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Italian Secured Transactions Law as Applicable to the Financing of Mobile Equipment: A Brief Overview

From the outset, it should be made clear that the current Italian legal regime of secured transactions is generally considered to be far from satisfactory. The complexity and, at the same time, insufficiency of Italian secured transactions law to meet the needs of present-day economy have been repeatedly denounced by Italian scholars.[1] This critical approach was echoed in recent efforts to entrust the Government with the task of preparing an organic reform, based on the recognition that the present system discourages foreign investments and hampers growth.[2]

The insufficiency of the present legal regime is particularly evident with respect to traditional security devices on tangible goods. Using the value of tangible goods for financing purposes is difficult for enterprises due to the lack of efficient instruments allowing the collateralization of assets that cannot be handed over to the creditor. At the same time, this area of Italian law is confused, as a number of particularized exceptions to the principle of equal treatment of creditors[3] have been introduced overtime through specific legislation without a coherent rethinking of the whole system, and to such an extent that the generality of the principle itself can be questioned.[4]

The 1942 Italian Civil Code (Codice civile) only allows for possessory pledges where tangible assets are concerned (pegno con spossessamento).[5] Until the very recent introduction of the new registered non-possessory pledge for enterprises (not yet operational, see fn 15), there was no general consensual non-possessory security right on specific assets (either held for use or to be resold). Except where a specific chattel mortgage exists (see below, para. 3), the kind of equipment covered by the Cape Town Convention could be collateralised by granting the special ‘non- possessory lien’ in favor of banks only, regulated in Art. 46 of the 1993 Banking Law (privilegio ex Art. 46, hereinafter ‘Art. 46 Bank Charge’) to secure medium- to longterm financing to enterprises.[6] [7] Art. 46 Bank Charge replaced a veritable maze of different preexisting ‘consensual liens’ (privilegi consensuali), and is more accurately described as a ‘charge’, being the result of an agreement between the parties, connected to a loan, and needing publicity (though registration) to be opposable to third parties. The uncertainties regarding its priority against other security rights and in insolvency, however, as well as the limited effectiveness of the enforcing procedures rendered its use unattractive in practice.

Italian law recognises some title-based devices in the context of equipment acquisition finance, in particular retention of title and financial lease. They are usually not classified as security rights but as ownership vested in the vendor/lessor. Two important consequences ensue: first of all, the requirements for effectiveness are different than those applicable to traditional security devices. Secondly, vendor and lessor do not usually have to compete with other creditors.

As far as retention of title under a sales contract is concerned, its statutory rules make it impractical to use on a large scale in commercial transactions.

Leasing is, on the other hand, widely used for equipment assets. The main reasons for its success, beside the fiscal ones, are the relatively rapid conclusion of the contract, the lack of formalities (as opposed to the granting of a traditional security right but also of a retention of title), the simple enforcement procedures and its high priority in insolvency, being the lessor considered as the ‘true owner’ of the goods.

Because of the limited possibilities offered by the legal system and the burdensome rules regarding both creation and enforcement of their rights, creditors that do not choose to remain unsecured (including sellers) do not usually rely on proprietary security but primarily on other devices such as personal security or bank guarantees. Company and Insolvency law have introduced additional rules to protect financiers against competing creditors when a specific economic venture of a stock company is financed that cannot be classified as ‘asset-based security’.[8]

  • [1] See among others (in English and French): Tucci, G, Towards a Transnational Commercial Lawfor Secured Transactions: the Preliminary Draft UNIDROIT Convention and Italian Law, (1999)Unif L Rev 371; Ferrarini, G, Changes to personal property security law in Italy: a comparative andfunctional approach, in Cranston, R (ed.), Making Commercial Law. Essays in Honour ofR.M. Goode (OUP, 1997) 477; Bussani, M, Rapport italien, in Les garanties de financement,Travaux de I’Association Henri Capitant (LGDJ, Paris, 1998) Vol. XLVII, 213.; Veneziano, A,Italy, in Sigman, HC and Kieninger, E-M (eds), Cross-Border Security over Tangibles (Sellier,2007), 159; Italian Report by Graziadei, M and Candian, Alb, in Kieninger, E-M (ed.) (above, fn10).
  • [2] A first attempt was made through one provision contained in a proposal to delegate to theGovernment the legislative power to introduce reforms towards, inter alia, the reoganisation ofsecured transactions law, presented to the Parliament on 12.2.2014 but never approved. This provision recently resurfaced in another legislative proposal aimed at reforming insolvency law andapproved by the Council of Ministers on 12.2.2016 not yet approved by Parliament; Finally, aparallel legislative initiative was approved when this book was in its final stages of editing and willbe only mentioned here: a new registered non-possessory pledge for enterprises was introduced byway of Governmental Decree (3 May 2016, No. 59). The new pledge is not yet operational since itawaits secondary legislation on the setting up of the centralised, fully electronic registry. Itexcludes, however, from its scope of application “registered mobile assets” such as aircraft.
  • [3] Art. 2740 (1) Italian Civil Code.
  • [4] See Tucci, G, Garanzia, in Digesto IV, Discipline privatistiche, sez.civ., Vol. VII (Torino, Utet,1991) 579.
  • [5] On the pledge in Italian law and its recent developments see among others Gabrielli, E, I dirittireali, Vol. 5, Il pegno, in Trattato di diritto civile directed by R Sacco (Torino, UTET, 2005);
  • [6] Mastropaolo, F, De Vecchis, P and Mastropaolo, EM, in Mastropaolo, F (ed.), I contratti di garan-zia, 1, Trattato dei contratti directed by P Rescigno and E Gabrielli (Torino, UTET, 2006), 1192;Fiorentini, F, Il pegno, in Gambaro, A and Morello, U (eds), Trattato dei diritti reali, Vol. V Dirittireali di garanzia (Milano, Giuffre, 2014) 1 (with a comparative introduction).
  • [7] See Gabrielli, E, Delle garanzie rotative (Napoli, Jovene, 1998).
  • [8] See for example the provisions on ‘dedicated assets’ (patrimoni destinati) introduced in the Civilcode, in conjunction with the Insolvency Law (Art. 2447 bis-decies Civil Code and Art. 72-terRoyal Decree 16 March 1942, No. 267 (Insolvency Law), as amended). This device does not,however, constitute an encumbrance over the equipment itself but on the “returns” of the economicventure.
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