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What is the “non-possessory pledge”?
The “non-possessory pledge” (NPP) is in many respects similar to an English law "floating charge" and it was introduced by the Law Decree no. 59 of 3 May 2016 (as converted by the Law no. 119 of 30 June 2016) (the Law Decree).
The aim of the NPP is to offer Italian businesses the possibility to secure payment obligations arising from their business activity through a security over all movable assets of the company (except for registered movable assets), while allowing the company to maintain full possession of, and power of disposal over, such movable assets.
The ability to actually take this new kind of security was subject to the enactment of certain regulations and corresponding Technical Standards by different authorities.
This last step required for the full implementation of the NPP has now been completed as a result of the publication of the Technical Standards on 23 January this year.
The main feature of the NPP relates to the circumstance that, unless otherwise provided in the agreement constituting the pledge, the pledgor is entitled to transform or dispose of the pledged assets without impairing the security right.
In such circumstances, the NPP would automatically extend to:
(i) The product or good resulting from the transformation;
(ii) The proceeds arising from the disposal of the pledged asset; and/or
(iii) The substitutive asset purchased with said proceeds, in seamless continuity with the security right initially granted.
The pledgee would, in any event, be entitled to apply for injunctions or conservative actions in the case of abuse in the use of the pledged assets by the grantor.
An important feature of the NPP concerns its loss of priority in the case that an asset pledged under the NPP is also charged to secure the financing for its purchase – i.e., a NPP would not have priority against:
(i) A determined asset which is subject to reservation of ownership (riserva della proprietà); and/or
(ii) An asset that has been subsequently pledged under a different NPP (i.e., after the registration of the initial NPP) in order to secure the financing for the acquisition of that asset, if the subsequent pledge specifically refers to the asset and provided that, at the moment of the registration of the subsequent NPP, the relevant pledgee has informed the pledgee of the earlier registered NPP.
How are NPPs granted?
The NPP agreement must be executed in written form and must include:
(i) Details on the secured creditor, the debtor and, if applicable, the third-party pledger;
(ii) The description of the pledged assets;
(iii) Details on the secured claim; and
(iv) The maximum secured amount.
Registration of NPPs
Once the NPP has been created through the execution of a written deed of pledge, enforceability against third parties (including in the context of insolvency proceedings) is possible only upon registration of the security on the electronic register (Registry) managed by the Italian Tax Authority.
The Decree of the Ministry of Economy and Finance no. 114 of 25 May 2021 (Decree) sets out the regulation concerning the NPP Registry.
The Decree contains provisions on:
(i) The formalities for registration, the renewal and the cancellation of NPPs;
(ii) The publication of any change concerning the NPP;
(iii) The roles of the NPP registrar;
(iv) The modalities of searches of the NPPs register; and
(v) The costs for the registration of NPPs.
The Provision of the Italian Tax Authority of 12 October 2021 also provided the nomenclature of the product categories (categorie merceologiche) of the assets than can be subject to an NPP.
The Registry's activation date will be communicated by the Italian Tax Authority on its website and, from the following day, it will be possible to file the registration request.
The Italian Tax Authority on 12 January 2023 (through a specific measure published on the Italian Official Gazette on 23 January 2023) set out the technical specifications for NPPs registration requests and their digital transmission to the registrar.
The registration of the NPP expires after 10 years, but it can be extended upon request before expiry.
The Italian Tax Authority is now due to publish a press statement on its website, specifying the date of activation and operation of the NPPs register.
NPPs – Frequently Asked Questions
1. Why are NPPs significant?
The NPP provides more flexibility than an ordinary possessory pledge and therefore could be an interesting tool to structure financings to corporates.
2. Who can constitute an NPP?
All companies enrolled within the Italian companies’ register. The pledgor can be different from the debtor.
3. What assets can be pledged through an NPP?
Movable tangible and intangible assets, which are not registered assets, used for the business of the company. The pledged assets can be existent or future assets, determined or determinable also through a reference to one or more product category or to an overall value.
The contents of this notice do not constitute legal advice and are provided for general information purposes only.