Non-possessory pledge and Patto Marciano Conversion law of “Decreto Sofferenze” (D.L. 59/2016)

On 3 July, 2016, Law Decree no. 59 of 3 May 2016 was converted into Law no. 119 of 30 June 2016, through various amendments.

Law Decree no. 59, introduced inter alia, (i) a new form of security interest aiming at protecting creditors, namely “non-possessory pledge”, and (ii) the so called “patto marciano”, which allows the lender, in case of loans secured by property, to obtain the transfer of such property upon default by the borrower.

The conversion law provides for a more systematic discipline of the non-possessory pledge, specifying that the registration of the pledge in the register held by the Tax Authority is a condition for the enforceability of same against third parties rather than for its validity, as initially provided for by the Law Decree.

The most important amendment brought by the conversion law in relation to the non-possessory pledge, is the introduction of the new paragraphs 7 bis, 7 ter e 7 quater of article 1 of the Law Decree no. 59 which regulate the opposition procedures against the enforcement of the pledge and the procedures required for the appropriation/sale of the pledged assets.

Following to the enforcement of the pledge, the debtor is now entitled to file opposition, which is governed by the interim proceedings rules as set out under articles 702 bis et seqq. of the Italian Civil Procedural Code and could even cause the suspension of the procedure by the Judge.

Save for the cases of suspension granted in the course of the enforcement, the debtor – or the third party grantor - shall deliver the secured assets within 15 days (save where a different period is specified in the contract). If the debtor – or third party grantor – does not comply, the creditor will be entitled to request assistance of the Court’ bailiffs to force delivery. If the pledge has been transferred over the proceeds of the sale of the pledged assets to third party buyers, the bailiff can search the relevant credits and proceed with their collection from such buyers.

Finally, if the pledged asset – or credit – is already subject to enforcement procedures for expropriation, the Court can authorise the creditor to enforce the pledge, setting out the specific methods and timings. Any excess in value must then be paid in favor of the enforcement procedure (without prejudice to creditors having pre-emption rights created before the creation of the pledge).

With regard to the patto marciano, reference is made to art. 2 of the Law Decree, which introduced article 48 bis to the Legislative Decree no. 385/1993 (Consolidated Banking Act), allowing banks and other entities authorised to grant credit facilities to obtain the transfer in their favor of the property of the borrower (or third party guarantor) granted as security of the loan, in case of default by the borrower.

According to the conversion law, the default must continue for more than nine months (rather than six months as originally established by the Law-Decree); however, if upon expiration of the first unpaid instalment the borrower has already reimbursed at least 85% of the principal component of the loan, the default period is increased to twelve months.

The Law Decree already provided that if the loan is secured by mortgage, the patto marciano prevails over registrations perfected after the registration of the mortgage.

The conversion law specifies that such provision applies also when the property has been subject to enforcement by means of a distraint (pignoramento) registered after the registration of the mortgage but prior to registration of the patto marciano.

The conversion Law also provides for a more detailed procedure of assessment of the secured properties.

Specifically, the appraiser shall communicate within 60 days the report to the borrower or the third party guarantor, and to the creditor, which are now entitled to submit, within ten days, specific comments to the report.

The appraiser shall then provide the requested clarifications within the following 10 days.

Finally, conversion law made clear that the registration of the patto marciano will cause costs and interests of the credit to have the same ranking of the principal component, similarly to what is provided by article 2855 of the Italian Civil Code for the registration of mortgages.

Despite the requests by certain associations, the conversion law did not provide for the possibility that the transfer of the property to the creditor causes the discharge of the whole indebtedness, even if of higher amount, with the result that the bank not fully satisfied can start further enforcement procedures over other assets of the debtor and against third party guarantors.

Additional amendments set by the conversion law for enforcement and bankruptcy procedures are worth mentioning.

In the course of enforcement procedures, art. 596 of Italian Civil Procedural Code has been amended in so that the distribution plan may include the position of creditors whose credits are disputed, provided that a first-demand guarantee is provided to secure the possible reimbursement of any sum which shall result to be paid in excess to said creditor.

According to art. 110 of Bankruptcy Law, the distribution plan drafted by the Receiver may also include credits which are not yet definitely admitted to the liabilities of the bankrupt company, provided that the relevant creditors issue such first demand guarantee.