Rilancio Decree - Measures to enhance the recovery of companies in crisis

On19 May 2020 the Law Decree no. 34 has beenpublished in the Official Gazette (“Rilancio Decree“). The new emergency decree is in line with the previous Cura Italia and Liquidità Decrees, introducing inter alia measures to support the liquidity the capitalisation of enterprises, incentives and tax credits as well as measures in the context of indirect taxation, tax assessment and tax litigation.

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A) Measures to support the liquidity and the capitalisation of enterprises

B) Further postponement of suspended payments

C) Incentives and tax credits

D) Simplifying measures

G) Measures to enhance the recovery of companies in crisis

H) Measures to support the business liquidity of the enterprises and the credit sector

I) Internationalization Measures

G) Measures to enhance the recovery of companies in crisis

Measures to enhance the recovery of companies in crisis and reinforcement of the support structures for business distress and industrial policy – Article 39

The rule provides for an emergency allocation of funds for each of the years 2020, 2021 and 2022 in order to mitigate the consequences of the epidemiological emergency on the Italian industrial framework.

More specifically, it is foreseen:

an allocation of an amount equal to Euro 300,000.00 in order to integrate the financial endowment of the Industrial Politics Experts Unit, set out in art. 3 Law 140 of 1999. The Experts Unit, which is composed by a maximum number of ten consultants and experts selected by public notice, will have the task of supporting Mise in the analysis and study of the productive sectors most affected by the emergency. The provision also removes the obligation of prior consultation with the competent Parliamentary Committees for the selection of professionals and the setting up of the Experts Unit, as requested in the previous aforementioned law. The new provisions will thus allow the constitution and reactivation of the Experts Unit, which was already in existence since 1999 but has been inactive for long time due to insufficient budget and operational difficulties arising from the mandatory prior consultation with the Parliamentary Committees.
Paragraph 3 provides for the possibility of utilisation of the financial endowment already allocated by means of the Budget Law enacted in 2007 for the establishment and the functioning of the Mise corporate Crisis Department. Such funds equal to Euro 300,000.00, allocated for the technical-economic analyses and in-depth analyses required in the corporate crisis tables aiming to tackle the decline of the productive structure and to favour the consolidation of the activity and employment levels, can therefore be allocated, to an extent not exceeding 40% of the total budget, to the treatment and resolution of issues concerning the procedures of extraordinary administration, which, after all, constitute the ultimate instrument for the conservation of the business as a going concern and the integrity of the production systems, as an alternative to bankruptcy. Therefore, the Department, which was originally intended for providing support in the corporate crisis handling within the so-called “crisis tables”, will be able to allocate part of its total budget for the performance of activities typical of the Mise, concerning extraordinary administration procedures.
In the context of the interventions already described, and taking into account the possible consequences of the COVID-19 crisis, in addition to the reinforcement of the existing structures (Unit of Industrial Politics Experts and Crisis Department of the Mise), for the years 2020, 2021 and 2022, according to art. 7, paragraph 6 of Legislative Decree 165 2001, Mise may appoint a maximum of 10 consultants and experts, selected by public notice, specialized in industrial policy and business crisis, with legal and economic expertise, in order to support the Crisis Structure. The regulation provides for a maximum expenditure allocation of Euro 500.00,00.

The expenses deriving from the integration of the financial allocation of the Industrial Policy ExpertsUnit and the allocation granted to the Mise to conclude collaboration contracts with experts in industrial politics and corporate crisis, in order to provide support to the Crisis Department, equal to Euro 800,000.00, will be covered by a reduction of the allocation of the special current portion of the “Reserve and Special Funds” programme of the “Funds to be distributed” mission of the Financial Budget 2020-2022.

Extension of the deadlines for programmes for the implementation of extraordinary administration procedures – Article 51

The provision foresees the automatic extension by six months of the deadline for the execution of the programmes pursuant to art. 27 paragraph 2 Legislative Decree 270/1999 (Prodi Bis Law) already authorised in accordance with art. 57 of the same law and due to expire after 23 February 2020.

The rule applies exclusively to programmes relating to the extraordinary administration procedures of so-called very large companies in a state of crisis, started pursuant to Legislative Decree no. 347/2003, converted by Law no. 39/2004 (Marzano Law).

The automatic extension also applies to programmes already extended for the reasons of complexity and urgency as per paragraphs 4 ter and 4 septies of art. 4 Marzano Law.

Public support scheme for the orderly conduct of compulsory administrative liquidation proceedings of small banks – Articles 168 et seq.

The Rilancio Decree intervened on the regulation of the compulsory administrative liquidation of banks, pursuant to Articles 80 and following of Decree Law no. 385/1993 (i.e. the Italian Consolidated Bank Act, “TUB“), in order to ensure the orderly conduct of the liquidation procedures of certain credit institutions.

With the express exclusion of of banks set as cooperatives , Art. 168 sets out the field of application of the regulation to small credit institutions (whose total assets are equal to or less than Euro 5 billion in value) subject to compulsory administrative liquidation (“CAL”) after the entry into force of the Rilancio Decree.

In case of transfer of (i) assets and liabilities, (ii) enterprise or business units, (iii) assets and legal relationships identifiable en bloc by the bank under CAL, the Ministry of Economic and Financial Affairs is authorised (art. 169) in order to grant public support to the acquiring bank in the context of the transfer operations. More precisely, the following schemes of support (which may be granted even in cumulative form and which the purchaser will be able to use only after the transfer of the relevant assets) have been provided for and:

the conversion into tax credits of the deferred tax assets of the bank under CAL, even where not recorded in the bank’s balance sheet;
the conversion of the buyer’s deferred tax assets into tax credits, even where they are not recorded in the purcheser’s balance sheet;
the granting to the purchaser of guarantees on components of the transferred assets. The guarantee is free of charge, on first demand, unconditional, irrevocable and express, and in addition it will cover capital, interest and accessory charges up to the maximum amount guaranteed, providing also for the beneficiary’s participation in the losses;
the granting of subsidies to the purchaser in case of which the public support referred to in the points listed above are not sufficient.

After providing for specific qualitative and quantitative limits on the eligibility of the support measures referred to in points a) and b) above, it is established that the costs to be borne by the State for the concession must not, in any case, exceed the total amount of €100 million, which may be increased through the use of the Fund set up at the Ministry of the Economy and Finance to meet the costs at stake.

The Rilancio Decree also provides for a specific procedure to authorise the public support that passes through the prior transfer of the assets.

The binding purchase offers submitted to the bank in CAL, where subject to the granting of the support measure, will be subject to the scrutiny of the Bank of Italy (art. 170) which verifies that:

the bidder has an appropriate balance sheet, financial and organisational situation, also in relation to the size of its assets in relation to the assets to be sold, which can support the purchase and integrate the latter into its own processes and business organisation within one year;
there are no controlling relationships between the bidder and the bank in CAL (ex Article 23 TUB);
the bidder is authorised to carry out the banking activity and the other activities related to the assets to be purchased;
the assets to be transferred do not include liabilities pursuant to Article 52, paragraph I, letter a), no. i), ii), iii) and iv) of Legislative Decree no. 180/2015;
there are no conditions preventing the grant of the authorisation, as referred to in Article 90, paragraph II, TUB.

After carrying out the above controls, the Bank of Italy will be called upon to certify that (i) the sale is not feasible without recourse to public support, also in the light of the assessments expressed by the deposit guarantee scheme (ex Article 96 bis TUB), with specific rationale of the necessity and possible exclusion of bids not involving State aid (ii) the bids have been identified in an open, competitive, non-discriminatory procedure in accordance with the EU regulatory framework and (iii) the bids submitted are suitable to ensure the orderly liquidation of the bank and the maintenance of the long-term viability of the entity resulting from the sale.

Purchase applications conditional on public support must contain the commitments required to comply with the EU State aid rules (Communication from the European Commission 2013/C-216/01).

The certificate will then be sent to the Ministry of Economy and Finance affairs, which may, order the support measures, by decree, after ascertaining the compliance with the decision of the European Commission and, in the case of multiple bids, select the one that minimizes public intervention.

Once the decree has been issued, the Court of Auditors will proceed with the preventive control of legitimacy and the relative registration.

The support measures, once authorized, grant a credit to the Ministry of economy and finance affairs against the CAL that will be liquidated as prededucible claim.

If the concentration resulting from the acquisition of the assets does not fall within the scope of the CE Merger Regulation, the concentration is deemed to be authorised for important general interests of the national economy.

Finally, a number of concluding provisions have been collected within Article 172, under which it is provided that:

the transfers referred to in Article 169 are considered to be transfers of business branches for tax purposes (Presidential Decree no. 633/1972);
for these transfers, the provisions provided for the bridge institution and the institution subject to resolution respectively (Article 15 of Decree Law no. 18/2016, converted into Law no. 49/2916) apply;
the positive components deriving from the interventions in support of the transfer, as per Article 169, do not contribute to the formation of the total income for the purposes of income taxes and the determination of the net production value of the transferee;
the transferee is not obligated jointly and severally with the transferor in relation to crimes committed in the course of the business activities of the transferred company (derogation from the provisions of Article 33 of Legislative Decree 231/2001);
the transfer excludes (i) disputes relating to assets and liabilities thus declared and (ii) liabilities accrued and accruing from the same.

That said, pursuant to paragraph 5 of Article 169, the application of the provisions at stake is subject to the positive decision of the European Commission on the compatibility of the national legislation with the European Union framework on State aid and, in any case, the support may not be granted beyond twelve months from the date of issue of such decision (a period potentially extendable up to a maximum of a further twelve months).

In case of approval, the Ministry of Economy and Finance is required to submit to the European Commission an annual report on the functioning of the public support scheme, based on the elements regularly provided by the Bank of Italy.

Provisions on nonperforming loans securitization guarantees (GACS) – Article 32

Article 32 of the Rilancio Decree entitled “Provisions on non-performing loans securitization guarantees – GACS”, states that performance requirements for servicers introduced by Decree Law no. 22 of 22 March 2019 (so-called Brexit Decree) may be temporarily disapplied.

In particular, the latter afore mentioned Decree – in line with the EBA’s opinion of 23 October 2019 which identifies the servicers as players “skin in the game” – provided, on the one hand, the replacement of the servicer following the enforcement of public guarantee, in the event that the ratio between the cumulative net proceeds and the net proceeds expected under the recovery plan is less than 100% for two consecutive interest payment dates and, on the other hand, the anchoring of the remuneration fees due to them to the economic results related to the portfolio’s recovery.

According to the Rilancio Decree, the Ministry of the Economy and Finance – in the context of securitisation transactions pursuant to Italian Law 130/1999 – will be able to authorize the transferee company of the receivables covered by GACS to modify the settlement of securities and contracts governing the management of recovery by disapplying – until 31 July, 2021 – the contractual clauses that link the fees due to the servicers to the recovery performance.

However, such an option granted to Ministry of the Economy and Finance is based on the fact that the slowdown in recoveries was caused by the regulatory measures introduced to deal with the COVID-19 epidemiological emergency, and is, anyway, subject to the assessment of Consap SpA (the manager of the so-called Gacs Fund).