Italy

Anna Veneziano

I.Introduction

1.General background; structure of national law re security over tangibles

Modern Italian secured transactions’ law is both too poor and too complex. This is particularly true for traditional security devices with respect to tangibles. Financing based on an enterprise’s tangible assets is difficult due to the paucity of efficient legal devices. At the same time, this area of Italian law is confused, as a number of particularised exceptions to the equal treatment of creditors (pari passu rule) have been introduced without a general rethinking of the whole system.1

On the other hand, Italian law recognizes some acquisition finance devices, in particular retention of title and financial lease. Such devices are usually not classified as security but as ownership vested on the vendor/lessor and are subject to divergent rules as to effectiveness between the parties as well as against competing creditors and in insolvency.2

1For criticism of Italian secured transactions law by Italian scholars in a comparative perspective see G. Tucci, Garanzie su crediti dell’impresa e tutela dei finanziamenti (1974); G. Piepoli, Garanzie sulle merci e spossessamento (1980). More recently A. Veneziano, Le garanzie mobiliari non possessorie (2000); Alb. Candian, Le garanzie mobiliari (2001); see also M. Bussani, Il modello italiano delle garanzie reali, Contr. e impr. 1997, 163 et seq.; id., Rapport Italien, in Traveaux de l’Association Henri Capitant, Vol. XLVII (1998), p. 213 et seq.; E. Gabrielli, Sulle garanzie rotative (1998); G. Tucci, Towards a Transnational Commercial Law for Secured Transactions: the Preliminary Draft UNIDROIT Convention and Italian Law, Unif. L. Rev./Rev. dr. unif. 1999, 371 et seq.; G. Ferrarini, Changes to Personal Property Se-

curity Law in Italy: A Comparative and Functional Approach, in R. Cranston (ed.), Making Commercial Law. Essays in Honour of R. M. Goode (1997), p. 477 et seq.

2More details are provided infra, paras. 3. and 4. (as to registration of retention of title) and Case Studies 4 and 10. As a matter of principle, a special treatment of retention of title devices based on the underlying assumption that they are not security interests, because the seller (or lessor) is the “true owner” of the goods, seems to be the prevailing approach also in the other legal systems dealt with in this Study.

Recently, the legislator simplified the existing regime of non-posses- sory rights over tangibles by deleting some of them and introducing a unitary, limited form of enterprise charge.3 This reform followed in the wake of the de-specialisation of credit institutions brought forward by European legislation (prior to this change, the Italian banking system was characterised by the existence of specialised credit institutions with exclusive authorisation to grant financing to specific branches of industry). Until now, however, the new provisions have not changed the practice of enterprise financing.

Among other factors which will be related in more detail below, one important obstacle to a wider use of the existing non-possessory security devices is represented by the particularly cumbersome enforcement procedures. While possessory pledgees enjoy speedier remedies upon default, non-possessory security rights are still subject to the ordinary rules on enforcement.4

Another limitation is the unsatisfactory position in insolvency proceedings. Even though Italian insolvency legislation was recently changed by Legislative Decree No. 5/2006 (substituting new provisions within the old framework of the Royal Decree No. 267/1942),5 that effort did not introduce a radical change in the ranking system provided for in substantive secured transactions law. In insolvency, there is quite a long list of preferred claims that enjoy a special priority; this limits the efficacy of non-possessory security rights. The Insolvency Law refers on this point to the priority rules in the Codice civile (see Art. 111 No. 2 Insolvency Law).

See however the functional approach followed by German courts when the sale with retention of title is prolonged on proceeds or products (“Verlängerter Eigentumsvorbehalt”, see German Report, sub I.1.b)) as well as the new provisions in the French Civil Code recognising the security purpose of retention of title (French Report, sub I.) and the doubts concerning the characterisation of the same device expressed in the Spanish Report (sub.III.1.). To this add the rules relating to the rights of tax authorities in the Netherlands which consider retention of title clauses in sales and financial leases as “security” rather than true ownership (Dutch Report, sub I.3.).

3More details are provided infra, paras. 2. b) and 4. and Case Studies 1and 3.

4See infra Case Study 1 para. e). Enforcement procedures for non-possessory security devices in Italy are much less effective compared to the ones existing in most other legal systems dealt with in this Study. Enforcement procedures are analysed in particular by G. Tucci, Towards a Transnational Commercial Law on Secured Transactions: the Preliminary Draft UNIDROIT Convention and Italian Law, Unif. L. Rev./

Rev. dr. unif. 1999, 371, at 386 et seq.

5Legislative Decree 9 January 2006, No. 5. A previous, more limited reform was introduced by Law 14 May 2005, No. 80. The whole system is rather confusing at the moment due to lack of coordination between the two reforms.

First on the list are procedural costs (court and insolvency administrator fees) (Art. 2777 C.c.) followed by all sums due to employees (wages, salaries, indemnities after ending of an employment contract, as well as social security claims) with no time or amount limitation (Art. 2751-bis No. 1 C.c.) and sums due for services or under other work contracts limited to the last two years (Art. 2751-bis No. 2 C.c.). Such preferences are followed by special liens on movables, which are satisfied according to a specified order.

The 2006 reform of Insolvency Law added another category of superpriority that takes precedence even over the afore-mentioned claims: “crediti prededucibili” (see Art. 111 para.1 No. 1, Insolvency Law as amended). This covers, among other instances which are specific to certain contracts, costs relating to the insolvency administration as well as claims deriving from post-commencement financing. Thus, claims arising from: the activity of the insolvency administrator (including tort claims); the operation of the business when provisional operation is authorised within a liquidation procedure; rescue procedures before confirmation of a rescue plan or during its implementation, when the plan failed and a liquidation procedure ensued. The only claims which prevail over such crediti prededucibili are the ones secured by a pledge or a chattel mortgage (Art. 111-bis, para. 3, Insolvency Law) (the rule applicable to chattel mortgages is, however, still unclear). These provisions were welcomed as a means to facilitate financing of reorganization during insolvency proceedings. It remains to be seen how they will influence the general financing of enterprises.

Most recently, the new legislation on company law introduced in the 1942 Italian Civil Code provisions on so-called “dedicated assets” (“patrimoni destinati”).6 These provisions are applicable only to the financing of stock companies (“società per azioni”), while there is no limitation as far as the type of eligible creditor is concerned. The complex documentation to be provided, however, makes it difficult for creditors other than institutional ones. As far as the structure of this device is concerned, it is a “dedication” (a legal ring-fencing) of a part of the assets of a company for the exclusive benefit of creditors that finance a specific economic venture (which, however, cannot be its entire business activity). These provisions grant a limited protection to the financiers against competing creditors, as the latter cannot attach the equipment set

6Riforma delle società, Legislative Decree 17 January 2003, No. 6, which introduced into the Civil Code section on company law a series of provisions on patrimoni destinati ad uno specifico affare, Art. 2447-bis C.c. et seq. See in particular Art. 2447bis para. 1 lit. b C.c. in conjunction with Art. 2447-decies C.c., that allows for stipulation of a loan contract to finance a specific affair that is exclusively reimbursed by the returns from the same affair.

aside to pursue the affair for the entire duration of the operation. This device does not, however, constitute an encumbrance on the enterprise’s tangible assets as such. The financier has only a priority on the “returns” of the economic venture and cannot force liquidation of the dedicated assets.7 It remains to be seen how the returns will be calculated.

To sum up: notwithstanding developments which do deserve attention, the system is still unsatisfactory. Enterprises which do not choose to remain unsecured resort to alternative means of secured financing such as personal security, which is widely used.

Sellers who export abroad do not rely on real security but primarily on personal security or a bank guarantee (the bank is generally secured by a pledge on intangibles or a personal security) or insurance, according to the amount to be secured. Depending on the legal system where the goods are exported, a reservation of title may turn out to be useful, though it is not much used in practice due to the low efficacy of this device within Italian law. I would like to point out that the resort to alternative means of secured financing is the advise that I would give to an Italian entrepreneur looking for external sources of financing, particularly because the implementation of the above-mentioned new instruments has not yet been judicially established.

2.Security devices denominated as such

a)Possessory devices

The 1942 Codice civile in principle allows only for possessory pledges where tangible assets are concerned (“pegno con spossessamento”).8 All

7The financier’s rights in insolvency are now the result of Art. 2447-decies C.c. in conjunction with the new Art. 72-ter Royal Decree 16 March 1942, No. 267 (Insolvency Law) as amended by Legislative Decree 9 January 2006, No. 5. Their interpretation is far from clear. It can be inferred that the company’s insolvency terminates the contract whenever continuation or realization of the affair is made impossible by it. If such impossibility does not occur, the insolvency administrator may choose to step into the company’s shoes and continue the contract. If it does not do so, the financier may ask the insolvency judge for authorization to proceed with the affair either on his/her own or through a third party. The financier may then keep the returns of the affair, but he/she may not enforce against the assets themselves and

must claim any remaining debt as a mere unsecured creditor.

8Art. 2786 C.c. et seq. (Del pegno di beni mobili). The Codice civile contains in addition express rules concerning pledges on debts (“crediti”) and other rights on tangibles (Art. 2800 C.c. et seq.).

other security on movables is seen, at least formally, as an exception provided for by special code provisions or other legislation.

In order to be effective as against third parties the pledge must be constituted by a written document bearing an ascertained date (“data certa”) and sufficiently describing the sum secured and the collateral.9 Moreover, the dispossession must deprive the debtor of any power of autonomous disposition of the tangible goods. A possessory pledge may be created not only through delivery of the asset to the pledgee but also by constituting a “co-custody” of the collateral shared between creditor and debtor. When, however, the collateral is left at the debtor’s premises, the security retains its priority vis-à-vis third parties only if the debtor is not authorized – and is disabled to act by itself – to freely deal with the assets (as in the case of a storage room for inventory that can be accessed only by using two keys at the same time, one in the possession of the debtor and the other kept by the creditor).10

b)Non-possessory devices

A limited number of non-possessory chattel mortgages (“ipoteche mobiliari”) exist. The chattel mortgage can be created only on certain easily identifiable goods of relatively high unit value and for which a registry concerning title is set up: ships, aircraft and motor vehicles11 (further details are provided infra, para. 4 and Case Study No. 9).

9Only recently did Italian courts, spurred by scholarly opinion and special legislation in analogous fields, recognise the enforceability of a revolving pledge on financial instruments under certain conditions. See Cass. 5 May 1998, No. 5264, Banca e borsa 1998 II, 485 et seq.; Cass. 27 September 1999, No. 10685, Foro it. 2000, 528 et seq.; App. di Milano 4 July 2001, Banca e borsa 2002, 693 et seq. and E. Gabrielli, Il pegno, in Trattato di diritto civile diretto da Rodolfo Sacco, Vol. 5 (2005), p. 223 et seq., where he restates its original idea expressed in Il pegno anomalo (1990).

The courts have not, however, extended this possibility to tangible inventory.

10For details on pledges with delivery to a neutral third party and pledges with cocustody see E. Gabrielli, Il pegno, in Trattato di diritto civile diretto da Rodolfo Sacco, Vol. 5 (2005), p. 121 et seq.

11A specialised registry for the first two categories of assets is found in most legal systems dealt with in this Study (there are registries for such assets even in Germany, see German Report, sub II.9.; Belgian law singles out only ships, see Belgian Report, sub II.9.) and rights on these assets are also the subject matter of international instruments. Less widespread are on the other hand special rules for motor vehicles (see however French Report, sub. II.9.). Worth noting is that the abrogation of the title registry for motor vehicles in Italy is at present being discussed at par-

Since the beginning of the last century, the Italian legislator has incrementally developed an array of ad hoc non-possessory security rights called “privilegi speciali”. They were confined to specific types of goods, usually within the framework of legislation introducing incentives to finance a particular segment of industry, often through the creation of specialised credit institutions. These security rights were quite varied as to form and effectiveness requirements. Originally, the privilegio was a non-consensual security right arising by operation of law in favour of certain subjects whenever certain factual conditions are met and requiring neither any act on the part of the benefited creditor nor any publicity. The Codice civile as well as special legislation also provided for socalled “consensual” privilegi, which can be referred to as “charges”, being the result of an agreement between the parties (connected to a loan) and needing registration to be opposable to third parties (see Art. 2745 para. 2 C.c.).12 It must be however said that neither kind of privilegio offered an effective security, especially on proceeds.13

Most of the charges were replaced in 1993 by the new special charge in favour of banks contained in the reformed Banking Law (“privilegio speciale ex Art. 46 legge bancaria”,14 herein “Art. 46 Bank Charge”). The Art. 46 Bank Charge might be viewed, with some generosity, as an enterprise charge, but it must be said that until now it has had little impact on the practice of enterprise financing. It can be created over the assets of an enterprise15 to secure mediumto long-term financing (loans exceed-

liamentary level. More details are provided infra, para. 4 (registration) and Case

Study No. 9.

12For the sake of clarity from now on we will refer to the first kind of privilegio as a “lien” and to the second kind as a “charge”.

13The prevailing judicial interpretation was restrictive. See Cass. 10 May 1980, No. 1594, Foro it. 1980 I, 2528 et seq., with a critical note by G. Tucci, one of the earliest scholars suggesting a thorough reform of Italian secured transactions law.

14Testo Unico delle leggi in materia bancaria e creditizia, Legislative Decree 1 September 1993, No. 385, as amended by Legislative Decree 4 August 1999, No. 342 (in short, legge bancaria, hereinafter Banking Law).

15The definition of “enterprise” is an established one in Italian law and derives from the definition of “entrepreneur” (“imprenditore”) in Art. 2082 C.c. (“the entrepreneur exercises an organized economic activity in a professional way in order to produce or to exchange goods or services”). This excludes both consumers as non-profit organizations (acting within their statutory purposes), but it includes entities other than incorporated companies (e.g. partnerships) and also includes individuals doing business as sole proprietorships. Thus, unlike the current interpretation of the UK Companies Act charge legislation, Art. 46 is not limited to companies and limited partnerships.

ing 18 months) by banks.16 Thus, financiers other than banks, even other regulated financial institutions, are ineligible. An Art. 46 Bank Charge can be created, inter alia, on existing tangible property (including equipment, inventory, fruits and cattle17), which must be used in the operation of a commercial activity,18 with the exclusion, however, of movables that are registered in a public registry such as motor vehicles. The legislative rules on creation and perfection are very short and have caused a certain amount of debate among scholars, concerning in particular the limits to the “revolving” nature of the security device and the extent of its priority vis-à-vis other security rights (these issues will be dealt with in Case Studies Nos. 1 and 3). It is difficult to predict which interpretation will prevail since there is not yet any case law on the application of Art. 46.

Still existing, though not much used in practice, is the unpaid vendor’s lien on “machines” – that is equipment19 – under Art. 2762 C.c. (“privilegio del venditore di machine”). It is a lien of limited duration over sold and delivered equipment, arising by operation of law in favour of the seller provided that the documents proving the sale and the outstanding price are filed in a registry. Though there is a publicity requirement for this device, it is not based on consent and thus the buyer need not agree to the lien: the sales contract is sufficient (this is why the term “lien” and not the term “charge” is used here). The same lien is available also to third parties authorised to financing the acquisition of “ma-

16The definition of bank is found in Art. 1 lit. b) of the Banking Law.

17The Banking Law still contains separate provisions for agricultural and fishing industry, for which a regime of specific incentives is kept. As far as security for such financing is concerned, Art. 44 of the Banking Law refers to Art. 46 with two qualifications: the security is applicable also to short-term loans and an added lien by operation of law is kept (apparently in order to lower the costs for smaller operations). A separate regime for farmers is not uncommon in other jurisdictions, see English Report, sub I.1.

18This point was cleared by Legislative Decree 4 August 1999, No. 342, since originally the limitation to assets used in the exercise of a commercial activity seemed to refer only to equipment.

19The meaning of the word “macchine” does not appear to be the same in the different statutes regulating secured transactions. In the case of the unpaid vendor’s lien “machines” means “equipment used in the enterprise main activity”, thereby excluding other machines held for use by the entrepreneur, while in other provisions it refers to electric tools, whatever their use may be.

chines”. More details and the reasons for its limited effectiveness in practice are given below.20

In addition, there are statutory non-possessory security pledges on certain products of the food industry, which concern ham – and more recently cheese – subject to trademark protection (“pegno non possessorio sui prosciutti”).21 They allow for transformation of the product at the debtor’s premises. The pledge is constituted by marking the goods which are to be transformed (i.e. pork meat in the case of ham) with a special inerasable sign and by entering the right in special book-accounts, and it remains effective during processing of the goods and is transferred onto the finished product.22 These non-possessory pledges were introduced in order to supersede the practice of sales of the product to be transformed to the financier or to a third party (e.g. the producers’ association) followed by delivery of the product to the debtor on a fiduciary basis, which created problems as to the validity of the agreement.23 The development of such non-possessory pledges further illustrates that emerging needs in the financing of industrial activities are met in Italy by adding yet another kind of exceptional instrument instead of reconsidering the system of secured transactions as a whole.

3.Title-based security devices

Italian courts have not recognised as an alternative device the transfer of tangible property by way of security, which is considered to be invalid, inter alia, under the prohibition of pactum commissorium (Art. 2744 C.c.).24 A legislative exception to this rule was recently provided for in

20See Case Study No. 8. In this respect, the Italian unpaid vendor’s lien is less effective than the French and Belgian counterparts, see French Report, sub II.8.; Belgian Report, sub I.2.b) and II.8.

21For ham Law 24 July 1985, No. 401. Similar provisions were enacted for cheese products protected by trademark (Art. 7 of the Law 27 March 2001, No. 122 containing provisions on agricultural and forest sectors).

22For priority conflicts with other security rights see infra, Case Study No. 3.

23For a qualification of such agreements as special forms of non-possessory pledges see in particular E. Gabrielli, Il pegno anomalo (1990), p. 76 et seq.

24See the leading case of the Supreme Court Cass. No. 3800, 3 June 1983, Foro it.

1984 I, 212 et seq. This is by now consolidated judge-made law. In this respect, Italian law differs not only from jurisdictions where transfer of ownership by way of security is one of the main devices to encumber tangible goods (e.g. Germany) but also to other legal systems such as the English one and even the Spanish one (whose approach was traditionally more similar to the Italian system). A more re-

the law implementing the Financial Collateral Directive,25 but was not extended to security devices in other fields. This judicial hostility toward fiduciary transfers is also seen in conflict of law issues involving retention of title on proceeds and products of sold goods and transfer of property by way of security, which were struck down as ineffective.

On the other hand, Italian law does recognize some title-based devices in the context of acquisition finance, in particular retention of title and financial leases. Such devices, as mentioned earlier, are usually not classified as security but as ownership vested on the vendor/lessor. This means not only that effectiveness requirements are wholly different than in the case of security devices, but also that vendor and lessor are insulated from competition with other creditors. The statutory rules on retention of title, however, make it impractical to use it on a large scale in commercial transactions.26 On the other hand, business in the leasing industry is steadily increasing: at the end of 2005 the total outstanding leasing contracts on equipment approached € 23 billion (this figure, however, includes both operating and financial leases).27 The granting of a financial lease generally requires less time than is the case for a traditional bank loan and is perceived as more flexible (tailored to the needs of each customer), as well as advantageous from the point of view of taxation. Moreover, a financial lease allows creditors to escape the more restrictive provisions concerning retention of title, which render the latter device less attractive.28 Such advantages are linked to the fact that the lessor remains “true owner” of the goods. Whenever the contract is recharacterised as a security device, however, courts consider it to be invalid (as it happens in some instances of sale-and-lease-back, see Case Study No. 4).

strictive approach to transfer of tangible property by way of security is found in

Belgium and the Netherlands.

25Art. 6 No. 2 Legislative Decree 21 May 2004, No. 170.

26For details see infra, para. 4. and Case Study No. 4. This is in contrast with most other jurisdictions dealt with in the present Study, at least as far as vendor’s rights on the original goods are concerned.

27See Italian Association of Leasing (ASSILEA), Rapporto sul Leasing 2005, available at http://www.assilea.it/repository/annual_report/Rapporto2005.pdf (1 August 2007).

28See infra, Case Study No. 4.

4.Existing registries

There is no single comprehensive filing system for secured transactions. Certain security devices, however, do require registration (the traditional way to give “publicity” to chattel mortgages in lieu of dispossession).29

The existing registries differ widely. Common features are that that they are “document filing” registries as contrasted with “notice filing” (i.e. the operative document establishing the transaction must be presented to the registry) and there are no special rules (e.g. grace periods etc.) regarding filing of security rights on assets moved into Italy from another country.

The extent of computerisation of such registries varies. The most advanced in this respect is the enterprise registry (“registro delle imprese”) where the contract providing for “dedicated” assets is to be filed. The reason is that this registry was established relatively recently (in 1995).30 Although the registries still receive input on a local basis, because all entries are to be found on a single electronic index they have in effect become a single national registry from the standpoint of a searcher. According to the law, both input and output are completely electronic. In practice, a person wishing to file must still personally bring the document to the (provincial) office, either on paper or stored electronically. There is no remote access search, but a copy of the requested document is made available, also via letter or e-mail, to whoever presents a request. The request can be transmitted also electronically. Costs are limited to administrative fees for the copies. According to the system designed by statute, data stored in the registries should be immediately available to a searcher. In practice, data is still brought personally to the office. It then has to be manually inserted in the registry and this causes a certain delay in the availability of information to users.

All other registries are moving towards the use of electronic filing.31 The time between presentation to the documents to the registry and availability of the data to a searcher varies according to the registry involved.

The chattel mortgages (“ipoteche mobiliari”) provided for in the Codice civile and in the Maritime Code (“Codice della Navigazione”) on ships,

29This general approach is followed in other legal systems (Spain, France, Belgium, England) though with very different degrees of fragmentation and effectiveness of the registries according to the various security devices. Contrast Germany and the Netherlands.

30The registry was already provided for in Art. 2188 C.c. et seq. but was not implemented until Presidential Decree 7 December 1995, No. 58.

31Starting from 1994 all Italian public administration offices have to digitalize their filing systems.

aircrafts and motor vehicles are required to be registered in specialised asset-based registries in order to achieve effectiveness both between parties and against third parties. This is true for older types of registration.32 These registries function at the same time as title and security right registries33 and are nationwide. Until recently, the mortgage had to be notarised before registration. With Decree No. 223, 4 July 2006 (socalled “Decreto Bersani”)34 the legislator abolished the exclusive competence of notaries in this field. This change should lower the costs of stipulating a chattel mortgage to administrative fees and taxation. Even more recently, the abrogation of the title registration system for motor vehicles was proposed and is now being discussed in Parliament (see Case Study No. 9 for further details).

Retention of title on certain items, i.e. machinery whose value exceeds € 15,49 (n.b.: this amount has never been adjusted) is also subject to registration. In this respect, Italian law differs from most other European legal systems dealt with in the present study.35 It must be noted, however, that this registration affects only sub-buyers of the goods, rendering the clause effective against them. As far as competing creditors of the subseller are concerned, other rules apply (see Case Study No. 4). Furthermore, the publicity, and the consequent effectiveness against sub-buyers, achieved by registration is not particularly efficacious. The registry is based at the first instance court, Tribunale (166 throughout Italy) of the place where the goods are located at the time of stipulation of the clause. The protection offered by registration is lost when the goods are moved out of the territorial competence of the Tribunale. No rules deal with change of registration location upon movement of the goods. Likewise, no rules provide for the possibility of registering a retention of title stipulated with respect to goods located outside Italy at the time of the stipulation, but later moved to Italy.

The Art. 46 Bank Charge must be registered in order to be effective against third parties (including competing creditors). Registration must be

32The need for registration in order to achieve effectiveness both between parties and against third parties is still present in other jurisdictions dealt with in the present Study, see Spanish Report, sub IV.2.b). See also the newly introduced pledge on inventory in the French Commercial Code, which seems to require registration as a condition of effectiveness also as between creditor and debtor, see French Report, sub II.3.

33In this respect, Italian law conforms with the other legal systems dealt with in this Study (for Belgian law only in relation to ships).

34The Decree was confirmed by Statute 4 August 2006, No. 248.

35Doubts as to the need for registration of retention of title in order for it to acquire third party effects are expressed in the Spanish Report, sub IV.2.c). All the other countries do not require registration for title retention.

done at the Tribunale within whose jurisdiction the place of business of the grantor is located. This is the same registry as the one mentioned above for retention of title. No effort was made in this legislation, however, to modernize the existing registries, nor to solve the issue of priority between an Art. 46 Bank Charge and a registrable retention of title.36 An additional registration must be entered at the Tribunale of the place where the bank has its seat. 37 Registration as such is not expensive, though if parties resort to a notary public (which is customary when a bank is party to an agreement) the fees are based on a percentage of the value of the loan: this is usually a large amount and is to be paid by the grantor’s enterprise. In an effort to limit the costs of the operation while keeping the requirement of a notarised document, a new paragraph added to Art. 46 by Legislative Decree No. 342/1999 states that any notary fee relating to the registration of this charge is diminished by half.

II.Case studies

1.Non-possessory security right in specific existing items of equipment

As already noted, in Italian law there is no general consensual nonpossessory security right on specific goods held for use. The only way to collateralize already-owned equipment of various types and provenance would be the granting of an Art. 46 Bank Charge, bearing in mind that this device may be stipulated only in favour of banks and only by enterprises for mediumto long-term financing (more than 18 months).

a)Documentation and formalities to achieve effectiveness

aa) against grantor

In order to be effective as between the bank and the grantor, Art. 46 para. 2 states that the Art. 46 Bank Charge must be created by a written document “exactly describing”: (1) the collateral; (2) names of lender and debtor (or third-party provider of security); (3) amount of the loan and its terms; and (4) sum secured.

Thus, Art. 46 requires a high level of formality even as between grantor and bank, though it refrains from making registration a condition of effectiveness as between them (in contrast with the provisions on chattel mortgages on ships, aircraft and motor-vehicles).

A point which has raised concerns among scholars is the need for an “exact description” of the four elements listed in Art. 46 para. 2. As to the collateral, and in the absence of case law on the question, most scholars have agreed on a more liberal approach, stating that a “sufficient” description in lieu of an “exact” one would satisfy the statute. This would put the description requirements of the Art. 46 Bank Charge in line with what is provided for in the rules on possessory pledges, where the term used is “sufficient” (see Art. 2787 para. 3 C.c.). In any event, how precise a description must be to satisfy the “exact” standard would be a matter for the courts, and the specificity of the description, even under the “sufficient” standard, may vary according to the type of collateral which is the object of the charge.38 In the case of the assets mentioned in this Case Study, a fairly precise description of existing machines is certainly possible and is therefore considered to be required. A different solution was suggested, however, in the case of inventory and account-receivables, where the requirement of a high degree of exactitude might well be inconsistent with the “revolving” nature of the collateral. For a discussion of the latter point see infra, this Case Study, para. c), and Case Study No. 3.

A similar problem is also generated by the requirement with respect of the “sums secured”, in the context of a revolving credit arrangement. This is however not relevant to this first Case Study; for details see infra, Case Study No. 3. The distinction made in Art. 46 para. 2, Nos. 3 and 4 (“loan” and “sum secured”) derives from the rules on mortgages, where the security right may cover only a part of the loan. Thus, the amount of the loan as such and the sum secured by the charge may be different. Furthermore, Art. 46 expressly mentions not only the amount, but also the “conditions” of the loan. This rather vague formula does not identify those elements of the loan transaction which must be disclosed. This is unfortunate because the need to disclose in a public registry all particu-

38See among others G. Presti, Il privilegio per i finanziamenti bancari a medio e lungo termine in favore delle imprese, Banca e borsa 1995 I, 594, at 610 et seq.; A. Veneziano, La garanzia sull’intero patrimonio dell’imprenditore della nuova legge bancaria italiana al confronto con i modelli stranieri: una riforma a metà?, Dir. comm. int. 1996, 938 et seq.; M. Rescigno, Le garanzie “rotative” convenzionali: fattispecie e problemi di disciplina, Banca e borsa 2001 I, 1 et seq.

lars of a loan may well be perceived as problematic (at least in some cases).39

bb) against third parties

In order to be opposable to third parties generally, the security agreement must be notarised (or authenticated by a public official) and entered in a registry kept by the First Instance Court (Tribunale) of both the place where the grantor has its seat and the place where the lending bank has its seat (when different). The entire document establishing the Art. 46 Bank Charge must be filed. Further details on registration are provided supra, para. I.4.

b)Discoverability of earlier created rights in the collateral

As noted supra, para. I.4., chattel mortgages on registered assets, some title retentions and all Art. 46 Bank Charges are required to be registered, though they are subject to different rules as to effectiveness requirements and priorities.

An Art. 46 Bank Charge does not cover movables subject to registration which are the object of chattel mortgages. Therefore, no conflict between these two devices arises with respect of that type of collateral.

Lender may look into the registries in order to discover whether prior- in-time rights of the same type as the Art. 46 Bank Charge have been filed (and to obtain information as to their scope and extent). As between Art. 46 Bank Charges, a simple first-to-file rule is applied. All other competing rights on the assets prevail over the Art. 46 Bank Charge if created with an “ascertained date” (“data certa”) that antedates registration of the charge. Although nowhere stated explicitly, presumably the charge otherwise prevails. It is quite difficult for the lender to determine whether there are unregistered rights created with an earlier ascertained date since the ascertainment does not render the rights public; it may be achieved by a notarisation or authentication by a public official of a private writ-

39Concerns about confidentiality are also raised in other jurisdictions. Confidentiality is one of the reasons traditionally put forward to resist introduction of a generalised registration system for security devices in Germany. A Uniform Commercial Code filing model would not, however, imperil confidentiality, as that does not require disclosure in the public record of any financial data but, rather, requires merely identification of the parties (or the secured party’s representative) and a general description of the collateral. The problem is more evident in those legal systems where registration is based on a document filing rather than notice filing.

ten document (the notarisation or authentication officially gives it a date) (see Art. 2704 C.c.).

Although Art. 46 Bank Charge and some title retentions are both registered in the same registry, this was apparently done solely to avoid the cost of providing for another registry. No rules on the priorities as between the two devices is to be found in any legislation. Some scholars have suggested that a first-to-file rule should apply also in this case.40 The tenability of such a proposal depends on whether courts are prepared to disregard any document relating to the title retention that was entered into prior to registration – even if it bears an ascertained date.41 Under this approach, the bank would prevail if the Art. 46 Bank Charge were registered before registration of the title retention (though the two devices may be filed in different local registries), notwithstanding the existence of a prior-in-time document with ascertained date proving the stipulation of the title retention.

Another approach is based on the fact that registration of a title retention expressly relates only to the conflict with a sub-buyer of the collateral and may be said to be irrelevant to the priority conflict with other creditors of the sub-seller. Under this approach, even if a bank learned that an item of equipment being charged to it had been acquired by the chargor subject to a retention of title clause, and learned of the location of the equipment at the time the title retention was stipulated, checking the appropriate registry would still be insufficient to assure priority over a title-retaining seller that obtained an ascertained date earlier that the date of the bank registration (whether or not the seller registered).

Finally, it could be argued that the seller should always prevail, as the assets sold under a retention of title never become part of the debtor’s assets and therefore they cannot be covered by a previous registered Art. 46 Bank Charge. This is the approach taken by many other European jurisdictions, which grant retention of title priority over earlier created security rights on the ground that the assets bought (or hired) under retention of title never entered into the debtor’s after-acquired property in the first place.

In the author’s opinion, none of the solutions suggested above is satisfying. Under the first approach the security function of the retention of title is fully recognised, but the strict “first-to-file” rule which is proposed would have the practical effect of giving priority to the lending bank protected by an Art. 46 Bank Charge as against a seller with retention of title in the great majority of cases (as Art. 46 applies to mediumto long-

40 See in particular G. Tucci, in F. Capriglione (ed.), Commentario al Testo Unico

(2nd edn. 2000), p. 349.

41See for a clear review of the alternatives M. Rescigno, Le garanzie “rotative” convenzionali: fattispecie e problemi di disciplina, Banca e borsa 2001 I, 1, at 2 et seq.

term financing). Furthermore, this approach seems to be inconsistent with the present function of the registration for retention of title under Italian law. The second approach avoids the problem of inconsistency just mentioned, but it still has the practical effect of denying priority to the seller with retention of title in most situations (as the retention of title will be probably agreed upon and acquire an ascertained date at a later time than the time of registration – or of constitution – of an Art. 46 Bank Charge). The third mentioned solution, finally, may have the practical effect of safeguarding the priority of a later-in-time seller with retention of title, but it achieves this result by adopting a formal approach based on who is the “owner” of the assets. A better solution would be to grant title retention, as a purchase-money security device, some kind of priority over a more general enterprise charge, regardless of time of filing or stipulation of the title retention.

Lessors, on the other hand, are considered to be owners of the leased property. Therefore they have the right to repossess their assets in case of default. They outrank any other holder of rights on the same assets (except for acquirers in goods faith under Art. 1153 C.c.). This means that an Art. 46 Bank Charge does not extend to leased equipment.

Finally, there is no way, from public records, for a bank to become aware of existence, scope and extent of other rights that need not be registered and that may prevail even if created later in time (e.g. superpriorities on movables effective in insolvency).42

c)Rights of secured creditor upon sale by grantor in

aa) the sold collateral

The issue is directly solved by Art. 46 para. 5 Banking Law, according to which a subsequent buyer takes subject to the rights of the bank that registered its charge on the equipment before the sale, unless the buyer is protected by Art. 1153 C.c., which contains the well known rule of bona fide acquisition.43 A buyer without knowledge of the Art. 46 Bank Charge that in good faith receives possession of the asset from the debtor takes free of the charge. The extent to which registration may affect the buyer’s good faith ignorance is not clear, since the black-letter-rule of Art. 46 expressly preserves the protective effects of the bona fide acquisition provision, while the recognition of a generalised duty on the third-

42See supra, para. I. 1.

43On the extension of this rule to the different case of subsequent sales of the same asset, where the conflict is between two buyers (Art. 1155 C.c.) see R. Sacco, Il possesso, in Trattato di diritto civile Cicu e Messineo (1988), p. 388 et seq.

party acquirer to search the registry would in practice deprive the reference to Art. 1153 C.c. of any effect.44 In the absence of judicial decisions, some scholars45 have argued that the solution should vary depending on the nature of the collateral. In the case of assets which are not held by the buyer for sale in the ordinary course of its business – such as the machines held for use in this Case Study – a buyer (likely to be a business that uses such machines) could be considered to be in bad faith if it failed to check the register. The opposite result would apply in the case of sale of inventory, where the secured party, the debtor/seller and the buyer all expect the inventory to be available for sale and therefore, the buyer should not be expected to make inquiries to discover possible encumbrances on the goods sold. Still open is the further question whether a buyer of goods that are encumbered by a charge created but not yet registered takes free of the charge if the buyer bought with knowledge of the charge.

bb) proceeds of the sold collateral

According to Art. 46 para. 5, when the bank cannot repossess the asset because of bona fide acquisition of the encumbered assets, the lender’s security right is automatically transferred to the corrispettivo (meaning consideration received in exchange). The term corrispettivo is interpreted as referring to the receivable arising out of the sale of the collateral.

More doubtful is the application of the term corrispettivo to cash paid to the debtor for the assets sold. There are problems in tracing cash when it has been commingled with other monies of the debtor, and as Art. 46 does not refer to cash as collateral, it does not seem possible to construe a creditor’s right to an equivalent sum within the debtor’s patrimony.

Doubts also arise in the case of a tangible given in exchange. In any case, Art. 46 para. 1, lit. a) expressly mentions that the charge may cover “existing and future” equipment. The latter provision, however, does not automatically extend the charge to future equipment, even when it is in substitution for original equipment, but requires an express agreement that includes future equipment and adequately describes it (see infra, para. d))

Some problems arise also with respect to receivables. Art. 46 para. 1, lit. d) expressly mentions that the security may be created on receivables, present or future, deriving from the sale of the assets that are encum-

44See M. Sepe, in P. Ferro-Luzzi/G. Castaldi (eds.), La nuova legge bancaria. Commentario, Vol. I (1996), p. 717.

45See in particular G. Tucci, in F. Capriglione (ed.), Commentario al Testo Unico (2nd edn. 2000), p. 342.

bered. The language of Art. 46 makes it clear that extension of the charge to the receivable generated by the grantor’s sale of the asset is not an automatic effect of the charge on the sold asset. The security agreement must expressly provide for such an extension.

The first difficulty concerns the relationship between the mentioned rule and Art. 46 para. 5, which automatically extends the security right to the proceeds when the asset cannot be repossessed by the bank because of good faith acquisition. It has been argued that when the parties agree on extending the security right to the receivables deriving from the sale of encumbered assets, the bank implicitly authorizes the sale and, consequently, waives its right to repossess the sold assets, independently of the good or bad faith of the subsequent buyer. In the absence of such an extension, the bank retains its right to repossess the asset or, alternatively, its right is automatically extended to the receivable arising from the sale.46

Further problems arise from the rules on description of the collateral which were mentioned above. The statute requires that the charge agreement must exactly describe the (goods and the) accounts encumbered. According to a majority view among scholars, shared by the Italian Banking Association, existing accounts must be described precisely, with indication of the amount and of the account debtor; for future accounts, on the other hand, a more generic reference to the assets whose sale is going to generate the accounts should be sufficient. It is doubtful that a description of “all receivables generated by the sale by the grantor of any item of collateral” would satisfy this requirement.

Finally, the somewhat ambiguous text of Art. 46 even left room for a restrictive interpretation according to which the publicity regime envisaged for other assets would not be applicable to receivables, for which, instead of publicity, notice to the account debtor would be required. In the author’s opinion, that interpretation should be rejected in light of the unitary system of publicity through registration introduced by Art. 46.47

46See M. Rescigno, Le garanzie “rotative” convenzionali: fattispecie e problemi di disciplina, Banca e borsa 2001 I, 1, at 8.

47For this view, see G. Tucci, in F. Capriglione (ed.), Commentario al Testo Unico (2nd edn. 2000), p. 347. For the opposite view, see M. Sepe, in P. Ferro-Luzzi/G. Castaldi

(eds.), La nuova legge bancaria. Commentario, Vol. I (1996), p. 715; G. Presti, in

U. Morera/M. Nuzzo (eds.), La nuova disciplina dell’impresa bancaria, Vol. II (1996), p. 100 et seq.

d)Rights of secured creditor in replacement collateral (real subrogation)

According to Art. 46 para. 1, the charge may cover “existing and future” equipment (lit. a)). In addition, it includes any assets acquired with the loan (lit. c).48 Thus, provided that the security agreement contains an express reference to, ad adequately describes, future equipment, the latter would be included, whether or not the new equipment substitutes for the original equipment. In this case a description of the general category of the future asset would be sufficient. A problem may arise from the fact that Art. 46 does not mention “equipment” as a separate category of assets but refers, all together as one group, to plants (“impianti”), works (“opera”) – meaning plants under construction – and equipment (“beni strumentali”). It remains to be seen how courts will interpret such an unclear list and whether the latter type of assets may be considered to be inclusive of the other two or only relating to certain kinds of tools.

e)Remedies upon default

Art. 46 fails to provide any special rules on enforcement. This failure was strongly criticized by scholars and practitioners as it means that the bank is left with the inefficient rules on enforcement of non-possessory liens under the Procedural Code.49 The bank does not enjoy the rights of the pledgee to choose between the normal execution rules and the self-help provisions contained in the Codice civile. These latter provisions give the pledgee the right after default to ask the court for appropriation of the asset(s), after appraisal made by the same court (either referring to current market price at the time of the sale or to expert evaluation) and with an accounting to the debtor of the excess, if any, of the value over the balance due. Alternatively, the pledgee is entitled to seize the assets (if they are deposited with a third party) and have them sold by an official agent either at public auction or, if the asset has a current market value, at that value (but in this case with no judicial supervision as to the existence and amount of a market price). The Codice civile provisions on remedies for pledgees also permit the parties to agree (even prior to de-

48This latter provision too may be subject to a restrictive interpretation, limiting its application to the cases where the loan expressly mentions the assets to be acquired (“mutuo di scopo”), see G. Presti, Il privilegio per i finanziamenti bancari a medio e lungo termine in favore di imprese, Banca e borsa 1995 I, 610 et seq. This restrictive interpretation, however, is a minority view.

49See in particular G. Tucci, Towards a Transnational Commercial Law for Secured Transactions: the Preliminary Draft UNIDROIT Convention and Italian Law, Unif. L. Rev./Rev. dr. unif. 1999, 371 et seq.

fault) on a different method of sale. In contrast, the bank must follow the ordinary cumbersome procedures (Art. 502 C.p.c. et seq.) which usually take a very long time (at worst it can take even more than one or two years) and inevitably result in a very substantial decrease in the amount realised from the collateral.

f)Insolvency of the grantor

The Art. 46 Bank Charge is expressly given the rank of a lien under Art. 2777 para. 3 C.c. This means that the bank will be satisfied out of the proceeds of the sale of the assets with preference to all other creditors except for the super-priorities arising in relation to the insolvency or rescue procedure, procedural costs and all sums due to employees, social security costs, sums due for other services and work contracts (on such super-priorities see supra, para. I.2.) as well as claims secured by a pledge on the same assets. No “ring-fenced sum” is provided for in favour of general unsecured creditors. As is the case with all creditors, the bank must timely file its claim and be admitted into the insolvency proceedings with recognition of its secured status. Insolvency proceedings are usually quite long (duration may vary somewhat based on the complexity of the case) and it is not uncommon that they take years.

g)Motor vehicles collateral

Motor vehicles are “movable goods subject to registration” and therefore they cannot be collateral under the Art. 46 Bank Charge. A specific chattel mortgage (“ipoteca mobiliare”) can be created over motor vehicles. There cannot be a chattel mortgage on future motor-vehicles (even if acquired as replacement for the original collateral). On the other hand, the rule of Art. 1153 C.c. on bona fide acquisition is excluded (i.e. registration makes the mortgage effective against any subsequent purchaser; as in all mortgages, the subsequent purchaser is entitled to free the asset from the security right by repaying the outstanding secured obligation). Due to its characteristics (see Case Study No. 9), the chattel mortgage is perceived to be inefficient. A financial lease or a saleand lease-back of a motor vehicle is more common (see Case Study No. 4). It is interesting to note that the inefficiency of the present regime of chattel mortgage on motor vehicles and the existence of more satisfying types of security for the acquisition creditor are among the reasons which have most recently justified a legislative proposal to abolish the special register for motor vehicles.

2.Non-possessory security right in present and after-acquired equipment (floating security right)

The questions arising in respect to this Case Study are treated above under Case Study No. 1, especially para. b) on documentation and formalities and para. e) on replacement collateral.

3.Non-possessory security right in present and future inventory (floating security right)

a)Introductory remarks

A floating security right over present and future inventory is difficult to achieve under Italian law. An approximation can be reached by means of an Art. 46 Bank Charge.

b)Documentation and formalities to achieve effectiveness against grantor and against third parties

aa) Effectiveness against grantor: revolving collateral

In an effort to broaden its coverage, Art. 46 expressly mentions inter alia raw materials, products under processing, finished products as well as goods kept in stock (“scorte”) and inventory in general (“merci”);50 other goods acquired with the loan; account receivables, whether present or future, deriving from the sale of the above-mentioned tangibles. This seems to indicate that a floating security right on inventory of the kind mentioned in the example would be valid. Nevertheless, several problems are presented. For the charge to be effective even as against the grantor, it must be established by a written document that, inter alia, sets forth the “exact description” of the collateral. If an “exact description” were in fact required, a floating security would be impossible. This is why the majority view among scholars suggests, as mentioned above for Case Study No. 1, that the detailed particularity of the description should vary according to the type of assets concerned. In the case of inventory, while the mere mention of the broad categories provided for in Art. 46 may be seen as insufficient, a generic reference to the type of goods and/or to their location might satisfy the requirement. More restrictive approaches

50The difference between scorte and merci comes from accounting legislation: the first term refers to the goods kept in stock to be sold at a later time while the second term refers to inventory in general.

(such as the need to indicate a precise quantity or value of the goods) do not seem to be justified also in the light of old case law on the specific charges which were replaced by Art. 46.51

Another source of doubt concerning this provision is the fact that though “future equipment” (and “future accounts receivable”) are mentioned, there is no equivalent mention of “future inventory”. In the absence of case law on the question, the majority of scholars agrees by now that the intrinsic nature of inventory is to be sold on and replaced by other inventory; thus, the revolving character of Art. 46 is to be affirmed.52

bb) Effectiveness against grantor: revolving loan

Future advances are a problem under Italian secured transactions law. If a bank desires to stipulate a revolving credit agreement it generally makes use of an anticipazione di credito, a specific type of contract regulated by the Codice civile (Art. 1846 et seq.) that may be unsecured or guaranteed by personal security (which requires the specification of a maximum amount) or secured by a pledge on intangibles. It is not certain that Art. 46 para. 2 embraces revolving credit, inasmuch as it requires “exact” descriptions of both the amount to be lent and of the secured obligation (stated in the statute as validity requirements).53 In the author’s view, however, the indication of a maximum amount (instead of a precise sum) may satisfy the description requirements in the case of a revolving security right.

51For the more restrictive view see G. Presti, Il privilegio per i finanziamenti bancari a medio e lungo termine in favore delle imprese, Banca e borsa 1995 I, 610, at 619. The opposite view is voiced by M. Rescigno, Le garanzie “rotative” convenzionali: fattispecie e problemi di disciplina, Banca e borsa 2001 I, 1 et seq.

52In favour of such interpretation G. Tucci, in F. Capriglione (ed.), Commentario al Testo Unico (2nd edn. 2000), p. 345-346; A. Veneziano, La garanzia sull’intero patrimonio dell’imprenditore della nuova legge bancaria italiana al confronto con i modelli stranieri: una riforma a metà?, Dir. comm. int. 1996 938, at 939; E. Gabrielli, Sulle garanzie rotative (1998), p. 99.

53In the absence of judicial decisions, a negative answer was given by some scholars. See G. Presti, Il privilegio per i finanziamenti bancari a medio e lungo termine in favore delle imprese, Banca e borsa 1995 I, 610, at 620.

cc)effectiveness against third parties

Were the charge valid, it would have to be registered in order to achieve effectiveness as against other creditors, subsequent purchasers and in insolvency. The rules would be the same as above, Case Study No. 1. As to subsequent purchasers, the good faith acquisition rule of Art. 1153 C.c. would almost always be satisfied in the case of inventory, which typically would be sold in the ordinary course of business.

c)Discoverability of earlier created rights in the collateral

In addition to the priority conflicts already treated above under Case Study No. 1, a conflict between an Art. 46 Bank Charge and the nonpossessory pledge provided for by law No. 401 of 24 July 1985 on ham (and cheese) with trademark protection may arise. In the absence of case law on the question, the preferred solution would be to give priority to the Art. 46 Bank Charge if it were registered before the marking and registration of the non-possessory pledge. The reason is that the financier of the ham or cheese producer could never justify its ignorance of the registered Charge.54

4.Purchase-money (asset-acquisition) financing – comparison of financing provided by seller, financial lessor and third party secured lender

a)Introductory remarks

Manufacturer has, at least in theory, the option of acquiring the asset either by buying subject to a retention of title clause (“riserva della proprietà”) or by leasing it under a financial lease (“leasing finanziario or locazione finanziaria”). There are important differences, however, between the efficacy of the two devices from the standpoint of the supplier. Acquisition of tangibles, both equipment and inventory, subject to retention of title is rather uncommon in commercial situations while financial leasing of equipment is steadily gaining acceptance in the market. This is due to the fact that while retention of title is subject to burdensome formal requirements and limitations as to the remedies of the seller/creditor, no such regime is provided for in the case of financial lease. Thus, licensed leasing institutions can effectively escape the protective provi-

54 G. Tucci, in F. Capriglione (ed.), Commentario al Testo Unico (2nd edn. 2000),

p. 350.

sions which were set forth for title-retaining sellers. Finally, there is no security device generally available under Italian law to a third party secured lender that achieves special status with respect to a tangible on the basis that the lender supplied the purchase-money credit for the acquisition of that asset (but see infra the last para. of this section).

Express rules on retention of title are to be found within the Codice civile (Art. 1524-1526 C.c., dealing exclusively with instalment sales). Such rules were primarily designed to protect the consumer buying goods on credit. Special legislation was implemented in 1965 relating to retention of title on higher value goods. More recently, new rules were introduced by legislation implementing the 35/2000/EC Directive on combating late payment in commercial transactions.55

The financial lease is not regulated within the Codice civile. As in the case of many other transactions arising from international commercial practice, initially it was struck down by courts, being considered to be an impermissible circumvention of the rules on instalment sales with retention of title. Since the initial judicial approvals around 1970,56 the economic importance of financial lease has steadily increased over the years. Though there is still no complete legislative regulation, the statutes now contain many provisions expressly devoted to financial leasing, not only in taxation law but also, for example, in the Banking Law (Art. 10 para. 3 and 106 Banking Law, dealing with requisites for licensing financial institutions to this activity) as well as most recently in Insolvency Law (see Art. 72-quater Insolvency Law, on which see infra, para. e)).57

55OJ 8 August 2000, L 200/35 et seq. The Directive was implemented in Italy by the Legislative Decree 20 September 2002, No. 231, Art. 11 (3). The Decree was the subject of a controversy recently decided by the European Court of Justice, relating to Art. 11. The outcome was favourable to the Italian government since the Court decided that Art. 11 did not fail to implement Art. 4 of the Directive, even though Art 11 provides for additional acts on the part of the seller in order for the title retention to be opposable to the buyer’s creditors (see infra, para. c)): ECJ 26 October 2006, Case C-302/05 Commission v. Italy. Thus, the Court confirmed the view held by scholars that the Directive applies only to the relationship between seller and

buyer and does not deal with opposability to third parties. See in particular E.-M. Kieninger, in J. Basedow et al. (eds.), Aufbruch nach Europa (2001), p. 151, at p. 160 et seq.

56See Trib. di Vigevano 14 December 1972; Cass. 28 October 1983, No. 6390, both reported in G. De Nova, Il contratto di leasing (3rd edn. 1995), where the yearly debate in case-law and scholarship is clearly traced.

57Sale-and-leaseback is also not unknown in practice. It is considered to be invalid on the ground of violation of the prohibition of pactum commissorium (Art. 2744 C.c.), unless the contract is concluded in the ordinary course of business and provides for a clause that permits estimation of the asset and accounting of any sur-

As to a third-party secured lender, it might make use of an Art. 46 Bank Charge if it were a bank, since that provision expressly mentions, within the list of potential collateral, “future assets acquired with the loan” (and indeed, a minority view on this provision did hold that it was to be limited to situations where the loan expressly indicates the purpose of acquiring a specific asset).58 In such a case the points raised under Case Study No. 1 apply. Another potentially available acquisition finance device is the unpaid vendor’s lien in Art. 2762 C.c. which can arise also in favour of a third party financier. This device, however, is not particularly efficacious for the reasons set forth below (see Case Study No. 8).

b)Documentation and formalities

A retention of title can be agreed upon without the need of any formality in order to be effective both as between vendor and buyer and as against the buyer’s unsecured creditors.59

There is no form requirement necessary to conclude a financial lease contract effective between the parties. In practice, however, financial lease contracts are always written (usually standard contract forms) for reasons of evidentiary requirements.

c)Priority of acquisition credit source v. earlier and later competing creditors and buyers

aa) Re the initial tangible

According to the Codice civile provisions, in order to be opposable to a buyer’s creditor who attached the assets on the basis of a judgment, the retention of title clause must be in writing and bear an “ascertained date” that is prior to the attachment by the judgement creditor. Art. 11 para. 3 of the above-mentioned Legislative Decree implementing the Late Pay-

plus value at the time of enforcement (“patto marciano”). For this development see Cass. 16 October 1995, No. 10805, Foro it. 1996 I, 3492 et seq. with informative obs. by A. Monti.

58See above, footnote 48 and accompanying text.

59For a judicial application Cass. 13 May 1991, No. 1524, Arch. civ. 1991, 1142; C.M. Bianca, La vendita e la permuta, in Trattato di diritto civile Vassalli, Vol. VII, Part 1 (2nd edn. 1993), p. 583 et seq., at 606. This general principle was not changed by the implementation of the EU Late Payment Directive, despite a somewhat unfortunate turn of phrase contained in Art. 11 para. 3 Legislative Decree 20 September 2002, No. 231.

ment Directive allows opposability to a buyer’s creditor of a titleretention clause if it is: (1) previously agreed upon between the parties;

(2) in writing; (3) confirmed in the sale invoices; (4) with ascertained date prior to the date of the attachment and (5) duly registered in the buyer’s accounts (also prior to the attachment). The need to confirm the retention of title in each invoice and register it each time in the buyer’s accounts is an additional burden to the seller, as compared to the Codice civile provisions. On the other hand, the Decree expressly provides that an “ascertained date” can be acquired at a time later than the time of the parties’ agreement (older case law had difficulties on this point)60 and the certainty of the date may result also from the mere entry in the buyer’s accounts.

As regards competing creditors, a conflict may arise with a bank secured by an Art. 46 Bank Charge. This conflict was dealt with supra, Case Study No. 1, para. b).

Another competing claimant might be a sub-buyer of the asset from the buyer. If the asset is a machine, the seller would have to register the retention of title according to Art. 1524 para. 2 C.c., in the registry kept at the Tribunale (first court instance) of the place were the asset is located at the time of the title retention stipulation (this is required for machines of value exceeding € 15,49). Registration protects the seller’s rights as against sub-buyers (superseding the bona fide provision of Art. 1153 C.c.) but only if the asset remains within the jurisdiction of the same Tribunale. Furthermore, in the case of equipment exceeding the value of € 258,23, an additional requirement of a marking (a plate containing the seller’s name and its property right in the machine as well as particulars concerning the machine) is provided for by special legislation; again, however, satisfaction of this requirement protects the titleretaining seller only from sub-buyers. More controversial is the question whether a sub-buyer with actual knowledge of the retention of title should nevertheless take free if the retention of title is not registered. The prevailing view is for the affirmative.

60While in principle admitting that the “ascertained date” could be obtained at a later time than the time of stipulation of the retention of title, case law tended to presume, in such a situation, that the retention of title was not contextual to the sales contract (which was not considered to be admissible, see Cass. 22 June 1972, Giust. Civ. 1972 I, 1758): Cass. 25 May 1975, No. 3926, Foro it. 1975 I, 1014 et seq. and

E. Bocchini, La vendita di cose mobili, in Trattato Rescigno, Vol. 11: Obbligazioni e contratti, 3 (2nd edn. 1998), p. 708 et seq., at p. 717. More recent case law goes in

the opposite direction, see citations in C.M. Bianca, La vendita e la permuta, in Trattato di diritto civile Vassalli, Vol. VII, Part 1 (2nd edn. 1993), p. 583 et seq., at p. 606; B. Carpino, Vendita con riserva della proprietà, in Trattato Rescigno, Vol. 11: Obbligazioni e contratti, 3 (2nd edn. 1998), p. 322.

There are no formal requirements to be satisfied for a financial lease to be effective against third parties. In practice, as already mentioned, such contracts are always in writing. Courts would require proof that the contract was concluded before attachment by a judgement creditor or before commencement of insolvency before recognising the priority of the lessor’s title. The lessor is considered to be the owner, therefore it defeats a subsequent judgement creditor and may recover the asset from an attaching judgement creditor. As against subsequent buyers of the leased asset, the bona fide acquisition rule in Art. 1153 C.c. applies, though Courts will take into account the type of asset and the professional status of both lessee and subsequent buyer in determining the sub-sequent buyer’s good faith.

bb) Re proceeds of the initial intangible

No express statutory provision deals with the question of the titleretaining seller’s rights with respect to proceeds arising from the wrongful sale of the initial tangible by the buyer to a sub-buyer. Even if the wrongful resale is a criminal offence, the seller is not subrogated to the proceeds of the resale.61 If asset is destroyed or damaged and the loss is covered by insurance purchased by the buyer, however, the seller would be automatically subrogated to the right to the insurance monies. Though the admissibility of an express authorisation in the title-retention sale agreement to the buyer to resell the asset (in which case the sale would not be wrongful) does not seem to be excluded from a theoretical point of view,62 such an authorisation in the context of equipment is not used in practice. One of the reasons may be that it is difficult for the seller to extend its rights to the (future) proceeds by means of a provision within the sales contract because of restrictive statutory rules concerning the assignment of future receivables.

d)Remedies upon default

In the event of the buyer’s default, the title-retaining seller may terminate the contract and recover the asset as the owner, but would have to make restitution of the price instalments already paid (discounted, how-

61The seller does have a right to reclaim the asset itself when the retention of title was registered under Art. 1524 para. 2 C.c., as long as the asset is still in the jurisdiction of the Tribunale where the registry is located, see supra, para. c) aa).

62See C.M. Bianca, La vendita e la permuta, in Trattato di diritto civile Vassalli, Vol. VII, Part 1 (2nd edn. 1993), p. 583 et seq., at p. 592.

ever, by damages caused by the default, if there are any, and a “fair compensation” for the use by the buyer). A special provision protects the defaulting buyer from abuse in the case where the agreement provides that the paid instalments be retained as liquidated damages by the seller by rendering such a provision void (Art. 1526 C.c.). Furthermore, notwithstanding any agreement to the contrary, in the case of an instalment sale default in payment of only one instalment, which does not exceed one-eight of the total price, does not enable the seller to terminate the contract (Art. 1525 C.c.).

In principle, the terms of the lease determine the parties’ rights upon default. Usually, the lease provides for automatic termination and that the lessor may repossess the asset, seek damages caused by the default and ask for compensation for use by the lessee. An agreement contrary to the above mentioned Art. 1526 and 1525 C.c. is deemed to be valid.

e)Insolvency of the buyer/financial lessee

In the case of the buyer’s insolvency, a retention of title prevails if it results from a written document bearing an ascertained date that precedes the commencement of insolvency proceedings. Art. 73 para. 1 Insolvency Law states that the insolvency administrator may decide to keep the contract going with permission of the creditor’s committee, in which event the seller has the right to ask for the setting aside of a sum for future payment of the price, unless the insolvency administrator immediately pays (but the sum due is discounted at the legal interest rate). If the insolvency administrator does not opt for keeping the contract, the seller has the right to immediately repossess the asset (being its owner) with no obligation to account for any excess of value over the remaining unpaid price.

The position of the lessor in the lessee’s insolvency is now expressly dealt with in the Insolvency Law (Art. 72-quater). The insolvency administrator may choose, with the authorization of the creditors’ committee, whether to continue the contract or to terminate it. In the event of termination the lessor has the right to retake the asset and must pay over to the insolvency administrator any monies exceeding the unpaid rent that are derived by the lessor from the sale or other use of the asset. If, on the other hand, the agreed rent obligation is not satisfied in its entirety, the lessor is considered to be an unsecured creditor for the deficiency. The instalments already paid by the lessee cannot be avoided under the new rules on preferential debts (Art. 67 para. 3, lit. a of the Insolvency Law as amended). When the provisional continuation of the insolvent business activity is authorized, the lease contract continues unless the insolvency administrator elects to terminate it.

5.Bona fide acquisition

For treatment of the opposability of existing security devices to subsequent buyers, where, inter alia, the difference between buying equipment and buying inventory is considered, see Case Studies No. 1, 3 and 4.

6.Possessory pledge – constructive or fictive possession

In the case of a possessory pledge on tangibles, dispossession must deprive the debtor of the ability to make an autonomous disposition of the goods. When the collateral is left at the debtor’s premises, the security retains its effectiveness vis-à-vis third parties only if the debtor is disabled from freely dealing with the assets – constructive or fictitious possession is not admitted. For goods deposited in storage or in transitu which are represented by a document, a pledge may be created by transferring the part of the document relating to the creation of a security (“nota di pegno”). When this is done, the debtor no longer has the ability to dispose of the goods. As already seen, Italian law has followed other routes in order to allow the creation of non-possessory pledges or other security devices in specific cases.

7.Over-security

Over-security is not an issue for security rights over tangible goods in Italy. In particular, there is nothing analogous to the implied Freigabeklausel which is found in German law.

8.Legal (non-consensual) rights of unpaid seller

The unpaid seller of goods that did not stipulate a security (either by means of retention of title or otherwise) has in principle no rights in the goods sold from the time title passes to the buyer. If the goods are specific, title is transferred to buyer by and upon the agreement of the parties to this effect. If the goods are “generic”, i.e. specified only in relation to their kind (such as widgets not specifically set aside in advance), title is transferred whenever the sold goods are separated from the others and set aside for the buyer’s benefit.63

In the event of buyer’s default, seller may terminate the contract either by lodging a claim before a court (which will issue a decision declaring

63 Art. 1376 and 1378 C.c.

that the contract is terminated), or automatically, inter alia, if the contract provided so or if payment was formally requested by means of a written statement and the buyer did not pay within the allowed time.64 After termination of the contract, ending buyer’s rights in the goods, the seller becomes entitled to repossess the goods sold, but may do so only if they are identifiable and are still within buyer’s estate. If the defaulting buyer had sold them, whether to bona fide purchasers or not, the seller would not be able to reclaim them. A contractual clause according to which the sale is automatically terminated upon the buyer’s insolvency is invalid.65

In the case of buyer’s insolvency, the seller who has already performed the contract by delivering the goods has no preferential treatment whatsoever, but is considered to be an unsecured creditor for the price, competing with all other unsecured creditors on a pari passu basis. If the goods are still to be delivered, the contract is classified as “not yet performed” under Insolvency Law (Art. 72 Insolvency Law as amended in 2006), which allows the insolvency administrator to choose whether to perform the contract or to terminate it. Seller can claim damages deriving from non-performance as an unsecured creditor.

As mentioned earlier, an unpaid vendor’s lien on “machines” – that is, equipment – is provided for in Art. 2762 C.c. (“privilegio del venditore di machine”). According to this provision, a seller is granted by operation of law a lien of limited duration (three years) over sold and delivered equipment, the unit value of which exceeds € 15,49, provided that the documents establishing the sale and the price are filed in the registry for retention of title (Art. 1524 para. 2 C.c.), but only so long as the equipment remains in the buyer’s possession and within the jurisdiction of the Tribunale where the filing was made. The lien subsists even if the equipment becomes attached to land or other immovable property.

The same lien is granted to financiers authorised to make such loans. An exact description of the equipment is required as well as all documents proving the loan, its specific purpose, the amount and the due date. In the case where both the seller and the third party financier have provided “purchase money” financing for the same equipment, the priority conflict as between them is solved on a first-to-file rule. It must be stressed that in the buyer’s insolvency this lien does not enjoy a high rank. Though it is included in a long list of preferred claims (Art. 2778 C.c.), it is postponed not only to procedural costs (Art. 2777 C.c.) and to all outstanding employee’s monies of any kind and social security payments (Art. 2751-bis No. 1 C.c.), but also to other preferred claims in the

64Art. 1453 C.c. et seq.

65See now Art. 72 para. 5 Royal Decree 16 March 1942, No. 267 (Insolvency Law) as amended by Legislative Decree 9 January 2006, No.5.

same list (there are thirteen claims which take priority over the unpaid vendor’s charge). Moreover, the lien may be granted only on equipment specifically described as opposed to a generic description. In practice, this lien is not an efficacious way to obtain a proprietary security right over a machine that is equipment and even less so, if the machine is the buyer’s inventory.

9.Special property registries

As mentioned earlier, the Codice civile and other legislation provide for a limited number of chattel mortgages on easily identified movable goods of relative high unit value (see Art. 2810 para 2 C.c.). The document containing the chattel mortgage (“ipoteca mobiliare”) must be filed in the same registry that records transfer of ownership of the goods concerned. Registration is needed for the mortgage to be effective not only as against third parties, but also as between creditor and grantor.

Until recently, the mortgage document had to be notarised before registration. With Decree No. 223, 4 July 2006 (so-called “Decreto Bersani”)66 the legislator has abolished the exclusive competence of notaries in this field. Thus, the parties may resort to other public officials indicated in the statute. In particular, for ship and aircraft chattel mortgages the official may be a civil servant at the city hall, while for motor vehicles the authentication of the agreement may be obtained from a motor vehicles agent. This change should lower the costs of stipulating a chattel mortgage to administrative fees and taxation (as an example, for a motorcar the administrative fees would be about € 25, thus much less than the fees usually charged by notaries).

A chattel mortgage may be created over existing (but not future) motor vehicles licensed in Italy, which are registered in the Pubblico registro automobilistico (P.R.A.).67 Registration costs are not very high, but the problem is that the register is not always updated. This is one of the reasons why leasing motor vehicles is a reasonable alternative to obtain financing for their acquisition. As already mentioned supra, para. I.1. and I.4., a most recent legislative proposal envisages the abolition of the title register for motor vehicles.

Chattel mortgages can be created also on ships (Art. 565 et seq. C. nav.) as well as on aircraft (Art. 1027 et seq. C. nav.). Interestingly, the Maritime Code derogates from the general rules on mortgages over future goods (Art. 2823 C.c.) by admitting an advanced registration of a mort-

66See supra, para. I.4., footnote 34 and accompanying text.

67See Art. 2810 C.c. as well as Royal Decree 15 March 1927, No. 436; Royal Decree 29 July 1927, No. 1814.

gage over a ship or an aircraft under construction in a special registry (even before construction has begun) which will maintain its priority extending over any additions to the construction (Art. 366 and 1028 C. nav.). A chattel mortgage has priority based on the date of its registration over competing creditors and subsequent buyers. The chattel mortgage on ships, however, is a rather weak security because it is subordinated to a number of maritime liens arising by operation of law.68 Finally, Italy has ratified international Conventions dealing with maritime liens and mortgages and mortgages on aircraft.69

10.Non-possessory security rights in raw materials –

effects of processing (commingling, attachment/accession)

An Art. 46 Bank Charge may be created, inter alia, over raw materials and goods under processing as well as finished products. To the extent that the revolving nature of this charge is admitted, the bank could enforce its rights on the products of the original encumbered raw materials, provided that the security agreement expressly mentioned future products and it sufficiently described them as required by Art. 46.70 There are no specific rules, however, on how to solve the priority conflicts when encumbered raw material is commingled with other goods not covered by the charge.

As to the special kind of non-possessory pledge on some products of the food transformation industry protected by trademark, it follows the product from the raw material to the finished good by way of an inerasable marking and registration in special book-accounts.71

The situation is more difficult when we turn to acquisition finance devices. The Codice civile only regulates a simple retention of title clause. Any clause “prolonging” the seller’s rights on the product(s) of transformation of the sold goods would have to be the result of commercial practice accepted by courts.72 Such clauses are not used in commercial prac-

68A. Lefebvre d’Ovidio/G. Pescatore/L. Tullio, Manuale di diritto della navigazione (10th edn. 2004), p. 466 et seq.

69See infra, Case Study No. 11.

70See supra, Case Study No. 3, para. b) aa).

71See supra, para. I.2.b).

72Scholars generally either do not address the issue or they deny the effectiveness of such clauses in the Italian legal system: the seller’s right cannot survive after processing of the goods sold since it only affects the original goods. For a different opinion, arguing that, at least in theory, the buyer could be authorised by the seller to process the goods and the seller could be designated as the owner of the product by derogation of Art. 940 C.c. on processing see C.M. Bianca, La vendita e la per-

tice. So far, there is no reported case law recognising the effectiveness of prolonged title reservation clauses constituted abroad on assets which were subsequently moved to Italy. Sporadic decisions, on the other hand, have admitted the effectiveness of a retention of title when the movables sold are easily detachable from the immoveable property to which they were attached

The financial lease device is not generally used for either raw materials or finished products (inventory).

11. Cross-border issues

The Italian Private International Law Statute No. 218/1995 does not contain any special rule regarding security rights on tangibles, which are considered to be included in the general provisions on property rights (Art. 51 et seq.). The basic provision is still the lex rei sitae, which governs also the acquisition and loss of proprietary rights. The Maritime Code, on the other hand, does contain special rules on the law applicable to security rights over ships and aircraft, referring to their national law (Art. 6 C. nav.). Italy has ratified international Conventions on maritime liens (1926 Brussels Convention) and aircraft liens (1948 Geneva Convention) which facilitate recognition of security rights on such assets.73 It has signed but not yet ratified the 2001 Cape Town Convention on International Interests on Mobile Goods nor any of its Protocols.

The main problem arises in giving effect to non-possessory security interests created abroad that do not correspond to the ones expressly admitted in the Italian legal system.

Courts have recognized some types of foreign non-possessory (legal) liens - such as the maritime liens - by assimilating them to the corresponding right under Italian law, thereby, however, applying Italian law to the content and effects of the foreign security.74

muta, in Trattato di diritto civile Vassalli, Vol. VII, Part 1 (2nd edn. 1993), p. 583 et

seq., at 602.

73The more recent Brussels International Convention for the Unification of Certain Rules relating to Maritime Liens and Mortgages of 27 May 1967 Brussels and the Geneva International Convention on Maritime Liens and Mortgages of 6 May 1993 have not been ratified by Italy.

74For the case of change of ship nationality – not regulated by the 1926 Brussels Convention – see Cass. 4 April 1976, No. 1279, Dir. Mar. 1977, 422 et seq., note F. Berlingeri, which applied the distinction between titulus and modus (the old nationality law should be applied to the creation of the lien, while content, effects and execution are subject to the new nationality).

Non-possessory pledges on other goods or transfers of property by way of security, including when stipulated in the context of retention of title clauses, were not accepted because they were deemed to be contrary to public policy provisions.75

On the other hand, as far as financial leasing is concerned Italy has ratified the UNIDROIT Convention on International Financial Leasing.76 The Convention permits a – very limited – recognition of rights against third parties in international financial leasing.

Particularly striking in this area is the lack of recent case-law and the rarity of older case-law. This may be due to the fact that foreign creditors are aware of the difficulties in enforcing their security rights and resort to other means of credit support. Such is the advise that I would give to the initial secured party in most cases. The cost of finding out whether courts would recognize the security device and the high probability that no priority will ultimately be recognized clearly outweigh the advantage of stipulating a security over tangibles. Another reason may be that, in practice, “extended” or “prolonged” title retention clauses, while often present in standard forms of sellers in legal systems where they are considered to be effective, are not relied on by the sellers when the goods are to be exported to less generous legal systems such as Italy.

Italian law does not contain any provision regarding grace periods for adaptation of foreign security arrangements (whether financiers’ credit or sellers’ credit). Such an adaptation would in any event be dependent on the recognition of the foreign right as equivalent to one already recognised in Italy. Not only the adaptation of an already recognised security interest, but also the creation of a new one by a foreign creditor but according to Italian law is not easy when formalities such as registration must be complied with. In particular, this is true for Art. 46 Banking Law, which does not contain any specific rule for registration of charges by foreign creditors. As yet, I have no information on the effective use of Art. 46 Bank Charge in cross-border cases.

75See among the few reported cases the well-known decision App. di Milano 6 April 1956, Foro it. 1957 I, 1956 et seq. Other decisions where the retention of title was deemed ineffective because it did not have an “ascertained date” are Cass. 21 June 1974, No. 1860, Rass. Avv. St., 1974 I, 1414 et seq.; Trib. Latina 19 February 1973, Riv. dir. civ. 1975 II, 540 et seq., with a critical note by Zuddas.

76Ottawa Convention on International Leasing of 28 May 1988, ratified by Italy with Law 24 July 1993, No. 259 and entered into force on 1 May 1995.