THE BUSINESS CRISIS AND INSOLVENCY CODE FINALLY ENTERED INTO FORCE.
As you are probably aware, the Business Crisis and Insolvency Code, codified in Legislative Decree 14/2019, finally entered into force on 15th July. Its entry into force, with the exception of a few provisions, has been postponed several times and the text has been subject to numerous amendments, the last one just a few days ago with Legislative Decree 83/2022 (published on 1st July).
The Code contains (partly in implementation of EU rules) numerous measures for managing crisis situations, with the aim of providing the debtor, creditors and other interested parties with the possibility of finding solutions that are best suited to the specific case.
The new discipline is very articulate and complex, therefore it certainly cannot be summarised in one post. Thus, we shall limit ourselves here to pointing out a few aspects:
1. The term ‘bankruptcy‘ (fallimento) disappears and is replaced by ‘judicial liquidation’ (liquidazione giudiziale), the name of the institute that substantially resembles the current bankruptcy.
2. The collective entrepreneur shall implement an organisational, administrative and accounting set-up adequate for the timely detection of the state of crisis, which shall be designed such as, inter alia, to (a) detect any asset or economic-financial imbalances; (b) verify the sustainability of the debts and the prospects of business continuity for at least twelve months.
3. The negotiated settlement procedure, introduced by Decree-Law 118/2021, has been substantially transposed into the Code.
4. With regard to the obligations of creditors, both financial and non-financial, in addition to those provided for under the negotiated settlement, during negotiations and proceedings for access to the crisis resolution measures, creditors shall behave in good faith and fairness, shall cooperate loyally with the debtor and the bodies of the proceedings, and shall respect the obligation of confidentiality on the debtor’s situation. Therefore, particular attention shall be paid whenever a client is involved with a company in crisis.
5. Protective measures (prohibition of the commencement and continuation of enforcement and precautionary actions on the debtor’s assets or on the assets or rights with which the business is carried on): there is a wide possibility for the debtor, even during negotiations (before having requested access to a crisis resolution measure), to request such measures from the court.
6. Among the crisis resolution measures, in addition to significant changes to the newly introduced arrangement with creditors (Legislative Decree. 83/2022, published on 1 July) is the endorsed restructuring plan (piano di ristrutturazione omologato, PRO), which can be described as an arrangement with creditors simplified in terms of the procedure and implementation time (in a nutshell: the debtor proposes a restructuring plan that is submitted to the creditors’ vote and is endorsed by the Court if it obtains the approval of the majority of the creditors and, in the event of objection by any creditor, if it is deemed to be convenient with respect to judicial liquidation).
7. The old regulation will continue to apply to proceedings commenced before 14.7.2022.
FOREIGN ARBITRATION: THE JOINT SECTIONS OF THE COURT OF CASSATION AFFIRM THAT THE DEFENDANT’S FAILURE TO APPEAR IN THE COURT PROCEEDINGS IMPLIES ACCEPTANCE OF THE JURISDICTION AND OF THE WILL NOT TO AVAIL ITSELF OF THE ARBITRATION CLAUSE.
By order no. 17244 of 27th May 2022 the Joint Sections of the Court of Cassation clarified that the judge cannot declare on his own motion his lack of jurisdiction in the presence of an arbitration clause for foreign arbitration inserted in the contract between the parties, in the event that the contractual counterparty defendant is a defaulting party and, therefore, in the absence of an exception of arbitration raised by the latter.
The dispute at issue had arisen between an Italian company and an Algerian company, which had signed an agreement concerning the sale by the Italian company of a milling plant to the Algerian company. The seller had granted an Italian bank guarantee of good execution. After the delivery and start-up of the plant, the latter had defects and, therefore, the buyer enforced the guarantee. The bank paid the buyer the guaranteed sum and then debited the sum on the seller’s account.
Notwithstanding the fact that the sales agreement contained arbitration clause for foreign arbitration, the seller company sued the Algerian purchaser and the bank before the Court of Modena, by requesting to ascertain the proper functioning of the plant and the illegitimacy of the enforcement of the guarantee and to order the bank to return the amount debited and the purchaser to pay damages compensation.
The Algerian defendant did not appear in Court, while the bank, by appearing in the proceedings, raised exception of lack of jurisdiction by virtue of the abovementioned arbitration clause.
The Court of Modena did not take into consideration the exception of arbitration raised by the bank as it was extraneous to the arbitration agreement and, therefore, lacked legitimacy to raise it. However, given that the purchaser was a defaulting party, it declared on its own motion its lack of jurisdiction with reference to the sales relationship between the Italian and Algerian companies pursuant to Article 11 of Law 31st May 1995, no. 218, according to which the lack of jurisdiction “[…] is always declared by the court on its own motion, in any stage and instance of the proceeding, if the defendant is a defaulting party,[….] or if Italian jurisdiction is excluded by virtue of an international rule”.
The decision was confirmed by the Court of Appeal of Bologna.
The seller challenged the decision before the Court of Cassation by objecting, among other things, the unlawfulness of the declaration of lack of jurisdiction made by the Court on its own motion.
The Joint Sections of the Court of Cassation, by reminding first of all that an issue of jurisdiction is integrated when it arises from the presence of a foreign arbitration agreement, reverted the first and second instance courts’ decisions and confirmed the jurisdiction of the Italian court, by clarifying that “The lack of jurisdiction of the Italian court by virtue of an arbitration clause for foreign arbitration cannot be declared by the judge on his own motion, given the voluntary nature of arbitration under which the parties, even in the presence of an arbitration clause, may always agree to opt for a decision by the ordinary court and this can occur even tacitly, by initiating the ordinary proceedings in which the exception of arbitration is not raised. Moreover, in the event of default of the defendant, Article 11 of Law no. 218 of 1995 is not applicable, as it does not expressly contemplate the hypothesis where the lack of jurisdiction is based on a foreign arbitration agreement”.
The above ruling has its roots in two case law precedents: the judgment of the Constitutional Court no. 127/1977, which had specified that “the basis of any arbitration is to be found in the free choice of the parties” and that “[the basis of the arbitration] can no longer be sought and placed in a law or, more generally, in an authoritative will”, and the order of the Court of Cassation no. 22748/2015 relating to a case of national arbitration (and not foreign, such as the one at stake), in which it had already been stated that the ordinary judge cannot declare on his own motion his lack of jurisdiction in favor of arbitration and that the declaration of lack of jurisdiction is necessarily subject to the raising of the relevant exception by the defendant in the timely filed statement of defence. However, this was a case in which the defendant had appeared in the proceedings but raised the exception with delay.
By this decision the Joint Sections of the Court of Cassation empathize the voluntary nature of the arbitration and on this ground equate lack of appearance in court by the defendant to expression of revocation of the choice of arbitration and implicit acceptance of jurisdiction of the ordinary judge.
However, it has to be pointed out that problems might arise in the context of recognition and enforcement abroad of the judgment issued by the Italian court pursuant to Regulation (EU) 1215/2012, in the case of a UE dispute, or pursuant to bilateral conventions between States or the rules of private international law applicable in the receiving State, in the case of an extra UE dispute, as the party against whom recognition or enforcement is sought may oppose them by arguing that the dispute should have been referred to arbitration pursuant to the arbitration clause agreed upon by the parties in the contract.
MALPRACTICE LIABILITY: THE COUNCIL OF STATE SUSPENDS THE ANALYSIS OF THE MINISTRY OF ECONOMIC DEVELOPMENT’S SCHEME OF REGULATION IMPLEMENTING THE MINIMUM REQUIREMENTS OF INSURANCE POLICIES AND SIMILAR MEASURES (SO-CALLED “SELF-INSURANCE”).
The scheme of regulation, after the approval of the State-Regions Conference, was awaiting the opinion of the Council of State and was about to be issued so that, after 5 years, Law 24/2017 (Gelli Bianco law) on insurance and car insurance would finally have full implementation. The Council of State, however, found some flaws in the preliminary investigation and suspended its opinion; therefore the timeframe will be longer. Who knows whether this might be the opportunity to improve the regulation scheme…
In our newsletter of 18 March 2022 we anticipated the content of the Ministry of Economic Development (MISE) regulation scheme, implementing Law no. 24/2017 (LINK).
In the meeting of 7 June 2022, the Council of State suspended the “expression of the opinion” required by law for the issuance of the regulation, pending the fulfillment of some obligations identified in the reasons of the provision. According to the Council of State, the Ministry of Economic Development simply consulted the stakeholders, rather than acquire the notice of each of them (also because these were identified in the law) as it was obliged to do. The Council of State considers that greater in-depth study is needed (ergo perhaps also the revision of the draft regulation) and the integration of the explanatory report.
The Council of State reports that ANIA – National Association of Insurance Companies, had sent a note to the Advisory Section for Regulatory Acts of the Council, expressing some remarks on the methods consultations were carried out, and expressing some points of dissent, which can be summarized below:
1 – the introduction of a mechanism, not provided for by the provision of the law that regulates the matter (Article 3, paragraph 7, of law n. 24/2017) of the bonus-malus type that is considered difficult to apply due to the multiannual duration of health coverage and the duration of claims’ settlement (this position had already been reported in 2019 by Ivass – the Italian private insurance supervisor);
2 – the exhaustive indication of the exceptions that can be enforced against the injured party, without reference to the exceptions provided for by the Civil Code and to the burden of training of health personnel for the purposes of the validity of insurance coverage (Article 38 bis of Legislative Decree no. 152/2021);
3 – the provision of limitations on the right of withdrawal by the insurer not provided for by the legal provision governing the matter (Article 5-bis of law n. 24/2017);
4 – the lack of clarity of the provisions on the reserves to be set aside in the case of similar self-insurance measures, in particular with regard to the possibility of the health facility to use the funds or not (in the absence of specific constraints).
Actually, there are several remarks that can be made on the MISE draft regulation. To name a few:
– if the regulatory scheme had the ambition to promote the development of the insurance market and competition between insurers to reduce the price of premiums (at the moment there is, essentially, a single player on the Italian market), the objective does not seem attainable because the regulation produces different asymmetries between the structures that opt for self-insurance and those that opt for insurance, to the advantage of the former;
– the insurance structure can execute an insurance policy or adopt the so-called “similar measures” (self-insurance) but there are no penalties in case of non-compliance, with the result that in case of violation, except for the adoption of unspecified administrative measures, the injured parties are not protected;
– the possibility of subrogation by insurers is very limited, which would have the effect of lowering the price of premiums by reducing the difference between indemnities paid and amounts recovered: subrogation is admitted only in the event of willful misconduct or gross negligence, within a limitation period, within a predetermined amount equal to three times the health professional’s annual salary;
– the mechanism of non-attachment (impignorabilità), applicable according to reference under Article 1, paragraphs 5 and 5 bis, of Legislative Decree no. 9/1993 does not seem well regulated, in the sense that the non-attachment seems absolute, even if the injured parties are asking for payment!
Some of the problems of this scheme of regulation originate from the Gelli Bianco law. Who knows if the Council of State’s decision and the necessary, effective, comparison with stakeholders do not lead to a new scheme of regulation that is more suited to the objectives of the law? As for the Gelli Bianco law, after 5 years from its entry into force, it can be said that it would also deserve an analysis and a broad revision, given that none of its objectives have been achieved.
GOOGLE ANALYTICS: ILLEGITIMATE OR THE PERSPECTIVES OF VERSION 4.0.
In recent weeks, the decision of the Italian Privacy Authority (“Garante”) in which the use of Google Analytics (LINK), a tool widely used by many websites, was declared illegitimate, because the data transferred to the US are not anonymous and there are no adequate safeguards within the meaning of Chapter V of the GDPR, has caused much discussion.
This decision, however, concerns the version of Google Analytics (‘GA3’) and not the one currently released (‘GA4’), and therefore many are questioning whether this new version, which is supposed to guarantee total anonymity of the data, as well as data retention in the EU, is compliant.
The Garante recently stated (through Guido Scorza, a member of the Authority) that “…the Garante’s offices had not the opportunity to examine version 4 of Google Analytics simply because the data controller subject to the measure did not use it, nor has this version come to the fore in other similar proceedings to date. It is therefore impossible under these conditions to say whether or not it is able to solve the problem and allow the use of Google Analytics in accordance with the European rules on the transfer of personal data to the USA.”
The main problem with GA4, as with any service provided by a US entity, is its subjection to US security regulations, which require it to provide information to security authorities (NSA, CIA), regardless of where the data is stored.
Similarly, it is useful to remember that the GA script does not collect the entirety of the user’s data if it is set up to comply with GDPR regulations: if the user does not wish to be tracked, a simple configuration makes it possible to ensure that the GA script is neither loaded nor executed.
It is important to point out that GA4 has additional privacy features compared to the previous version. The French privacy authority (‘CNIL’) also gave a favourable opinion on GA4, subject to certain conditions, in particular server-side tracking. In short, the CNIL pointed out that by using a proprietary proxy server upstream of the native proxy server in GA4, it is possible to use this tool in compliance with the GDPR; in other words, to interpose a server located in Europe, to avoid users’ personal data arriving directly on Google’s servers (regardless of where they are located).
It should be recalled once again that the measure only mentions GA3; that being said, it is a fact that the operating principles of all American platforms are not particularly dissimilar to those of Google Analytics.
One solution would be the desired political and legal agreement between the EU and the US to replace the Privacy Shield, declared invalid by the well-known Schrems II ruling. In the meantime, companies that have always used GA should start thinking about possible alternative tools or solutions such as those envisaged by the CNIL or similar, which would guarantee the anonymity of data before they reach Google.
THE SUPREME COURT RULES THAT THE PRINCIPLE OF FREE MOVEMENT OF CAPITAL PROHIBITS EU AND NON-EU INVESTMENT FUNDS TO BE TAXED ON ITALIAN-SOURCED DIVIDENDS WORSE THAN ITALIAN INVESTMENT FUNDS.
With few decisions of the beginning of July the Italian Supreme Court (Corte di Cassazione) decided that the withholding tax levied on dividend distributions made by Italian companies to EU and non-EU investment funds violated the principle of free movement of capital of article 63 of the Treaty on the Functioning of the European Union (TFEU), since foreign investments funds were subject to a taxation higher than that of an Italian investment fund under the same circumstances.
In its decisions the Supreme Court ruled in favor of the claims for refund of the withholding taxes levied on dividends paid to a German investment fund in 2003 and on dividends paid to six USA investment funds from 2007 to 2010.
At that time Italian investment funds receiving dividends were subject to a 12.5% tax on the annual increase in their net asset value (such rate could be reduced to 5% or 0% under specific circumstances), while foreign investment funds were subject to the 27% domestic withholding tax that could be reduced pursuant to the applicable tax treaty.
The German investment fund claimed the full refund of the 15% withholding tax levied pursuant to the tax treaty between Italy and Germany because – under the same circumstances – an Italian investment fund would have been subject to no taxation (Italian investment funds participated only by certain non-resident investors were exempt from taxation).
The USA investments funds claimed the refund of the difference between the 15% withholding tax levied pursuant to the tax treaty between Italy and the USA and the 12.5% tax that would have been paid (on its net income accrued in the relevant tax period) by an Italian investment fund.
The tax regime of Italian investment funds examined by the Supreme Court was changed starting from July 1, 2011 but the same reasoning may apply also to new tax regime. Italian investment funds are no longer subject to taxation on the net income accrued but exempt, thus determining an even more discriminatory treatment in comparison with foreign investments funds.
Only from January 1, 2021 further to a procedure by the EU Commission to assess the existence of a violation of the EU fundamental freedoms, the withholding tax was abolished with respect to dividends paid to qualified EU investment funds still applies to non-EU investment funds.
The decisions of the Supreme Court – which are in line with the EU Court of Justice case law – can positively influence the decisions of the courts of merit in Pescara that are now deciding hundreds of claims of refund filed by foreign investment funds and rejected by the Revenue Agency.
EU and non-EU investment funds that have not filed the refund claim, shall do so. Refund claims may be filed within 48 months from the date of payment of the dividend withholding tax.
DISCLAIMER: This newsletter merely provides general information and does not constitute legal advice of any kind from Macchi di Cellere Gangemi. The newsletter does not replace individual legal consultation. Macchi di Cellere Gangemi assumes no liability whatsoever for the content and correctness of the newsletter.
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