedent” (the ”Patto Marciano”), under which the parties agree that the relevant right over the real estate asset(s) securing the financing will be automatically transferred to the secured creditor (or to another company controlled (controllata) by, or linked (collegata) to, the secured creditor and duly authorised to this end) upon the occurrence of a borrower’s default under the secured debt documentation, provided that certain conditions are met. The Patto Marciano must be registered with the land register.

In all such cases, the relevant registration is required for the perfection of the security and/or to ensure its enforceability vis-à-vis third parties.

The privilegio speciale and Non-Possessory Pledge, as described in 5.1 Assets and Forms of Security above are two types of quasi-floating charges available over certain present and future assets of a company.

Intra-group transactions where an Italian company guarantees or secures the obligations of another group company (whether Italian or foreign) are subject to strict corporate benefit rules. It is customary, therefore, for Italian obligors to include appropriate limitation language in intercreditor agreements.

  • Upstream guarantees: in order to grant upstream guarantees, an Italian guarantor should obtain a “consideration” in exchange for the granting of such guarantee, which would be regarded as its corporate benefit. Such consideration could be direct, and could consist of the extension of a financing or the granting of a counter-guarantee by another group company, for example. It might also be identified in securing conditions that would permit the avoidance of consequences that could adversely affect and substantially impair the economic and/or financial position of the company (for example, the granting of upstream guarantees under a restructuring plan which, if not implemented, would jeopardise the financial stability of the group and virtually lead to the insolvency of the group as a whole).

Even if a “consideration” is not immediately appreciable, the Italian guarantor might still legitimately grant upstream guarantees, provided that it has a "reasonable probability to obtain a corporate benefit", albeit “mediate and indirect” (such as future funding/R&D/operating support from the parent or the group in general, etc).

  • Cross-stream guarantees: the Italian Supreme Court (Corte di Cassazione) has taken an even more prudent approach in relation to the guarantees provided in favour of sister subsidiaries. Indeed, it has stressed that acts performed by the directors of a sister company in favour of another sister company require the existence of a financial and legal interest for the former.
  • Down-stream guarantees: this kind of guarantee does not usually raise corporate benefit concerns.

Under Italian law, generally both the target and its subsidiaries are prohibited from directly or indirectly providing financial assistance and granting guarantees or security for financing for the purpose of, or in connection with, the acquisition or subscription of its own shares. The prohibition also includes any refinancing of existing loans granted for acquisition purposes.

Following the implementation of EU Directive No. 2006/68CE (on the formation of public limited liabilities companies and the maintenance and alteration of their capital), financial assistance can be permitted if certain requirements are met, including the following:

  • the transaction is approved by an extraordinary shareholders meeting and the directors prepare a report dealing with specific matters related to the transaction and make certain declarations as to the creditworthiness of the purchaser;
  • the amount of all loans and guarantees does not exceed the aggregate amount of its shareholders' equity and distributable reserves resulting from the last approved financial statements; and
  • a special purpose reserve amounting to the aggregate of all loans and guarantees is posted in the financial statements.

Articles 2391 and 2475-ter of the Italian civil code deal with the rules regarding conflicts of interest for directors of, respectively, a limited liability company (società a responsabilità limitata – S.r.l.) and a joint stock company (società per azioni – S.p.A.). Pursuant to Article 2391, a director of an S.p.A. with a conflict of interests has a duty to disclose the nature and the main features of the conflict to the other directors and the auditors. Pursuant to Article 2475-ter, if a director with a conflict of interest has executed a contract (such as a security document or a guarantee) on behalf of the company, the S.r.l. has the right to file a petition with the competent court seeking an order declaring the relevant contract void. However, in order for the petition to be successful, the S.r.l. must provide evidence that the other party to the contract was aware or ought to have been aware that the director had a conflict of interests.

Security interests are typically released by the secured parties entering into a framework deed of release that provides for the filing of ad hoc deeds or declarations by the secured parties with public registries or the service of such deeds or declarations to assigned debtors (in the case of an assignment of receivables), an account bank or company directors (in the case of a pledge over shares).

Secured parties in syndicated loans frequently use intercreditor arrangements to regulate contractual subordination in payment. However, the receiver of an insolvent Italian obligor may ignore the contractual subordination and discharge all obligations when due. In this case, the possibility for the senior creditors to be satisfied with priority over the junior creditors would effectively depend on whether the intercreditor agreement provides for some sort of pro rata/loss sharing mechanism among the various creditors.

With respect to security, the subordination of the junior creditors could be effectively achieved whenever it is possible to have a different ranking of security (eg, in the case of a mortgage). In all other circumstances, however, it would be left to the contractual arrangements in place among the creditors to provide for the actual satisfaction of the senior creditors’ claims in full with priority over the junior creditors.

A secured lender can enforce its Italian law governed collateral following an acceleration or a non-payment default. The enforcement of security in Italy may be carried out in court or out-of-court, depending on the security interest. Lenders are required to act in good faith when enforcing security interests, are bound to verify whether the borrower has complied with the secured obligations and to assess whether failure to comply has been dictated by force majeure. Equivalent considerations apply to the enforcement of a guarantee.

The choice of a foreign law as the governing law of a contract, the submission to a foreign jurisdiction and a waiver of immunity will generally be upheld by Italian courts, unless there are mandatory provisions of law or other public policy reasons preventing them from doing so.

Any judgment given in a Member State would be immediately recognised and enforceable in Italy in accordance with EU Regulation No. 1215/2012 without a retrial of the merits of the case.

There are no specific matters that would affect a foreign lender’s ability to enforce its rights under a loan or security agreement (except for lack of authorisation to lend and general public order considerations).

There are three main pre-insolvency procedures available to Italian non-financial companies in distress under the 1942 Bankruptcy Act:

  • the out-of-court restructuring plan under Article 67(3)(d) (“piano di risanamento”);
  • the court-supervised restructuring agreement under Article 182bis (“accordo di ristrutturazione”); and
  • the court-supervised preliminary composition under Article 160 (“concordato preventivo”).

The piano di risanamento is extremely flexible, and its main effect is to avoid the risk of claw-back actions in relation to acts and payments made in accordance with such plan, when its viability has been “certified” by an independent expert. However, it does not provide an automatic stay. Under Article 182bis of the 1942 Bankruptcy Act, a debtor may apply for the validation of an accordo di ristrutturazione with its creditors, providing for the restructuring of its debt to be approved by a qualified majority of its creditors and for the full satisfaction of the creditors that are not party to the accordo di ristrutturazione. It has a limited stay. The concordato preventivo procedure may be aimed at restructuring the business or at liquidating it, and it involves commissioners, potentially the creation of classes of creditors, and the approval by the court at different stages. However, it offers the debtor a very long automatic stay, up to the date on which the decree approving the implementation of the concordato preventivo plan becomes final.

All the above restructuring proceedings have as a prerequisite the feasibility of the proposed plan.

The provisions for the admission to a concordato preventivo or an accordo di ristrutturazione refer to a company undergoing a liquidity crisis (in stato di crisi).

The commencement of an insolvency process would generally impinge on the ability of the secured parties to enforce any loan or guarantee. Two notable exceptions are the real estate mortgage lender under the Italian Banking Act (the so-called “mutuo fondiario”), and a secured party that benefits from collateral under the EU Collateral Directive.

The order of creditors in an insolvency can be quite complex, and ad hoc advice should be sought. Generally, lenders should be aware that Italian law provides for certain claims to be preferred by law and to be secured by statutory security in the form of privilegi (statutory liens). Such statutory liens include, but are not limited to, those relating to employees’ wages, direct or indirect taxes, environmental clean-up, funeral expenses, alimony and legal expenses.

A statutory lien may be “general” or “special”, depending on whether it exists over the generality of the (movable and/or immovable) assets of the debtor or only over certain specific assets.

In addition, certain expenses incurred during the procedure (eg, the receiver’s fees) enjoy a super-senior status.

Under Italian law, subordination by operation of law is only provided for in certain circumstances in relation to intra-group financing. In particular, if the controlling entity lends funds to its subsidiary at a time when the leverage of the subsidiary would appear to be too disproportionate to its net worth, or when its financial condition would have recommended a capital contribution, the repayment of such loan would be subordinated to the repayment of the other creditors.

The main issue relates to the security or the guarantee being subject to insolvency claw-back. The 1942 Bankruptcy Act contains several provisions protecting creditors against any fraudulent actions (including the granting of security) taken by their debtor who has been declared bankrupt. If a claw-back action is successful, the revoked payment, security interest or guarantee is deemed to be no longer effective vis-à-vis the insolvency estate and the creditors.

In the last few years in Italy, there has been increasing interest in investments in infrastructure projects (such as motorways, railways, subways, hospitals, public offices and sporting venues) and energy projects (such as photovoltaic plants, wind farms and others).

From a financing perspective, due to recent amendments in the applicable regulatory, tax and public law, capital markets have become an alternative to project lending, through the issuance of project bonds or mini bonds by the relevant project company (opening the market to new domestic and foreign players).

PPP transactions in Italy are mainly regulated by Legislative Decree No. 50/2016 implementing Directives 2014/23/EU, 2014/24/EU and 2014/25/EC (hereinafter the "Public Contracts Code") and its subsequent amendments (inter alia, Legislative Decree No. 56/2017). 

The current legal framework in Italy is still somehow in a transitional phase. While it is commonly recognised that PPP fosters systemic development, the Italian PPP market is less advanced than those in other European markets, due mainly to the limited level of co-operation between public and private players.

No specific government approval or substantial taxes, fees or other charges are generally applicable, except for the licences and permits usually required to commence building activities or supply of services.

In the context of a project financing, the transaction documents may need to be registered for tax purposes or to ensure their validity or enforceability, and are subject to Italian law, except for major financing transactions, where a cross-border syndication may be required, which are usually subject to English law.

Depending on the underlying sector of the PPP and the related public interest to be protected, the relevant Ministry (such as the Ministry of Infrastructure and Transport and the Ministry of Health) and their delegated local authorities may be involved.

In the water and energy fields the main regulators are as follows:

  • the ARERA (Autorità di Regolazione per Energia, Reti e Ambiente), which is the regulatory body for water and energy markets and has the role of supervising and determining tariffs and other regulatory aspects (while the activities related to planning water investments are handled by the municipalities);
  • the GSE (Gestore dei Servizi Energetici), which is responsible, inter alia, for the granting of incentive tariffs and, in general, the management of revenues deriving from renewable resources; and
  • the GME (Gestore dei Mercati Energetici), which is the regulator of the electricity, power and gas market.

Generally, foreign investments are not subject to restrictions in Italy. However, Italian law provisions on the so-called “golden power” and related procedure adopted in March 2012 (Law Decree of 15 March 2012, No. 21, as amended by Law Decree of 16 October 2017, No. 148) entitle the Italian Government to impose specific conditions or to exercise a veto right in relation to acquisitions of (or other extraordinary transaction concerning) stakes in Italian public and private companies that carry out activities of “strategic relevance” in the defence and national security sector, or that hold “assets with strategic relevance” in the energy, transport, communication and hi-tech sectors. Golden power can also be exercised (exceptionally) upon the occurrence of a threat of serious detriment to national security.

Project finance transactions in Italy are usually implemented by means of a non-recourse/limited recourse banking loan facility. However, due to recent amendments in the applicable regulatory, tax and public law, capital markets have become an alternative to project lending, through the issuance of project bonds or mini bonds by the relevant project company (opening the market to new domestic and foreign players). In some cases, hybrid solutions with a banking facility/capital markets tranche have also been implemented.

Natural resources are considered as state property and cannot be transferred. For this reason, private parties (including foreign companies) can acquire rights to natural resources only through authorisations or concessions issued by the Italian Government.

As a general rule, royalties are due to the Government as compensation for the exploitation of natural resources, which may depend on different factors, as follows:

  • on the extraction of gas and oil fields, the applicable royalties may differ from 4% to 10% of value production. Rental payment is also due to the Italian Government, calculated on the basis of the square km for operations; and
  • with reference to the use of water, different fixed taxes are due to the relevant Regions.

Environmental compensatory contributions to municipalities can apply, as can territorial compensatory contributions to Regional administrations.

The export of natural resources should be subject to a case-by-case analysis, taking into account the countries involved and the relevant natural resources (as it is regulated by different special laws, which can vary considerably from one case to another).

Certain laws and regulations (national and/or regional) regarding environmental, health and safety matters may apply to a PF/PPP project in Italy, depending on the kind of project and where it is located. The two main pieces of legislation are Legislative Decree No. 152/2006 (Codice Ambientale) and Legislative Decree No. 81/2008 (Testo Unico sulla Sicurezza sul Lavoro).

There is no dedicated tax and legal framework for Islamic finance. Draft legislation aimed at regulating Sukuk issuances and the tax treatment of Murabaha, Ijarah and Istisna’a was proposed in 2017, but was then abandoned. Due to tax bottlenecks, Islamic finance has not really developed in Italy.

The main issue relates to the tax treatment of any lender’s remuneration in a Murabaha, Ijarah or Istisna’a transaction. Such remuneration would generally be treated as interest and trigger compliance issues from an Islamic law standpoint. In addition, absent ad hoc legislation on Sukuk issuances being equivalent to an ordinary issuance of bonds, Sukuk may breach banking monopoly rules, unless they are treated as equity instruments.

Generally, alternative Italian law structures need to be put in place in order to reflect principles under Shari’a – for example, an Ijarah would be implemented through an operating lease, a Wakala through a mandate and a Murabaha through the purchase of chattel property with deferred payment.

There are no known precedents on the treatment of Sukuk instruments in insolvency or restructuring proceedings, nor on their characterisation as equity or debt instruments.

There have been no notable cases on jurisdictional issues, the applicability of Shari'a or the conflict of Shari'a and local law that are relevant to the banking and finance sector.

Grimaldi Studio Legale

Grimaldi Studio Legale
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Law and Practice


Grimaldi Studio Legale is an independent Italian law firm with four offices in Italy (Milan, Rome, Parma and Bari) and four abroad (London, New York, Brussels and Lugano). The banking and finance practice is based primarily in London, Milan and Rome, and offers strong expertise in private debt, the acquisition of NPL/UTPs, leveraged finance, securitisation, debt restructuring, real estate finance, project finance, financial regulation and general banking and finance.

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