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Pledge without Possession: the Fall of an Italian Wall?

On 3 May 2016 the Italian Parliament approved a decree containing provisions that facilitate credit recovery in enforcement and insolvency proceedings (the so-called Decreto banche) [1].

Article 1 of the decree introduced the possibility for business undertakings registered in the Italian company register to set up a pledge “without possession” on movable property (pegno non possessorio), in order to guarantee the business undertakings’ obligations. The undertakings’ obligations may be existing or future ones, determined or to be determined, but must refer to the undertaking’s business and the pledged amount must be capped up to a certain amount.

This type of pledge cannot be granted for registered movables (e.g. cars or boats.)

The pledge may refer to one or more categories of commodities or to a certain value of commodities.

Unless otherwise agreed in the pledge agreement, the pledger can sell or otherwise dispose of the pledged item and – in the latter case – the pledge will automatically be transferred to the sale proceeds or to the goods purchased out of the sale proceeds, without the above transactions giving rise to a new guarantee.

The pledge agreement must be in writing and indicate the names of the creditor and the debtor or the third party granting the pledge, the description of the pledged item and the maximum guaranteed amount.

The pledge without possession is created upon its registration in the online register set up by the Italian internal revenue service (Agenzia delle Entrate) and becomes effective as of the date of registration. The registration is valid for a ten-year term.

Upon the occurrence of an enforcement event, the Pledgee is entitled to sell the pledged item and retain the sale proceeds up to the guaranteed amount or to lease the pledged item, if the pledge agreement allows him/her to do so. If the pledged asset is a credit of the Pledger, the pledgee is entitled to directly enforce it. The pledgee is also entitled to take over the pledged item, if the pledge agreement so provides and indicates the criteria for the appraisal of the pledged item and the guaranteed obligation.

The above provisions mark an important alignment of Italian law with the laws of other jurisdictions [2].

Under the general provisions of the Italian civil code (article 2786 c.c.), a pledge over movable goods cannot be established without the creditor taking possession of the pledged item.

The new provisions have profoundly innovated the collateral legal framework in this regard, by allowing a pledge to be set up without physical possession by the creditor.

Furthermore, the new provisions do not require the formality of a data certa (e.g. a public notary certification or the application of a post office stamp upon the pledge agreement), hitherto required by Italian law for securing a preference right vis-à-vis the other creditors.

The pledge without possession is established only by registration in the online register held by the Italian internal revenue service.

[1] Decreto legge 3 May 2016 n. 59, published in the Official Gazette no. 102 on 3 May 2016 and effective as of 4May 2016.

[2] See in France le gage sans dépossession, introduced  by the ordonnance n° 2006-346 of 23 March 2006 (article 2336 of the French Code Civil.)

 

Giuseppe Calabi