ITALY Law and Practice Contributed by: Francesco Dialti, Vincenzo Cimmino, Valentina Bombino and Lucrezia Ghezzi, CBA Studio legale e tributario
5.5 Other Restrictions In addition to the legal restrictions and limitations described in 5.4 Restrictions on the Target , there may be other restrictions set out in the constitutional docu- ments of the company or in its contractual commit- ments. These may prevent the company from granting guarantees or security for its and/or other borrowers’ financing, or may impose additional formalities on the relevant company. 5.6 Release of Typical Forms of Security Typically, a deed of release is entered into between the secured creditor and the debtor to confirm the release of a security over the debtor’s assets. Alternatively, a unilateral release may be executed by the secured creditor. In addition, certain formalities may be required. For example, in the case of mortgages (whether over real- estate assets or vessels), the release should be filed with the competent registry (for which purpose the parties will need to execute a notarial deed of release). 5.7 Rules Governing the Priority of Competing Security Interests Italian law provides a timing preference ( prior in tem- pore , potior in iure ), based on the date of creation (and with respect to a registrable security, the registration) of the security. Priority rules may be varied contractually with the con- sent of all secured creditors, however, any contractual subordination provision is effective between the par- ties to the relevant agreement but is not enforceable in an insolvency scenario and the in-court restructuring proceedings. In the case of mortgagees, the ranking exchange between mortgagees must be recorded in the real estate register in order to be enforceable. Legal preference and/or subordination exist in an insolvency situation (see 7.2 Waterfall of Payments ). 5.8 Priming Liens Under Italian law, claims that, by operation of law, can prime a lender’s security interest are those of certain preferential creditors, including the claims of the Ital-
of Economy and Finance, implementing Article 106, paragraph 3, of the Italian Banking Act, states that the issuance of guarantees or security by a company for the obligations of another company which is part of the same group does not qualify as a restricted finan- cial activity, whereby “group” includes controlling and controlled companies within the meaning of Article 2359 of the Italian Civil Code as well as companies which are under the control of the same entity. As a result of the above-described rules, subject to the guarantor and the guaranteed entity being part of the same group of companies, the granting of the guaran- tees would not amount to a restricted financial activity. 5.4 Restrictions on the Target A security agreement and the related documents are null and void if they violate financial assistance rules (that is, when a company grants a loan or a secu- rity related to a loan to another party to purchase the company’s shares). However, the Italian Civil Code provides for the following exceptions, which allow financial assistance in certain circumstances. Merger Leveraged Buyouts Merger leveraged buyouts, where a company guaran- tees a loan granted to another company to purchase its shares on a merger between the two companies, are allowed under a specific procedure provided for in the Italian Civil Code. Whitewashing Financial assistance is allowed, in the case of a joint stock company ( società per azioni ), under a set pro- cedure that requires: • an extraordinary resolution of the general meeting; • specific reports and statements by the directors; and • compliance with a maximum threshold equal to the aggregate amount of the distributable profits and reserves of the target company. Employees Subject to certain conditions, the prohibition of finan- cial assistance does not apply to loans or guarantees granted to employees of the company to promote the acquisition of its shares.
250 CHAMBERS.COM
Powered by FlippingBook