On 29 June 2016, the Italian Parliament passed a Government decree into law, known as decreto banche (banks’ decree). Amongst several provisions concerning the banking sector, the new law introduces a ‘non-possessory pledge’ (pegno non possessorio) into the Italian system which secures an obligation by establishing a security right over a variety of movable assets that are instrumental to business activities. The intention of Italian law-makers – as it emerges from the report of the Italian Government to the Parliament (available in Italian) – is to facilitate access to credit through a legal regime that is in line with international standards, such as those established by the United Nations Commission on International Trade Law (UNCITRAL) and by the World Bank. Bringing national legal regimes closer to international standards entails crucial policy choices affecting the building blocks of credit-based economies. To this end, national law-makers are asked to design a rational and relatively simple legal framework that ensures legal certainty for creditors’ and debtors’ rights. To establish whether such an objective has been achieved in Italy with the introduction of the non-possessory pledge, or whether, instead, a new layer of complexity has been added, I provide a holistic analysis of the Italian legal regime governing secured transactions.

After introducing the main features of the new non-possessory pledge in light of international standards, this contribution focuses on some critical issues, revealing that the implementation of a modern secured transactions law requires comprehensive legal reforms, rather than piecemeal additions. In the Italian context, as suggested by my recent article and by my  current research project supported by ESRC funds (ESRC0018-2015), a reform of publicity rules would have been a more effective approach to facilitate access to credit as compared to the route chosen by national law makers.

Secured Transactions Law Reform in The International Context

UNCITRAL has elaborated different soft-law instruments to assist national law reformers in the process of establishing a legal framework that broadens access to credit at a lower cost. In particular, national law reformers may refer to: the Legislative Guide on Secured Transactions (2007), the Supplement on Security Rights in Intellectual Property (2010), the Guide on the Implementation of a Security Rights Registry (2013), and the Model Law on Secured Transactions, just adopted (1st July 2016). The spirit and rationale of these standards are also reflected in the World Bank Principles for Effective Insolvency and Creditor/Debtor Regimes (revised in 2015), which are used as a benchmark to assess countries’ creditors’ rights frameworks. A joint reading of the UNCITRAL texts and the World Bank’s Principles reveals that national secured transactions laws should clearly define the legal rules to: (i) create non-possessory security rights over a broad range of present, future, tangible, and intangible assets, such as machineries, inventory, receivables, and intellectual property rights; (ii) publicly disclose the existence of security rights; (iii) determine the priority status of any given security right vis-à-vis competing claimants, ie unsecured creditors, secured creditors with an entitlement over the same asset(s), and statutory claimants; and (iv) rapidly enforce security rights, judicially and/or extra-judicially.

The mainstay of a modern secured transactions law is legal certainty over creation, priority, publicity, and enforcement of security rights. Legal certainty and simplicity are considered to reduce asymmetries of information and transaction costs affecting the creditor-debtor relationship. The intention of offering a rational and systematic organisation of security devices is reflected in the unitary, functionally-based approach adopted by the UNCITRAL Model Law. This means that any agreement creating a right to secure the performance of an obligation is a security right. To this purpose, enacting States are required to establish a single registry system where information about non-possessory security rights is electronically recorded and at a low cost. Registration renders a security right effective against competing claims and governs priority following the first-to-file principle.

The Italian Non-possessory Pledge and the UNCITRAL’s Texts

The new Italian norm has to be praised for having succinctly introduced an overarching non-possessory security instrument. Through a non-possessory pledge any business registered in the Company Registry Book may establish a security right over present, future, tangible, and intangible assets that are instrumental to their business operations; excluded assets are those subjected to special registration, such as motor vehicles. To be validly created, a non-possessory pledge requires both the written form and the registration of the agreement in a new, electronic registry system, which will be held by the Italian Tax and Revenue Agency (Agenzia delle Entrate). Priority is determined following the first-to-file rule, without explicitly requiring a detailed description of the encumbered assets. Secured debtors may dispose of encumbered assets in the ordinary course of business and creditors’ entitlements are automatically transferred into the proceeds. If the secured debtor has defaulted, the creditor may sell the encumbered assets, also through extrajudicial procedures. If provided in the security agreement, and after conducting independent evaluations, the creditor may lease or even take possession of the encumbered assets in satisfaction of the obligation. The right of the secured debtor to seek judiciary remedies, in the form of compensatory damages is preserved. Finally, in insolvency proceedings, non-possessory pledges are to be treated as possessory pledges and thus identified as liabilities in the estate.

Even if the new norm marks a step forward in the process of modernising secured transactions laws in Italy, in particular by expediting enforcement procedures, significant departures from the international standards are apparent. First, the UNCITRAL Legislative Guide, the Registry Guide and the Model Law do not consider registration as an essential formality to create a security right. Second, and related to the previous point, UNCITRAL texts, rather than requiring to register an agreement, indicate that a notice suffices to render the security right effective against third parties. An important corollary of such a notice-based approach is that registration may be completed even before the conclusion of a security agreement. This is to ensure a maximum level of protection and transparency during the negotiations. Such a possibility is excluded by the Italian norm, given that the agreement has to be registered. Finally, the new norm, by excluding any assets subject to special registration from its scope, reinforces a divide between security rights over registered and non-registered intellectual property rights. In fact, under Italian law, security rights over patents, trade marks and registered design are recorded in special registers; whereas security rights over other intellectual property rights will be registered in the new collateral registry.

An additional issue is the attribution of the role of the registrar to the Italian Tax and Revenue Agency. Such a singular policy choice could be explained by the fact that the same agency also keeps the public record for rights in rem over immovable assets. However, the Legislative Guide and the Registry Guide clarify that registration should not be used to raise revenue by implementing states, but fees should be set at a level that simply recovers the costs of constituting and operating the registry. In fact, the costs associated with registry services, ie registration and search, should not undermine access to secured credit. In the Italian system, having the ‘tax man’ affecting the process of extending credit to the economy could send a misleading signal over the nature of publicity requirements for secured transactions. Hence, unless registry services are offered at a symbolic cost or free of charge (a possibility contemplated by UNCITRAL and followed, eg, in Mexico), such an institutional design may result in a fiscal levy over non-possessory pledges; one that is particularly insidious. In addition to these costs, secured debtors and loan applicants bear the expenses for notary services, which are generally required and are calculated on the basis of the value of the transaction. Such an accumulation of taxes and fees could ultimately deter the utilisation of the new norm.

Would the New Security Instrument Modernise Italian Secured Transactions Law?

The distance of the new Italian rules from international standards emerges more starkly when the new non-possessory pledge is considered in the broader context of the laws regulating secured transactions in Italy. The new security instrument does not amend the fundamental legal categories enshrined in the Italian Civil Code of 1942 (CC) and leaves untouched a number of special instruments commonly deployed to secure credit. Hence, a security right over the same assets may be established following different publicity, priority, and enforcement provisions. The new norm, in particular, overlaps with: the provisions of the CC regulating retention of title clauses and possessory pledges, the laws regulating pledges over traditionally aged dairy and cured-meat products, and the Italian Consolidated Law on Banking (CLB) which regulates charges over companies’ assets used to secure medium- and long-term bank loans (hereinafter ‘bank charges’). The list may be even longer if various regimes for acquisition finance and financial collateral are considered. Thus the main issue is whether the new non-possessory pledge dovetails or is in conflict with the existing corpus of rules governing secured credit in Italy.

In this regard, the choice of qualifying the new security instrument as non-possessory pledge (pegno non possessorio) is already problematic. According to Art 2786 CC, pegno (pledge) is created through dispossession; whereas, Art 2808(2) CC stipulates that ipoteca (literally, ‘hypothec’) is established through registration. Hence, mindful of this categorisation, the new security instrument would have been more correctly qualified as ipoteca mobiliare (literally, ‘hypothec on movables’), which is also the category that includes chattel mortgages on motor vehicles and vessels. The issue is not merely taxonomical; it contributes to fundamental ambiguities concerning the applicable publicity regime and the position of non-possessory pledges in the priority ladder. A few examples will clarify this point.

First, under Article 46 CLB, a bank charge enjoys a higher priority status than subsequently established possessory pledges that are not constituted in good faith. In fact, Italian law extends the protection granted to a right in rem acquired through possession in good faith to possessory pledges. Because registration for non-possessory pledge equates to dispossession, it is to be determined whether the same provisions protecting subsequent possessory pledges established in good faith should apply, by analogy, to non-possessory pledges. In particular, it is to be ascertained whether a non-possessory pledge could be constituted in good faith, even if a prior bank charge encumbers the same assets. Prudent lenders will be required to conduct a search in two different registry systems: the one where bank charges are recorded and the newly introduced registry for non-possessory pledges. What renders the process particularly laborious is the fact that bank charges follow a special publicity regime where a notarised copy of the security agreement has to be filed in a registry system consisting of 167 paper-based (uncoordinated) registries held by the Courts of First Instance (Tribunali). Similar considerations may be advanced for other security instruments that follow different publicity regimes, e.g. on receivables, intellectual property rights, financial instruments, and traditionally aged ham and cheese (to name few).

Second, the priority status of the new instrument is ambiguous also vis-à-vis statutory claims. Possessory pledges prevail over employees’ claims, whereas bank charges over the pool of companies’ assets are generally considered as subordinated. Differently, chattel mortgages (depending on the assets) may rank after a long list of statutory claims. Which regime should be applied to the new non-possessory pledge is uncertain, given that the new instrument is qualified as a pledge, follows the same publicity regime of chattel mortgages, and may cover the same pool of assets as a bank charge. Regardless of the interpretations ultimately applied by Italian courts, the uncertainty created by the new norm is likely to generate controversies, slowing an enforcement process designed to be swift, and adding ambiguities over the priority ladder.

Concluding Remarks

From the above it emerges that the addition of a new security instrument does not reduce the chasm between Italian law and international standards. More profoundly, it is hard to imagine that through a piecemeal statutory act access to secured credit will be broadened or its cost reduced. In fact, functionally similar secured transactions are subjected to different legal treatments. In particular, a variety of publicity regimes governing priority are applied to functionally similar security instruments. Throwing into this mix a novel publicity regime increases complexity, rather than resolving it. A more effective reform route would have entailed overhauling existing publicity regimes by implementing a single registry system to cohesively regulate priority.

Giuliano G. Castellano is an Assistant Professor at the University of Warwick (School of Law) and a Research Associate at the École polytechnique (i3-CRG, Paris-Saclay).


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