Decreto Liquidità (Liquidity Decree): Further Measures to support companies

CELF - Center of European Law & Finance | April.20.2020

italiano: Decreto Liquidità: Ulteriori Misure a Supporto delle Imprese

On 6 April 2020, the Italian Council of Ministers approved a new Law Decree on ‘Urgent measures concerning access to credit and deferral of obligations for companies, as well as special powers in sectors of strategic importance and justice’ (the "Decree"). Published on 8 April 2020 in the Italian Official Gazette, General Series - no. 94., the Decree is the second of three emergency decrees in support of national business, issued with the intention of providing further measures in favour of companies, consisting mainly in the granting of State guarantees as a way of increasing access to liquidity. The main measures include:

  • SACE S.p.A. AND CDP S.p.A.: SUPPORT FOR EXPORT, INTERNATIONALISATION AND INVESTMENTS

    SACE S.p.A., part of the Cassa Depositi e Prestiti group, may grant guarantees in favour of banks providing loans to companies in any form until 31 December 2020. The amount involved is approximately € 200 billion (of which at least € 30 billion is intended to support SMEs, including self-employed workers and VAT-registered freelancers, who have made full use of their access to the Central Guarantee Fund for SMEs (the “Guarantee Fund”)). Such amount was made available by the State to cover, depending on the size of the company, between 70% and 90% of the amount financed, subject to the beneficiary complying with a number of conditions (such as the ban on the distribution of dividends during 2020, the obligation to allocate funds to support expenses and productive activities located in Italy, the obligation to ensure that the cost of financing covered by the guarantee will be lower than the cost that would have been required by lenders in relation to transactions with the same characteristics but without a guarantee and a commitment to managing employment levels through trade union agreements). In order to be eligible for the guarantee, the beneficiary company (i) did not fall under the category of “distressed company” as of 31 December 2019, pursuant to Article 2(18) of EU Regulation 651/2014 (para. 1, let. g), and (ii) was not a non-performing entity, as defined in EU legislation, as of 29 February 2020.

    The SACE Guarantee has annual fees that vary depending on whether the beneficiary is an SME; it is a first demand, unconditional, explicit, irrevocable guarantee and compliant with the requirements of prudential supervisory regulations for risk mitigation.

    The guarantee covers new loans or refinancing granted to the beneficiary after the entry into force of the Decree, for capital, interest and ancillary charges up to the maximum amount guaranteed. Subject to an additional decree that the Italian Ministry of Economy and Finance (MEF) may issue to regulate detailed implementation and operational procedures, the mechanism for granting guarantees is structured as follows:

    • 90% of the loan, with a simplified procedure for companies with fewer than 5,000 employees in Italy and a turnover of less than € 1.5 billion;

    • 80% of the loan for companies with more than 5,000 employees and a turnover between € 1.5 billion and € 5 billion;

    • 70% of the loan for companies with more than 5,000 employees and a turnover of more than € 5 billion.
    In any case, the amount of the guarantee may not exceed 25% of the turnover recorded in 2019, or an amount which is equal to the personnel costs incurred by the company multiplied by two.

    On the obligations of SACE S.p.A. arising from the above-mentioned guarantees, Article 1, paragraph 5, grants by right the State guarantee, which is on first demand and without recourse, explicit, unconditional and irrevocable. It extends to the repayment of the capital amount and the payment of interest (together with any other collateral charges). On this point, the lenders may not directly invoke the State guarantee. In particular, SACE S.p.A. carries out, also on behalf of the MEF, guarantee enforcement and debt collection, unless it is possible to delegate them to the banks.

    With reference to Cassa Depositi e Prestiti S.p.A. ("CDP"), on the other hand, paragraph 13 of Article 1 provides for the possibility of granting (again, subject to overall spending limits of up to € 200 billion) a state guarantee on exposures assumed or to be assumed by the CDP by 31 December 2020, arising from guarantees (including in the form of a first loss guarantee) on portfolios of loans granted, in any form, by banks or other institutions referred to in Article 106 of the Italian Consolidated Banking Act ("TUB") to companies based in Italy that have suffered a reduction in turnover as a result of the Covid 19 emergency and that provide for procedures to ensure that lenders grant new loans in accordance with the amount of capital released as a result of the guarantees. This guarantee is on first demand, unconditional, explicit, irrevocable, and in compliance with the requirements of prudential supervisory regulations for risk mitigation.

    The above framework legislation (and, in particular, paragraphs 1 to 9) remain subject to the approval of the European Commission on the basis of the State Aid framework.

    In addition, in order to maximise group collaborations and increase the effectiveness of export support mechanisms, internationalisation and economic recovery, Article 3 expressly requires SACE S.p.A. and CDP to agree on industrial and commercial strategies. In this regard, CDP must agree in advance with the MEF (and together with the Ministry of Foreign Affairs and International Cooperation) on the exercising of voting rights arising from its stake in SACE S.p.A., which will in any case not be subject to the management and coordination of CDP.
  • STRENGTHENING OF THE CENTRAL GUARANTEE FUND FOR SMEs

    Article 13 of the Decree postpones until 31 December 2020 the application of the measures contained in Article 49 of the Cura Italia Decree with reference to the request for financial support offered to SMEs by the Guarantee Fund (Article 2, paragraph 100, letter a) of Law 662/1996). The granting of the guarantee remains free of charge and with a maximum guaranteed amount per individual company of €5 million, in any case in compliance with European Union regulations. However, the Decree allows access, until 31 December 2020, also to companies with no more than 499 employees.

    In this regard, a provision has been introduced for direct coverage of 90% (increased by a further 10% with respect to the Cura Italia Decree) of the amount of each financial transaction which does not exceed certain specifically identified thresholds (with reference to which reinsurance transactions may be covered in their entirety), subject to authorisation by the European Commission under the rules on State Aid. Until the European Commission has provided the authorisation for financial transactions not having the duration and amount specifically identified under letters c) and d) of said Article, and after such authorisation, the coverage percentages are 80% for direct guarantees and 90% for reinsurance, respectively.

    In addition, the Guarantee Fund has also been extended to cover the postponment of the maturity of financing in transactions for which banks or financial intermediaries have also granted it on their own initiative (letter f).Without prejudice to the exclusion of loans classified as "non-performing" and in view of the purpose of the emergency decrees relating to COVID-19, the new provision of letter g) of Article 14 extends its scope of application to the following:

    • companies whose receivables have been classified as "unlikely to pay" or "past due or impaired", pursuant to the so-calledMatrice dei Contiby the Bank of Italy, provided that this classification is not prior to 31 January 2020; and

    • companies which, after 31 December 2019, were admitted to the arrangement procedure with continuity of business (concordato con continuità aziendale) (Article 186-bisof Royal Decree 267/1942) which have entered into restructuring agreements pursuant to Article 182-bisor have submitted a certified plan pursuant to Article 67 of the aforesaid decree, provided that, on the date of entry into force of this Decree, (i) their exposures are no longer in a situation that would determine their classification as non-performing, (ii) there are no amounts in arrears after the application of the concession measures and (iii) the bank, on the basis of the analysis of the borrower's financial situation, can reasonably assume that the exposure will be repaid in full at maturity, in accordance with Article 47-bis, paragraphs 6(a) and (c) of the CRR Regulation. For the purposes of eligibility to the guarantee, it is not necessary for one year to have elapsed from the date on which the concession measures were granted or, if later, from the date on which the exposures were classified as non-performing, pursuant to Article 47-bis, para. 6, lett. b) of the CRR Regulation.
    Letter m) introduces a 100% guarantee, both in direct guarantee and in reinsurance, on new loans granted by banks and operators authorised pursuant to Article 106 of the TUB to SMEs and natural persons carrying out business, arts or professions, provided that:
  • authorisation is granted by the European Commission pursuant to Article 108 of the TFEU;
  • these activities have been damaged by the COVID-19 emergency (attestation to be made by means of self-declaration);

    the loans granted provide for the start of capital repayment no earlier than 24 months after disbursement and have a duration of up to 72 months and an amount not exceeding 25% of the amount of the beneficiary's revenues, as resulting from the latest financial statements or latest tax return filed on the date of the guarantee application or, for beneficiaries incorporated after 1 January 2019, other appropriate documentation, including self-certification pursuant to Article 47 of Presidential Decree 445/2000 and, in any case, not exceeding € 25,000.00.The Decree also specifies what is meant by the terms "new financing" and the conditions provided for in cases of sale or lease of going concern with continuation of the same activity.

    The new letter n) sets forth, for beneficiaries with revenues not exceeding € 3,200,000, whose business activity has been damaged by the COVID-19 emergency (to be self-certified), that the guarantee referred to under letter c) may be combined with a further guarantee granted by the Confidi or other entities authorized to issue guarantees, from their own resources, up to 100% of the loan granted.

    Letter o) provides for the possibility of requesting the Guarantee Fund also for financial transactions already completed and disbursed by the lender no later than 3 months after the date of submission of the request and, in any case, after 31 January 2020.

    The new 2nd paragraph provides for specific measures valid until 31 December 2020, as an exception to the current rules of the Fund referred to in Article 2, paragraph 100, letter a) of Law662 of 23 December 1996, for guarantees on loan portfolios, even without an amortisation plan, dedicated to companies damaged by the COVID-19 emergency and consisting of at least 20% of companies having, as of the date of inclusion of the transaction in the portfolio, a rating, determined by the applicant on the basis of its internal models, not higher than class "BB" on the Standard's and Poor's rating scale.

  • INCENTIVES FOR MORTGAGES ON PRIMARY RESIDENCE (PRIMA CASA)

    Moreover, Article 12 of the Decree has specified the subjective scope of application of Article 54 of the Cura Italia Decree, also including sole proprietorships and craftsmen. The above-mentioned Article 54 has introduced specific exceptions to the regulations applicable to the so-called "Gasparrini Fund" (i.e.Law 244/2007, Article 2, paragraphs 475-480, as amended by Law 92/2012). In particular, said provision grants, for a period of 9 months from the entry into force of the Decree, a derogation from the ordinary rules of the Fund through the allocation of € 400 million for 2020, extending, under certain conditions, such benefit to self-employed workers and freelancers. The Decree extends the benefits of such Fund, again for a period of 9 months from the entry into force of the Decree, also to loans taken out within less than one year of the entry into force of the Decree, thus derogating from one of the general provisions of the Gasparrini Fund. it is worth pointing out that, in all cases of access to the Fund, the Cura Italia Decree also provides for the suspension of payment of the mortgage instalments, the repayment of compensatory interest at the rate of 50% of the interest accrued on the outstanding debt during the period of suspension.
  • DEFERRAL OF THE ENTRY INTO FORCE OF THE BUSINESS CRISIS AND INSOLVENCY CODE

    Due to the current emergency context, Article 5 of the Decree provides for the deferral to 1 September 2021 of the entry into force of Legislative Decree 14 of 12 January 2019 (Business Crisis and Insolvency Code in implementation of Law 155 of 19 October 2017), as the legislation on business crises provides for specific warning measures which are designed to be applied in a stable general economic environment. Moreover, the legislator has deemed the use of liquidation to be a solution applicable only in the absence of alternative remedies. It is therefore clear that, in the current emergency phase, such aim would be hard to pursue.

    This is a provision that appropriately provides for the postponement of the entry into force of the Business Crisis and Insolvency Code, thus allowing operators to make use, in the current emergency situation, of instruments already tested and consolidated.
  • TEMPORARY PROVISIONS ON LOANS TO COMPANIES, DRAFTING OF FINANCIAL STATEMENTS AND CAPITAL REDUCTIONS

    As under Article 8 of the Decree, the provisions of Articles 2467 and 2497quinquiesof the Italian Civil Code shall not apply to loans made in favour of the company from the date of entry into force of the Decree until 31 December 2020. This disciplinary provision is intended to encourage, in an emergency situation, payments by shareholders as loans. This is pursued through the decommissioning of the mechanisms for the subordination of such funding, even in the event it is carried out by those exercising management and coordination.

    Furthermore, under Article 7 of the Decree companies are allowed to prepare and approve financial statements by valuing items in accordance with the principle of prudence and on a continuity-of-business basis. In addition, assets and liabilities as per Article 2423-bis, paragraph 1) of the Italian Civil Code, may be taken into account. To this end, in order to avoid the adoption of different criteria, a reclassification of the items may be carried out by referring to the situation existing on 23 February 2020. It should be clarified that this provision also applies to financial statements closed by 23 February 2020 and not yet approved, and that the 60-day extension of the deadline for the adoption of the cash flow statements or the financial statements for 2019, set for 30 April 2020 and provided for by Legislative Decree 18/2020, remains unaffected.

    In addition, from the date of entry into force of the Decree and until 31 December 2020, certain provisions on the reduction of share capital (in particular the provisions of Articles 2446, second and third paragraphs, 2447, 2482-bis, fourth, fifth and sixth paragraphs, and 2482-ter) will not apply. For the same period, the company will not be dissolved due to reduction or loss of share capital referred to in Articles 2484, paragraph 4, and 2545-duodecies. In view of the foreseeable difficulties when finding the appropriate means to ensure adequate refinancing of the companies, for the time being directors shall no longer be obliged to comply with the obligations provided for by the above-mentioned regulatory provisions also with the aim of not exposing them to any liability.