NON-POSSESSORY SECURITY PLEDGE: THE RECENT PERSPECTIVES OF THE INNOVATIVE SECURITY INSTRUMENT.
The full operation of the non-possessory security pledge is now close. On January 12, 2023, the revenue agency (“Agenzia delle Entrate”) approved the technical specifications relating to the drafting of applications and titles constituting the possessory security pledge in the new computerised register, thus marking the final introduction of this institution in our system. This is an instrument that, due to its peculiar characteristics, represents a disruptive innovation in the system of credit guarantees and is intended to facilitate access to credit by businesses.
The non-possessory pledge of securities constitutes one of the most disruptive innovations in the field of credit guarantees, due to the peculiar characteristics that distinguish this institution from the traditional pledge model, as the debtor is not disposed of the good. As is well known, this type of pledge was introduced into our legal system by the Decree Law No. 59/2016, which was subsequently amended and converted inthe Law No. 199/2016. The regulations under comment were then completed with the issuance of the Decree of the Ministry of Economy and Finance No. 114 of May 25, 2021 (the so-called “Regolamento concernente il registro dei pegni mobiliari non possessori” concerning the registry of non-possessory movable pledges), which established the computerized registry for the registration of non-possessory movable pledges (“registro informatico per l’iscrizione dei pegni mobiliari non possessori”) at the revenue agency (the “Registry of pledges”). Most recently, the abovementioned January 12, 2023 provision of the revenue agency has approved the technical specifications for the preparation of applications and titles related to the instrument. Therefore, as of today, the full operation of the non-possessory security pledge awaits only the publication by the revenue agency of a notice indicating the date of activation of the Registry of pledges.
With reference to the subjective scope, such a pledge can be constituted by all entrepreneurs registered in the register of enterprises held by the Chamber of Commerce, to secure present or future receivables, whether determined or determinable and with the provision of the maximum amount guaranteed, inherent to the operation of the business (art. 1, DL 59/2016). As for the assets that can be secured, the pledge can be established on all products and instruments inherent and/or related to the business activity, except for registered movable property.
Moreover, for the purposes of perfecting the non-possessory pledge, two formalities are required: i) the set- up deed, which must be in writing under penalty of nullity; and ii) registration in the electronic Registry of pledges.
Pursuant to the provision of the revenue agency, the payment of the registration tax due is a requirement for registration (Art. 5(3)).
Once the non-possessory pledge is registered, the certificate of executed formality, digitally signed by the registrar and indicating the date and registration number, will be returned electronically.
Undoubtedly the most representative element that differentiates this type of pledge from the traditional model is the absence of dispossession of the debtor, who is allowed to maintain possession and availability of the assets. Thus, the security instrument is perfected at the time of the execution of the contract setting-up the pledge, without the need for the traditio of the asset for its validity and/or effectiveness. In addition, another peculiar feature of the institution is the possible inclusion of the covenant of rotativity of the guarantee, which allows the pledgor to dispose (including through alienation or transformation, provided that the economic destination of the asset is respected) of the pledged assets.
While at the moment it is not possible to make a concrete assessment of the impact of the institution on the real economy, given that its full operation requires the final activation of the pledge registry, it can certainly be said that the reform intervention has the potential to facilitate access to credit for businesses and, in so doing, foster economic development. In this regard, it should be noted that there are many sectors that could benefit from such a guarantee instrument. In particular, the further revitalization of crucial sectors for our country, such as manufacturing and agribusiness, can be hoped for, which through such guarantee instruments can seize the opportunity to turn the stock into liquidity.
s.dellatti@macchi-gangemi.com
g.pappacena@macchi-gangemi.com
PERSONAL DATA TRANSFERS TO THE UNITED STATES: LATEST NEWS.
The European Data Protection Board is the committee that brings together the EU Privacy Authorities. Its tasks include – inter alia – the advise to be given to the European Commission on data adequacy decisions, through which it determines whether a foreign jurisdiction is to be considered adequate with respect to the data protection standards provided by EU Reg. 2016/679 (GDPR).
In this regard, there has been much discussion in recent years regarding the cross-border flow of personal data between the EU and the US. As is well known, following the “Schrems” ruling, the transfer of personal data between the EU and the US based on the Privacy Shield agreement was deemed invalid.
In March 2022, the U.S. President Joe Biden and European Commission President Ursula von Der Leyen announced an agreement in principle to re-establish a transatlantic framework for data flows: such an agreement was executed through Biden’s signing of an “Executive Order” (EO).
Specifically, the EO establishes that data collection activities by U.S. intelligence agencies can only be carried out for predefined national security objectives and shall be in line with the principle of proportionality, privacy and civil liberties of individuals.
In addition, the following were introduced: the Civil Liberties Protection Officer (Clpo)-with the task of enforcing the measures therein, reviewing complaints and issuing binding decisions; and a Data Protection Review Court-with the task of providing an independent legal review of Clpo decisions.
Following the signing of the EO, the European Commission published a draft decision on its adequacy on December 13, which to date has received a double negative assessment has received a double negative assessment from both the European Parliament-Committee on Civil Liberties, Justice and Home Affairs (which considered the level of data protection provided by the Framework not equivalent to that of the GDPR) and the EDPB. The latter expressed concerns about certain exemptions to the right of access, the absence of key definitions, the lack of clarity about the application of the DPF principles (Data Privacy Framework- the transatlantic framework for data protection and transfer between EU and US) to data controllers, the broad exemption to the right of access to publicly available information, and the risk that the level of protection would be compromised by onward transfers.
In light of the above, the EDPB recommends that the entry into force and adoption of this adequacy decision be contingent upon the adoption of updated policies and procedures for the implementation of Executive Order 14086 by all U.S. intelligence agencies. At the same time, it recommends that the Commission evaluate these policies and procedures and share its assessment with the EDPB itself.
As stated by Andrea Jelinek, chair of the European Data Protection Board, “A high level of data protection is essential to safeguard the rights and freedoms of EU citizens. […] we believe that, after the first review of the adequacy decision, subsequent reviews should take place at least every three years, and we are committed to contributing to them.”
In conclusion, although this is a non-binding opinion, it should be given due consideration by the European Commission, especially in light of the following:
– of the fact that Max Schrems-the Austrian activist who broke the two previous agreements-has already announced a new legal battle against the DPF; as well as
– the fact that the need to find a solution that allows European companies to make secure data transfers to the United States, increasing their competitiveness in the global market, is of paramount importance.
As of today, therefore, careful internal assessments still need to be made before undertaking personal data processing to and from the U.S. in order not to incur GDPR violations and sanctions from the Data Protection Authority.
f.montanari@macchi-gangemi.com
l.laterza@macchi-gangemi.com
PROTECTIVE MEASURES AND NEGOTIATED CRISIS RESOLUTION IN THE EVENT OF BUSINESS LEASING AND TRANSFER: THE IMPORTANCE OF PURSUING BUSINESS CONTINUITY.
In two recent judgments, the Court of Livorno and the Court of Venice dwelt once again on the requirements for the confirmation of protective measures in the context of negotiated crisis settlement.
In this regard, the application for the appointment of the expert at the beginning of the negotiated settlement proceedings, or even at a later stage, the entrepreneur may also request the application of asset protection measures, provided for and governed by Articles 18 et seq. of the code of corporate crisis and insolvency (CCII). Following publication in the registry of enterprises, the creditors concerned may not acquire pre-emption rights unless agreed upon with the entrepreneur, nor they may commence or continue executive or precautionary actions on the entrepreneur’s assets or on the assets and rights with which the business activity is carried on.
In the two cases submitted to the Courts of Livorno and Venice, the claimants had applied for a negotiated crisis settlement, requesting the application of the protective measures. In both cases, the companies had submitted re-organisation plans, an important element of which was the lease of the business branch and the sale and/or the lease of certain real estate assets belonging to the companies and/or (in the case of Venice) the guarantors. Despite these common whereas, the two Courts came to different conclusions, one confirming the protective measures, the other rejecting the appeal.
In particular, in the case dealt with by the Court of Livorno and decided by decree of 8 February 2023, the company, in support of its claim, had submitted guidelines for the recovery plan that included as resources for the benefit of the plan, the flows deriving from the lease of agricultural land owned by the company, as well as the instalments of the price for the sale of the business concern related to the winery and the agritourism activities exercised on the same land subject to the lease, a sale executed many months before the access to the negotiated settlement and not related to the re-organisation plan.
The Court first of all has emphasized that the reasonable pursuit of re-organisation constitutes the essence of the negotiated settlement, with the further clarification that re-organisation of the company must be understood as a financial and equity rebalancing that allows the company to stay in the market. This purpose can only be pursued, according to the Court of Livorno, with the continuation of the business activity by the same entrepreneur or the sale of the company to third parties, to be executed within the framework of the settlement or as a solution identified during negotiations with creditors.
In the present case, the Court has found that the claimant was not employing any staff, was not active in the agricultural sector, and only collected the amounts due under the land lease contracts and the instalments of the price for the sale of the business concern executed 22 months earlier.
The Court concluded by denying the confirmation of the protective measures, because there was, in the case at hand, no business activity in progress, but only the representation of flows largely deriving from a sale dating back in time and as a consequence the negotiated settlement was hiding a mere liquidation of individual assets, not compatible with the re-organisation aimed at rescuing the business activity.
In a different case, the Court of Venice, by decree issued on 6 February 2023, upheld the request for confirmation of the protective measures submitted by a company that had drawn up a so-called ‘mixed’ recovery plan, which envisaged business continuity through the continuation of a lease of business concern, the execution of an irrevocable proposal for the purchase of the industrial shed subject to the successful outcome of the negotiated settlement and the liquidation of the real estate assets through private instruments. In this case, moreover, the extension of the application of the protective measures was also requested in favor of the shareholders already with unlimited liability and guarantors, and the restructuring plan provided the sale of certain real estate assets owned by these shareholders.
The Venetian judges positively assessed the business going concern lease, considering it functional to the continuation of the business and the preservation of the company value and of the employees. The judges even if they were criticizing the choice of the claimant to propose a re-organization plan that envisaged the sale of individual assets rather than the sale of the entire business, they considered that the confirmation of the protective measures in favor of both the company and the guarantor shareholders, was appropriate to avoid a serious prejudice to the applicant, which otherwise would not have been able to achieve its objectives, with consequent damage to the creditors provided that it was foreseeable that their satisfaction would be lower than that which could reasonably have been obtained through the successful outcome of the negotiated settlement.
s.rossi@macchi-gangemi.com
g.bonfante@macchi-gangemi.com
THE RULES OF DAMAGES.
A very recent judgement of the Supreme Court (Court of Cassation 1.02.2023 no. 2982) offers the cue to take up some central themes of civil litigation, which are always very topical.
The subject of the case was a claim against a municipality for damages suffered by a car due to the flooding of a road during a heavy rainfall. In first instance, the Court of Benevento ordered the municipality to pay the plaintiff the amount of approximately € 14,000.00, equal to the expenses incurred to repair the vehicle. The Court of Appeal of Naples reformed the decision, reducing the amount of compensation to € 2,500.00 or the market value of the car at the time of the events.
As is well known, one of the cardinal principles of damages is to place the damaged party’s assets in the situation they would have been in if the breach (in the case of contractual liability) or the wrongful act (in the case of non-contractual liability) had not occurred. This can take place either in kind (or, better, “in specific form”: the classic example is the delivery of a vase equal to the one that was destroyed) or in equivalent, through a sum of money.
Another central principle is that of full compensation (derived from Article 1223 of the Civil Code), according to which the damaged party is entitled to obtain full satisfaction but certainly not additional benefits over and above the damage actually suffered, which would result in undue enrichment.
In the present case, the Court of Cassation, upholding the appeal judgement, held that repair costs constitute a form of compensation “in specific form” which, pursuant to Article 2058 of the Civil Code, may be excluded if reinstatement is excessively onerous. This frequently occurs in the case of vehicles or even other machinery, instruments or installations for which materials or spare parts are difficult to obtain or even out of production: these are the so-called uneconomic repairs, the cost of which is higher than the value itself of the asset to be restored.
In these cases, as mentioned above, the liquidated damages are paid in money, taking the value of the damaged goods as a reference parameter, as was decided in the present case by the Court of Appeal of Naples. The consequence, however, is that the value may be extremely low and does not even allow the damaged party to find another vehicle (or machinery, instrument, or plant) on the market to replace the now unusable one.
The examination of this case presents important food for thought, also in the light of the recent reform of the code of civil procedure.
First of all, one must highlight the relevance of the problem of demonstrating the actual economic loss: the mere invoices of the reparation works (as in the case at stake) are not sufficient to prove in an objective manner the real entity of the suffered damage (more reliable is an expert report, but very often it is necessary – if all requirements are met – to file a petition for an anticipated technical appraisal procedure). Furthermore, a strategic assessment of the benefits which can be gained from litigation – for the parties and their lawyers – is crucial. In the case at hand the plaintiff, after three degrees of the proceedings, obtained a negligible amount, which was not even adequate to replace the damaged vehicle.
Finally, alternative dispute resolution instruments, to which so much space has been given by the recent reform, may indeed represent an opportunity to satisfy one’s interests outside the court. What is needed, however, is a profound maturity in this sense by the parties involved. In the present case, for example, not only the municipality did fail to recognise its liability (later ascertained by the Court), but it has also sued the company in charge for the ordinary and extraordinary maintenance of the sewerage system (whose liability was instead excluded). The damaged party, on its side, claimed an amount far exceeding the value of the car.
The various reports on the efficiency of litigation deflationary instruments to date are certainly not comforting. On the contrary, one can imagine that a different attitude by the parties can bring an advantage to both: to the damaged party (who, by accepting a negotiated amount, can greatly shorten the time of collection and avoid the risks of litigation) and to the damaging party (who, with an attitude of openness and not of obstructionism, can put a swift end to a potentially very costly litigation).
FEES FOR THE USE OF SOFTWARE: DOES CONVENTIONAL WITHHOLDING TAX APPLY?
By issuing the Principle of law No. 5 of February 20th, 2023, the Italian Tax Authorities clarified that on the fees paid to non-residents for the use or the right to use a software, in cases where in the lack of such right there would be a copyright infringement, Conventions against double taxation, executed by Italy and other Countries involved, are relevant for the application of the withholding tax.
The Italian Tax Authorities have firstly highlighted that in the Italian domestic legislation, rights on software are protected by the Copyright Law (Article 2, no. 8, Law no. 633 of April 22nd, 1941) which includes, among the protected works, ‘computer programs, in any expressed form as long as they are original as resulting from the author’s intellectual creation’.
With reference to the applicable tax treatment, Article 23, paragraph 2, lett. c) of Presidential Decree No. 917 of December 22nd, 1986 (“Consolidated Income Tax Code”) considers the remuneration received for the use of intellectual works as produced in the territory of the State if it is paid by resident or by permanent establishments. At the same time, Article 25 of Presidential Decree No. 600 of September 29th, 1973 provides that such remuneration, if paid to non-residents, is subject to a 30% withholding tax.
The domestic regulation must be coordinated with the conventional one; indeed, pursuant to Article 169 Income Tax Code and Article 75 of Presidential Decree No. 600 of 1973, the latter prevails over the domestic one.
At the OECD level, Article 12 of the OECD Model also includes royalties paid for the use of or the right to use any copyright of literary, artistic, or scientific works, of computer programs.
In this respect, the Commentary to the OECD Model clarifies that the nature of payments received in transactions involving the transfer of computer software depends on the nature of the rights that the transferee acquires (§12.2).
The same Commentary in this regard specifies that payments made to acquire “partial” copyright (without alienating them in their entirety) constitute a royalty where the consideration is recognized for the grant of the rights to use the program in a manner that the use of the program would, without such license, constitute an infringement of copyright (§13.1). An example: licenses to reproduce and distribute to the public software incorporating the copyrighted program, or to modify and publicly display the program.
Therefore, the Italian Tax Authorities have clarified that in such cases the conventions executed between Italy and the Country concerned apply. Thus, the 30% withholding tax provided for by Italian domestic law will not be applied, but the lower withholding tax of conventional nature (Article 12).
In conclusion, where the royalty is recognised for the right to use the program, whereas the use of the program would constitute a copyright infringement, the Italian company required to apply the 30% withholding tax may benefit from the reduced conventional rate.
g.sforzini@macchi-gangemi.com
d.michalopoulos@macchi-gangemi.com
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