CMS Expert Guide for taking security in Italy

Yes, but please see the comments in section 4. For legal entities, it is necessary to verify that the corporate purpose (oggetto sociale) entails the possibility to grant guarantees.

Yes, as a “personal security” (garanzia personale) as opposed to a collateral/security in rem (garanzia reale) 

No, unless the granting of guarantees is carried out towards the public on a professional basis. 

Yes, but please see the comments in section 4.

Yes, but please see the comments in section 4.

Yes, but please see the comments in section 4.

Financial assistance: Italian companies cannot grant guarantees or security rights to purchase their own shares/quotas. Whitewash procedures are available, e.g. through a leveraged buy-out transaction entailing the merger of the target acting as guarantor with an SPV that is created for its acquisition and incurs a debt to pay the purchase price. 

Corporate benefit: as a general principle, the guarantor must derive an actual and adequate corporate benefit from the relevant transaction, which may also consist of an indirect benefit deriving a more general advantage for the Group such as in the case of a loan granted to the parent/holding company.

There are no formal requirements. For registration reasons (triggering also 0.5% registration tax, unless certain exceptions apply), the guarantee agreement is normally executed outside Italy or as an exchange of commercial letters. The maximum guaranteed amount must be capped.

Yes. For personal guarantees (as opposed to security rights) it is necessary to identify the maximum guaranteed amount.

Yes, the validity of a guarantee/security is dependent on the validity of a principal obligation.

It is possible to issue autonomous/first demand guarantees that to some extent are independent from the guaranteed obligations. No concept of indemnity exists under Italian law.

It is not mandatory to provide for a definite term. It is possible to stipulate that the guarantee has the same duration as the underlying contract/obligations (e.g. in case of a supply contract).

Yes.

These structures are not regulated by law and not expressly recognised, but are commonly used in cross-border transactions, with the exclusion of a parallel debt structure that is not efficient under the Italian system.

Unless otherwise provided in the relevant security agreement, as a general rule, the security/guarantee follows the principal secured/guaranteed claims and no consent of the debtor is required for a change of creditor. However, it is market practice to execute confirmative deeds.

If the transfer is qualified as a transfer of contract and not a transfer of claims, the (prior) consent of the counterparty/debtor is necessary.

For certain security rights, it is necessary to register the new creditor in the relevant registries or complete other type of formalities.

General changes to guaranteed/secured obligations: whether or not amendments to or confirmation of guarantee/security is needed depends on the scope and nature of changes to the principal obligation and the terms of the guarantee/security, including on how broad or specific the description the guaranteed/secured obligations is and what “savings” the provisions state.

Amendments resulting in an increase in a security provider’s/guarantor’s liability require its consent, otherwise they would not be covered. A surety’s express prior consent to any increase up to a certain amount can be included in the suretyship from the start.

If applicable, the amendments must be reflected in the relevant registers. 

Changes to the obligor require the consent of the security provider/guarantor. 

Amendments to a notarised security agreement must also be notarised.

The novation of the principal obligation may lead to the termination of the security and needs to be assessed on a case-by-case basis, depending on the nature and terms of novation.

Under Italian conflict-of-law rules, security rights are governed by the law where the relevant assets are located (lex rei sitae). Guarantees can be governed by the law elected by the parties (unless the relevant foreign law is contrary to public law).

It is possible to elect a foreign court jurisdiction or arbitration.

Any enforcement proceedings can be commenced only on the basis of a title for enforcement (e.g. a sentence or a payment order issued by the competent foreign courts or a notarial the deed of draw-down (atto di erogazione)) duly recognised in Italy according to the applicable EU Regulations or International Conventions, as applicable.

No. However, the Italian Government is entitled to set out specific conditions for the transfer of participations and the approval of corporate resolutions where the transaction relates to strategic sectors, including energy, transport, national defence.

The hardening period to revoke the execution of the relevant guarantee/security agreement or the relevant payments made under it is one year or six months depending on certain circumstances before the declaration of judicial liquidation of the guarantor/security provider.

If the relevant security/guarantee qualifies as a “gratuitous act” (e.g. if the guarantor/security provider does not have a concrete interest and benefit therein), the hardening period is two years.

Yes through the “pegno non possessorio”

Yes, subject to the limitations outlined in section 4 above.

It depends on the relevant security right (e.g. a mortgage, pledge over quotas and bank special privilege must be notarised).

It depends on the relevant security right (e.g. mortgage, pledge over quotas and bank special privilege must be registered).

Any notarised security must be executed in Italian. For non-notarised security, a translation may be needed in practice for registration and will be needed if a security agreement is submitted as evidence in court.

Every agreement entered into with banks must be executed in writing and contain mandatory terms provided by law.

Yes. 

Registered security has priority over unregistered encumbrances (even if registered security is created after the unregistered), except as otherwise provided by law. 

The priority of registered encumbrances is determined by the date/time of registration. The priority of encumbrances over non-documentary securities is determined according to the registration of the encumbrance in the register.

Any later changes in the register to the security do not affect its priority, except if the amount of the secured liabilities is increased, so that a different priority may be for claims of the amount of an increase.

Establishment of security and level of security regulation is generally:

Security is easily established and encumbrances are easily checked.

No, mortgage and other security agreements must be notarised.

Italian law-governed security agreements (for which the simple written form is sufficient) can be signed in electronic form with qualified electronic signatures (“QESs”) and are deemed equal to written agreements signed with a wet-ink signature. Using standard electronic signatures, scanned versions of wet-signed agreements are acceptable. 

Yes. The Immovable Property Register and the Encumbrances Register are publicly available and accessible online. Any interested person can obtain the information from the registers online or via a notary/registrar.

A security holder or a person duly authorised by it. Notarial security deeds are registered by the notary

Depending on the security. Normally the security agreement is sufficient.

Quick, no substantial cost.

This varies greatly depending on the type of formality. Major costs are registration taxes.

Medium to high-depending on the notary.

N/A. 

Yes.

Only to the extent the non-performance of the principal agreement triggers pecuniary obligations (e.g. acceleration or penalties) as agreed by the parties. 

Yes if expressly stipulated, although normally the security is enforced when the principal obligations are due and payable (and as a consequence of a breach of a security document).

As a general principle, the security/guarantee becomes enforceable on non-fulfilment of the secured obligations. If the insolvency of the debtor or guarantee/security provider amounts to a breach of a representation/warranty, the security/guarantee can be enforced to the extent such breach gives rise to (secured/guaranteed) pecuniary obligations. In the event of the guarantee/security provider’s insolvency, enforcement is subject to the insolvency procedural regime.

• any other security holder starts enforcement against the same collateral (subject to 28(b) above);
• liquidation of a legal entity: security provider (owner of the collateral) (subject to 28(b) above)

On the occurrence of an event of default, the secured creditor must issue a formal request to cure the default within 15 days (unless otherwise agreed).

If the default is not remedied within that term, the lender must deliver a notice of enforcement of the security to both the borrower and the security provider.

In the case of pledge, prior notice of five days is required before commencing enforcement.

It depends on the type of security. For example:

• in the case of a pledge over receivables (including a pledge over a bank account), the secured creditor may ask the debtor to pay the relevant amounts without resorting to a Court order;
• in the case of a pledge over shares, the secured creditor may sell the shares through an appointed agent.

See above.

The value may be assessed by an appraisal agreed by the parties beforehand.

As a general principle, if the conditions provided for under Italian Legislative Decree No. 170/2004 on Financial Collaterals (contratti di garanzia finanziaria), implementing Directive 2002/47/EC, are met, out-of-court enforcement is available (in compliance with the above Italian Legislative Decree). 

For mortgages, it is possible to insert a “patto marciano” clause in the facility agreement whereby the lender will on default automatically become the owner of the mortgaged property on the basis of an evaluation made by a court appointed expert. However, this is quite unusual.

As a general principle, if the conditions provided for under Italian Legislative Decree No. 170/2004 on Financial Collaterals (contratti di garanzia finanziaria), implementing Directive 2002/47/EC, are met, out-of-court enforcement is available (in compliance with the above Italian Legislative Decree). 

For mortgages, it is possible to insert a “patto marciano” clause in the facility agreement whereby the lender will on default automatically become the owner of the mortgaged property on the basis of an evaluation made by a court appointed expert. However, this is quite unusual.

No. Notaries can be delegated by the Court to take care of the auction process in the case of mortgages.

N/A.

It is common to give a mandate to the security agent in the case of multiple lenders.

No.

Fairly easy, debtor-friendly, average (but quick for some types of security, e.g. a bank account pledge and receivables). 

No. The laws in the area rarely change.