Italian Finance Market is governed by the main figure of Banks who are still the most relevant party on the Italian financial market. However, Italian finance scenario can be considered relatively developed. Then, in recent years, the Italian Government passed new laws in order to raise competition of the whole system. In fact, even non-listed companies may access to bond financings and then accessing capital markets.

Recently, Council of Minister Decree n. 59/2016 introduced:

1. A new security measure consisting of a non-possessory pledge;
2. “Patto Marcianò” agreement consisting of the possibility of the out-court appropriation by lenders of real estate assets used as collateral to secure financings.

The following are the main methods used for acquiring business entities:

1. Asset acquisition – It constitutes a common tool when the transaction relates to a specific asset of a company or a business unit. Asset acquisition might be advantageous because security interests can be granted directly over the acquired asset;
2. Share acquisition – This method is used when the transaction relates to the share capital of a company. The main advantage is the potential acquisition of all companies’ licenses, authorisations and permits relating to the business. 
3. Merger – This method (not commonly used in Italy) is used when companies are acquired according to leveraged buy-out schemes. 

PROCEDURE 

Generally, financing party – normally a loans vendor – has most of the responsibilities in drafting the first finance set of documents. Therefore, buyers usually commit to an acquisition in order to arrange appropriate financing. At this stage, a commitment letter is also required to proceed with the binding offer. 

In the event the acquisition finance is local and both acquiring companies and lenders are Italian, the documentation must comply with Italian regulation. On the contrary, in case the transaction involves international purchaser, finance documentation should comply with English law.

CORPORATE TOOLS

Acquisition finance usually involves the incorporation of a newco used as a vehicle of acquisition of the company or assets. The two main categories of companies used for acquisition finances purposes are:

1. Joint Stock Companies (S.p.A. – Società per Azioni);
2. Limited Liability Company (S.r.l. – Società a responsabilità limitata).

SECURED LENDING

When a newco carries out an acquisition, standard security practice for lenders involve:

1. Shares or quotas of the newco;
2. Shares or quotas of the target company.

In the event of a finance acquisition, security interests are granted when the merger of the newco and the target company is carried out under the art. 2501bis ICC. In such circumstances, the merger plan should identify the financial resources to be used by the merged company in order to pay its debt. 

Under this circumstance, security measures can be taken over:

1. Shares or quotas of a company – A pledge over shares or quotas can be granted if the director of the company annotates the pledge on the shares certificate and on company ledger;
2. Inventory – A pledge over equipment, gears or machinery can be granted. However, the pledged goods must be delivered to lenders or a third party designated by both lenders and grantors;
3. Bank Account – In the event of a security measure granted on a bank account, the depositary bank must annotate this information into their books.
4. Receivables – Security interests involving receivables may include: a) rental income b) insurance proceeds c) receivables overshare/assets purchase agreements.
5. Intellectual Property Rights – Security granted over Italian trademark, patents, design take the form of a pledge. In this case, the filing of the deed of the pledge with Italian Trademark office is required and the deed must be notarized.

LENDER LIABILITY 

According to Italian Jurisdiction, the lender is liable to the borrower for:

1. Unlawful withdrawal of financing;
2. Unlawful refusal of financing;
3. Mismanagement;
4. Management and co-ordination of the borrower;
5. Being involved with borrower’s director in breaching his/her fiduciary duty.

ACQUISITION FINANCE REFORMS 

With the purpose of creating new alternatives to the traditional bank financing model, Italian Legislation has introduced several changes and created new financing options available to Italian companies. For instance, the Competitiveness Decree of 2014 made possible for both Italian insurance and securitisation vehicles companies to engage lending to Italian borrowers. One more example is given by the implementation of Directive 2011/61/EU that made possible for Italian alternative investment fund managers to invest in credit by granting facilities.

Moreover, the Competitiveness Decree amended fiscal rules applicable to medium/long-term loans through the following measures: a) Withholding tax exemption b) Exemption of substitute tax regime.

The withholding tax exemption applies to medium/long-term loans granted by:

Financial entities established within in an EU Member State;

1. Entities listed under Article 1 paragraph 5 of EU Directive;
2. Insurance companies incorporated in an EU Member State;
3. Institutional Investors.

Loan agreements may be subject to the substitute tax regime if parties opt for the regime and if the loans is granted by:

1. Italian or EU banks;
2. Insurance companies and Italian Securitisation companies;
3. Investment funds established within EU member state or EEA.

In particular, if the substitute tax regime applies, the loan agreement is exempt from:

1. Registration tax (imposta di registro),
2. Stamp duty (imposta di bollo), 
3. Cadastral and mortgage taxes (imposte ipotecarie e catastali)
4. Government franchise tax (tassa sulle concessioni governative).

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