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loans includes any operation that, having regard to the circumstances, accords to the lender advantages that are disproportionate to the loan, if the person who applied for it was experiencing economic or financial difficulties.

Variation

B’s other creditors may be able to have the transaction creating the charge set aside either through the revocatory action (actio Pauliana) of article 2901 c.c., or by the revocatory action that the insolvency administrator may bring under articles 64, 67 ff. of the Italian Insolvency Act. It is impossible to overestimate the importance of these provisions, which should also be considered in relation to any case where the transaction of a debtor endangers creditors’ rights.58

(a) According to article 2901 c.c., even if the claim is not ripe, a creditor can demand that acts whereby the debtor disposed of assets to the prejudice of his rights be declared ineffective in respect of himself. The action is allowed under the following circumstances:

(1)the debtor was aware of the prejudice which the act would cause to the rights of the creditor, or, if the act antedates the claim, it was fraudulently accomplished in order to prejudice the future creditor’s rights;

(2)in the case of a non-gratuitous act, the third person involved was aware of said prejudice or, if the act antedates the claim, the third person shared the fraudulent intention of the debtor.

The same article provides that personal or real securities, even though created for the benefit of a third party, are not considered gratuitous if they were perfected at the time when the secured claim came into being. The limitation period for this action is five years. If the revocatory action of article 2901 c.c. is successful, the transaction, though effective as between the parties, is without effect in respect of the creditor, who may then proceed with execution against the asset which the debtor alienated to the third party, and therefore owns no more. The creditor who brought the action under article 2901 c.c. will have no priority to

58For a quick overview of the Insolvency Act provisions: Maffei Alberti, Commentario breve alla legge fallimentare 228 ff., 237 ff.; for complete coverage: Terranova, in: Commentario Scialoja-Branca alla legge fallimentare (articles 64--71). With specific regard to security rights: Ambrosini, La revocatoria fallimentare delle garanzie. On the actio Pauliana as regulated by article 2901 c.c.: D’Ercole, in: Trattato di diritto privato XX 2 (1998) 161 ff.

the asset in question simply because he brought this action (or started execution!), though the creditors who did not join in the action do not benefit from it.

Assuming that the transaction to secure the loan in the present case was carried out several months after B obtained the loan, it is certain that A’s position as a secured creditor will be endangered. The transaction establishing the charge will be treated as gratuitous, and it will, therefore, be declared of no effect in respect of the creditor who can prove damage. The plaintiff in this case will not have to prove that the financial institution knew that the debtor was suffering financial difficulties.

(b) In the case of insolvency proceedings (fallimento), which in Italy are open only to ‘commercial’ entrepreneurs, as defined by articles 2082 and 2195 c.c.,59 the insolvency administrator can bring a revocatory action pursuant to article 2901 c.c., with the effects described above in part

(a) of the Variation (article 65 l. fall.). Nevertheless, in most cases, he will invoke the special provisions of law contained in the Italian Insolvency Act to avoid a number of transactions, embracing, for sure, the transaction described in the Variation. The Insolvency Act automatically avoids certain categories of gratuitous transactions (article 64 l. fall.) and renders of no effect payments of claims made within the two years preceding insolvency if the claims in question were not yet due (article 65 l. fall.). It also gives the insolvency administrator the power to avoid a number of other transactions through the azione revocatoria fallimentare, which is based on article 67 l. fall., unless the third party against whom the action is initiated proves that he entered into the transaction without knowing that the debtor was insolvent.

In most cases, the insolvency administrator does not have to prove that all these transactions were aimed at defrauding creditors, or that they damaged creditors. The purpose of the revocatory action of article 67 of the legge fallimentare is, first and foremost, to provide equal treatment of the bankrupt’s creditors, in accordance with the ranking of their claims.

Leaving gifts and other gratuitous transactions aside -- although the giving of security after the loan would fall within the concept of a gratuitous transaction, if the debtor did not benefit from it -- the main categories of acts mentioned in article 67 l. fall. are: (1) transactions at an

59Italian Insolvency Act, article 1. Exceptions apart, an entrepreneur is a person or entity undertaking the production or exchange of property or services on a professional basis (article 2082 c.c.). Article 2195 c.c. lists the activities which are considered ‘commercial’ for this purpose.

the course of his business. Admittedly, buyers in good faith may well take free of A’s pledge, but C would still be liable as against A.61 It is therefore more common to include a (resolutive) clause in the credit agreement allowing C to sell the goods in the ‘ordinary course of business’, similar to the situation described in cases 4 and 5 in relation to retention of title.

(b) The pledgee enjoys a superior position to that of insolvency creditors in the event of the debtor’s insolvency. He or she may exercise his or her rights ‘as if there were no insolvency’.62 This rule is subject to two qualifications. First, if the insolvency administrator gives reasonable notice to the secured creditor, requiring him or her to exercise his or her right within a reasonable period, and he or she fails to do so, then the administrator may claim the collateral as part of the estate and execute against it.63 This does not affect the secured creditor’s priority to the proceeds, but he or she will have to contribute to the administrative costs of insolvency.64 Secondly, the administrator may petition the court for a temporary general moratorium suspending execution against the collateral.65

A pledge also gives the secured creditor a priority claim to the proceeds. The secured creditor generally takes priority over all other creditors.66 However, in some instances, the revenue takes priority over the ‘silent’ pledge, though not the public pledge.67 It may, in this context, be noted that a creditor who secures a claim by a ‘silent’, non-possessory pledge has the power to convert the pledge into a public one. He or she may demand that the goods are handed over either to him or her or to a third party.68

In respect of security interests in future stock, it should also be noted that a pledge will not arise in respect of stock acquired by the debtor after the commencement of insolvency proceedings. Insolvency prevents the debtor from acquiring the power to dispose of the new stock, hence one of the requirements for the creation of a pledge remains

61Aside from being defeated by bona fide purchase, the security right may also be lost through accession of the goods. After being sold, the motorcar accessories may very well be installed in a car. If so, the accessory will cease to be an independent ‘thing’: article 5:14 BW.

67Article 21 Invorderingswet. Further exceptions are, for example, to be found in Articles 3:292, 3:284 and 3:287 BW.

68Article 3:237 (3) BW.

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unfulfilled.69 This rule does reintroduce a certain risk of commingling (confusio). If the goods acquired in insolvency are stored with the goods acquired before the commencement of proceedings and burdened with a pledge, then the debtor will be regarded as owner of the whole of the stock, free of any security rights, hence it will all form part of the insolvency estate.

Outside insolvency proceedings, it is possible that an unsecured creditor will seek execution against stock in which the bank has acquired a security interest. This is in principle possible. However, the secured creditor is allowed, when his or her claim becomes due, to take over the execution.70 Furthermore, the secured creditor’s priority over the unsecured creditor is fully respected. The unsecured creditor will be entitled to no more than is left after the secured creditor has been paid.

(c)The use of non-possessory, silent pledges on future stock is very common in practice.71

(d)There appears to be no case law, at least not of general application, and doctrine has also been largely silent on the issue.

In one case it was held that a creditor may be liable as against the other creditors of the debtor for taking ‘too much collateral without taking the interests of the other creditors sufficiently into account’.72 The case is, however, special. In particular, the outcome was probably affected by the fact that it concerned a parent--subsidiary corporate relationship. The parent company, Osby-Sweden, had taken a security interest in essentially all of the subsidiary’s (Osby-Holland’s) assets in order to secure a credit facility. Even though it must have been evident to Osby-Sweden that its daughter company would go bankrupt in the foreseeable future, it held the credit available. By continuing to extend credit to Osby-Holland, other creditors were given an impression of solvency and, at the same time, were left without recourse to any assets. Although the case did not concern the issue of the proportionality of the debt-- collateral ratio directly, it indicated that under certain circumstances secured creditors may be under a duty to take into account the interests of other creditors.

It can also be argued that a secured creditor is bound by principles of fairness and equity vis-à-vis the debtor. Arguably the exercise of the

71Fesevur, Goederenrechtelijke colleges 197; Beuving/Tjittes, NJB 1998, 1547.

72Hoge Raad 25 Sep. 1981, NJ 1982, 443.