Summary: 1. The European Union and foreign investment policy during the pandemic. Brief notes. – 2. Italian golden power – 2.1. General framework before the “Liquidity” Law Decree. – 2.2. The changes introduced by the “Liquidity” Law Decree – 3. Debate on the applicability of golden power on non-performing loans – 4. What conclusions?

Keyword: Golden power, Italian Government, Law Decree, CoVid-19, Non-performing loans

The European Union and foreign investment policy during the pandemic. Brief notes.

The socio-economic and health consequences due to the spread of CoViD-19 are well known. In particular, the emergency protocols, by imposing restrictions on the free movement of people, are bringing the production sector to its knees, affecting, specifically, small and medium-sized enterprises[1] and triggering a vicious circle with negative effects on the entire economy[2]. In fact, the difficulty for entrepreneurs to honour their debts causes a significant reduction in liquidity for banks[3] with a simultaneous increase in non-performing loans[4].

The latter continue to be presented in the public debate as a problem mainly of banks which are asked to quickly get rid of these burdens, forgetting, however, that they represent a “greedy” opportunity for investors who can buy assets at prices of excerpt[5].

The risk, therefore, that the race to dissolve impaired loans represents an easily viable road for raids is concrete and not far off[6]. Therefore, it must be avoided that foreign investors can enter the Italian economic context and drain essential resources for enterprises[7].

For these reasons, the European Union, worried that this phenomenon could occur throughout the Eurozone, although it has always been open to foreign investment[8], has taken a cautious attitude in this period of pandemic[9]. In fact, through various communications dating back to March 2020, the European Commission reiterated that Member States must use all available tools, at national and European level, to avoid that the current crisis involves a loss of strategic resources and technologies[10].

On a practical level, thanks to the regulatory basis offered by the EU Regulation 2019/452[11], Member States can take specific measures to prevent a foreign investor from acquiring a company or taking control of it, if these operations would result in a threat to their security or public order[12].

Consequently, Italy has expanded the number of sectors in which the Government can exercise special powers referred to in the legislation on golden power, including, among others, the financial, credit and insurance sectors[13].

The Italian golden power

2.1. General framework before the “Liquidity” Law Decree.

Golden power is a defensive device aimed at preserving the localism of the main national companies in a period in which the latter seem to be easily attacked by foreign investors[14].

Introduced into the Italian legal system in 2012, with the Law Decree no. 21[15], golden power replaced the previous institution of golden share[16] which had been declared incompatible with the principles of free movement of capital and business establishment, pursuant to art. 63 and 49 of the TFEU[17] .

Even if golden share and golden power have the same goal[18], they are different because with the first one Italian Government claimed privileged shares with special prerogatives capable of influencing the decisions of the companies involved, while with the second one the aforementioned institution arrogated the right to inspect, and possibly to intervene in operations on said sectors[19].

With regard to the Government’s powers, three different types can be distinguished: prescriptive, interdictive and oppositional. Specifically, the first category includes the application of conditions in the case of purchase, for any reason, of investments in companies that carry out activities of strategic importance or in the case of finalization of determined resolutions, deeds or endosocietary transactions. The second type of powers, on the other hand, includes the prohibition against the adoption of specific resolutions, acts or operations of the shareholders’ meeting or of the administrative bodies and finally, in the third group of powers, there is the opposition to the purchase, for any reason, of investments in a company that carries out activities of strategic importance, in exceptional cases of risk for the protection of national interests[20].

These powers may be exercised in certain sectors whose number has increased over time[21]. In fact, until the entry into force of the Law Decree no. 23 of 2020 (“Liquidity” Decree) – which will be analysed later -, golden power applied exclusively to the defence, national security, energy, transport, communication[22], technology-intensive sectors[23], and telecommunications networks broadband based on fifth generation technology (5G) [24].

The European Commission has established that these powers must be based on objective, stable and publicly disclosed criteria and their exercise must be proportional to the objective to be pursued, non-discriminatory and also be justified by compelling reasons of general interest[25].

The exercise of governmental powers is subject to the fulfilment of notification and information obligations by the companies that manage strategic assets, in relation to specific resolutions, acts and operations[26].

Purchasers of shares in the aforementioned companies are also obliged to notify the acquisition within 10 days of the completion of the transaction[27].

In the event that the notified documentation is incomplete, the parties must to integrate it. From the receipt of the complete documentation, the term of 45 days for the Government to exercise the special powers begins. The inactivity of the Government is attributed the meaning of approval of the operation.

Failure to comply with obligations or conditions is punished with sanctions ranging from the suspension of the right to vote to the obligation to sell the shareholdings, from the administrative pecuniary sanction to the nullity of the resolutions or acts adopted and finally the restoration of the quo ante situation.

2.2. The changes introduced by the “Liquidity” Law Decree

The aim of protecting the Italian economy from possible raids has led Italian Government to expand the discipline of golden power. In fact, with the Law Decree 8 April 2020, no. 23 (“Liquidity” Decree), the said institution has expanded the field of action of the aforementioned institution and extended both the obligations to notify and the subjects required. In addition, the increase in Consob’s powers and the introduction of the office procedure have been added[28].

Consequently, the new regime applies to all strategic sectors as identified in art. 4.1 of Regulation 2019/452 / EU[29] and, more precisely, to: critical infrastructures[30], critical technologies and dual-use products[31], security of supply of critical production factors; access to sensitive information; freedom and pluralism of the media[32].

The obligation to notify was extended, temporarily until 31 December 2020[33], both to EU members, if they take control of companies operating in strategic sectors, as well as to non-EU entities. For the latter, the obligation arises in two cases: for transactions with a value equal to or greater than one million euro, if they acquire a share of the voting rights or capital equal to at least 10%; alternatively, regardless of the value of the transaction, if they acquire a share of the voting rights or capital equal to at least 15%.

Another important novelty is the possibility for the Government to proceed ex officio following the breach of obligation to notify by companies.

Lastly, Consob has greater control and intervention tools also for small and medium-sized enterprises.

Debate on the applicability of the golden power on non-performing loans

Since the entry into force of the “Liquidity” Law Decree, it has opened a lively debate on the uncertain application of the rules of golden power to the sale of non-performing loans.

On closer inspection, golden power’s discipline has never been free from doubts about its field of application. Indeed, the first doubts arose on the definition of financial infrastructures, included in the critical ones. Unfortunately, neither at the European nor at national level it was possible to clarify what is really meant by critical infrastructures. The doubt seems to have been resolved with the “Liquidity” Decree which included, in the financial sector, the credit and insurance sector[34].

Unfortunately, this inclusion opened Pandora’s box, represented by the hypothetical inclusion of non-performing loans in the credit sector. On closer inspection, the uncertainty arises from the extension, pursuant to the Law Decree no. 23 of 2020, of the obligation to notify also for those resolutions, acts or transactions, adopted by a bank that have the effect of changes in ownership, control or availability of profitable credits or a change in their destination[35].

Hence the question: non-performing loans (NPL or UTP) can be considered profitable likely to be subjected to the golden power’ rules?

The issue is relevant considering that the inclusion of NPLs in the legislation in question, even if it would represent a protection against possible foreign takeovers, at the same time it would cause an extension – up to 75 days – of the verification times of the transactions relating to their sale, with a simultaneous slowdown in their disposal process.

Part of the doctrine[36] excludes the hypothesis of inclusion, considering that the derisking activity, carried out in accordance with the guidelines adopted by the ECB in 2017[37], falls within the ordinary process of disposing of non-performing exposures. Therefore, golden power should apply just in case in which these credits are converted into equity investments capable of affecting the control of such companies and only after the entry of the former creditor into the company’s capital.

To corroborate the thesis of the exclusion there are some regulatory measures[38] that underline the need and urgency to clean up company financial statements through the sale of Npls. Among these, there is the Law Decree no. 18 of 2020 (“Cure Italy” Decree)[39] which falls into the category of anti-covid emergency regulatory acts. Its article 55, in fact, introduced a tax incentive (in the form of a tax credit), in case of sale of non-performing loans. If we consider that the aforementioned decree is slightly earlier than the subsequent the “Liquidity” Decree, it is unlikely that the legislator has passed so quickly from an incentive to an obstacle to the process of disposing of said credits.

Nevertheless, it must be considered that with resolutions concerning the transfer of credits, securities or other financial assets, there is a change in the legal ownership of the bank’s assets with the simultaneous transfer, to the buyer, of personal data of the assigned debtors. This, therefore, leads to access to sensitive information which, pursuant to art. 4 paragraph 1 letter d of Regulation no. 2019/452, is fully part of the golden power. One might, thus, think that the NPLs left the door, come back through the window!

We have to consider, in addition, the statement by the advisor for General Affairs of the Presidency of the Italian Council of Ministers, Antonio Rizzo during an online talk on financial security[40]. Rizzo, in fact, asserted that the legislation on golden power will also cover NPLs and corporate UTPs with underlying assets considered strategic.

In light of the foregoing, to date, despite the entry into force of DPCM no. 179 of 2020, the doubt remains. In fact, it, although aimed at identifying assets and relationships of national interest referred to in Article 4, par. 1, of EU Reg. 452/2019, does not provide any support for the purposes of this investigation and really, in the opinion of the writer, seems to open the way to new questions[41].

What conclusions?

The Italian Parliamentary Committee for the Security of the Republic (Copasir) underlines the worrying economic situation that is emerging in Italy due to the increase in non-performing loans and the stringent deadlines imposed by the Calendar provisioning[42]. The latter, in fact, by forcing the Member States to write down these credits is having, as a consequence, the depreciation of corporate values which could favour initiatives and attempts to take over by foreign parties.

To try to limit these effects, the Italian Government has adopted extraordinary measures with the main objective of supporting families, workers and businesses[43].

Since March 2020, the measures[44] issued have been adopted pursuant to the “Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak”[45] which derogated from the ordinary rules on state aid.

It is from the protectionist point of view that the extension of special powers must be read up to the credit, financial and insurance sectors, with the Law Decree no. 23 of 2020.

Unfortunately, as we have seen, the uncertainties relating to the possible applicability of golden power to non-performing loans are creating considerable perplexity and concern.

On one hand, in fact, a protectionist intervention on the economic system is acceptable in order to avoid retracing the same vicious circle of some time ago constituted by excess npl / credit crunch / recession. On the other hand, however, the need to get rid of these credits as soon as possible is increasingly of an urgent nature.

Certainly, the risk of slowing down the work of the competent offices to carry out the verification procedures in the face of a significant number of notifications is concrete.

In the opinion of the writer, in a particularly serious moment for Italian politics caused by the very recent resignation of the President of the Council of Ministers, Professor Giuseppe Conte, the hope of a clarifying legislative provision is becoming increasingly blurred.

However, the wish is for the preservation of the protectionist intent but with differentiated tools and / or channels for NPLs in order to avoid that the defensive attitude could cause the blocking of the entire Italian economic system. It is highly hoped, despite the dark times of Italian politics, that, as stated by the president of Copasir, Raffaele Volpi, the protectionist attitude will bring Italy from a country attached to a leading country in the world.

[1] See Ricciardi A., Crediti deteriorati e piccola dimensione delle imprese: l’opportunità delle reti, in Rass. Econ., 2016, 43 ff.

[2] See, Fincial Times’editorial “Draghi: we face a war against coronavirus and must mobilise accordingly”, available on https://www.ft.com/content/c6d2de3a-6ec5-11ea-89df-41bea055720b

[3] See the report “Non-performing loans” of European Central Bank, available on its website; Maggiolino M., Appunti sul ruolo delle banche ai tempi del COVID-19, in Rivista delle Società, 2020, 2, 1, 528

[4] See the Resolution of 6th Permanent Finance and Treasury Commission of the Italian Senate dated 23 May 2019, available on official web site of the Italian Senate of the Republic. According to it, high stocks of non-performing exposures limit the banking system’s ability to provide credit, compromising economic growth and creating a particularly unfavourable environment for small and medium-sized enterprises (SMEs), which mainly use bank credit. Cf. Capriglione F., La finanza UE al tempo del coronavirus, in Rivista trimestrale di diritto dell’economia, 2020, 1, 8; Id., La problematica dei crediti deteriorati, in Riv. trim. dir. econ., 2019, 2, Supplemento n. 2, 2; Rossano D., Reflections on the Italian emergency regulation in support of businesses, in Law and Economics Yearly Review, 2020, 9,1,115; Masera R., Non-performing exposures delle banche, in Riv. trim. dir. econ., 2019, 2, Supplemento n. 2, 133

[5] Shareable is the parallelism offered by Professor Carriere, who compares the sale of NPLs to the disposal of waste. Both, in fact, represent a golden opportunity for those who know how to deal with them. See Carriere P., NPL: una emergenza nazionale. Sospendere le cartolarizzazioni?, article dated 24.04.2020, available on www.dirittobancario.it

[6] Cf. Carriere P., op. last. cit.; Gordon J. N, Milhaupt C. J., China as a “National Strategic Buyer”: Towards a Multilateral Regime for Cross-Border M&A, in Columbia Business Law Review, 2019, 192 f

[7] See the 2020 Report on the protection of national strategic assets in the banking and insurance sectors of the Italian Parliamentary Committee for the Security of the Republic (COPASIR), 27. Moreover, at page n. 9 the Committee reported the case of France which has adopted a specific rule aimed at ensuring transparency on ownership structures and possible takeovers of listed companies

[8] Communication from the Commission Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation) 2020/C 99 I/01 – C/2020/1981, available on https://eur-lex.europa.eu/

[9] Enriques L., Extreme times, Extreme Measures: Pandemic-Resistant Corporate Law, April 2020, available at www.law.ox.ac.uk/business-law-blog; Panetta F., Why we all need a joint European fiscal response, in Politico, 21 April 2020

[10] Communication from the Commission to the European Parliament, the European Parliament, the European Council, the Council, the European Central Bank, the European Investment Bank and the Eurogroup. Coordinated economic response to the COVID-19 Outbreak. COM/2020/112 final, available on https://eur-lex.europa.eu/; Communication 2020/C 99 I/01 – C/2020/1981, op. cit.

[11] Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, available on https://eur-lex.europa.eu/; Napolitano G., Foreign direct investment screening: open questions and future challenges, in Foreign direct investment screening, directed by Napolitano G., Bologna, 2019, 10 ff; Locci L., Foreign Direct Investments, in Commentaries and Cases on Italian Business Law, directed by Sacco Ginevri A., Cedam, 2020, 131 ff.

[12] Communication 2020/C 99 I/01 – C/2020/1981, op. cit.

[13] Donativi V., I golden power nel “D.L. Liquidità”, in Crisi d’Impresa e Insolvenza, 2020, 7

[14] See Sacco Ginevri A., I golden powers fra Stato e mercato ai tempi del COVID-19, in VV.AA., COVID-19 Emergenza sanitaria ed economica, Rossano D. (edited by), ed. Cacucci Editore, 2020, 164

[15] Law Decree 15 March 2012 n. 21 (converted with amendments by the Law no. 56 of 11 May 2012), available on the Official Gazette of the Italian Republic

[16] Law Decree 31 May 1994, n. 332 (converted with amendments by the Law no. 474 of 30 July 1994), available on the Official Gazette of the Italian Republic; Cf. Sandulli A., Le relazioni fra Stato e Unione Europea nella pandemia, con particolare riferimento al golden power, in Diritto pubblico, 2020, 2, 413

[17] See the infringement procedure n. 2009/2255, available on https://ec.europa.eu/; Court of Justice of the European Union, Case C-326/07 – Judgment of 26 March 2009, available https://ec.europa.eu/; Garofali R., Golden power e controllo degli investimenti esteri: natura dei poteri e adeguatezza delle strutture amministrative, report to the Conference “Foreign direct investment screening”, Rome, 10 May 2019, in federalismi.it, 2019,17, 3

[18] Cf. Sacco Ginevri A., L’espansione dei golden powers fra sovranismo e globalizzazione, in Rivista trimestrale di diritto dell’economia, 2019, 1, 156

[19] See Garofali R., Golden power e controllo degli investimenti esteri: natura dei poteri e adeguatezza delle strutture amministrative, op. cit., 3

[20] Cf. the Law Decree 15 March 2012 n. 21, op. cit., as updated and amended by the Law Decrees and subsequent DPCMs

[21] Sandulli A., Le relazioni fra Stato e Unione Europea nella pandemia, con particolare riferimento al golden power, op. cit., 413

[22] See the Law Decree 15 March 2012 n. 21, op. cit.. Moreover, for energy, transport and communication sectors, see the Decree of the President of the Council of Ministers of 23 December 2020, n. 180, available on the Official Gazette of the Italian Republic

[23] Cf. the Law Decree 16 October 2017, n. 148 (converted with amendments by the Law no. 172 of 4 December 2017), available on the Official Gazette of the Italian Republic

[24] See the Law Decree 21 September 2019, n. 105 (converted with amendments by the Law no. 133 of 18 November 2019), available on the Official Gazette of the Italian Republic

[25] Communication of the Commission on certain legal aspects concerning intra Eu investment, in Official Journal C 220, 19 July 1997, 15 ff., available on https://eur-lex.europa.eu. The text specifies that for the Member States, the exercise of the powers in question cannot be justified by purely economic reasons. See Alvaro S., Lamandini M., Police A. e Tarola I., La nuova via della seta e gli investimenti esteri diretti in settori ad alta intensità tecnologica. Il golden power dello Stato italiano e le infrastrutture finanziarie, in Consob, Quaderni giuridici, 2019, 20, 21

[26] These are, ex multis, the resolutions modifying the statutory clauses concerning the transfer abroad of the headquarters or the modification of the corporate purpose. Also included are mergers, demergers, company dissolution, company transfers etc. For an exhaustive list, please refer to the individual decree laws

[27] Alternatively, before closing, following the signing of a binding purchase agreement between the parties, containing all the relevant information for the purposes of the related merit assessment

[28] See articles 15, 16 and 17 of the Law Decree 23/2020, available on the Official Gazette of the Italian Republic. Cf. Sacco Ginevri A., I golden powers fra Stato e mercato ai tempi del COVID-19, op. cit., 163. Id., The Italian foreign direct investments screening in times of Covid-19: trends and perspectives, in Law and Economics Yearly Review, 2020, 9,1,126. According to Professor Sacco Ginevri, “Le modifiche apportare in Italia dal d.l. 23/2020 in materia di golden powers sono in linea con quanto sta accadendo in altri ordinamenti esteri […] e con quanto raccomandato dalla Commissione UE con le comunicazioni del 13 e del 29 marzo 2020” (tr. The changes made in Italy by the d.l. 23/2020 on the subject of golden powers are consistent with what is happening in other foreign jurisdictions […] and with what is recommended by the EU Commission with the communications of 13 and 29 March 2020)

[29] See the Decree of the President of the Council of Ministers 18 December 2020, n. 179, available on the Official Gazette of the Italian Republic

[30] These are physical or virtual infrastructures, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial and sensitive structures, as well as investments in land and buildings essential for the use of such infrastructures.

[31] These are artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, as well as nanotechnology and biotechnology.

[32] Lener R., Golden power e investimenti esteri nelle infrastrutture finanziarie, in Rivista trimestrale di diritto dell’economia, 2020, 2, 231

[33] Term extended to 30 June 2021 by the Law Decree of 28 October 2020, n. 137 (converted with amendments by the Law 18 December 2020, n.176), available on the Official Gazette of the Italian Republic.

[34] See Sacco Ginevri A., Golden powers e infrastrutture finanziarie dopo il Decreto Liquidità, editorial dated 09 April 2020, available on www.dirittobancario.it; Annunziata F., La crisi pandemica e la regolazione dei mercati dei capitali, in Rivista delle Società, 2020, 2, 1, 587

[35] Cf. the art 15, comma 3bis, lett a, Law Decree 23/2020 in which is specified that active means for goods and relationships.

[36] Consoli G., Napolitano G., Attivi ma non critici: perché il golden power non può applicarsi agli Npl, article dated 08 June 2020 available on the web site of IlSole24Ore

[37] European Central Bank, Guidance to banks on non-performing loans, 2017, available on https://www.bankingsupervision.europa.eu/ecb/pub/pdf/guidance_on_npl.en.pdf

[38] See, ex multis, the Law of 27 December 2013, n. 147, available on the Official Gazette of the Italian Republic. It established the tax deductibility of credit losses deriving from their sale

[39] Law Decree 17 March 2020, n. 18 (converted with amendments by the Law 24 April 2020, n. 27), available on the Official Gazette of the Italian Republic

[40] XXX Talk on Sicurezza finanziaria. Dalla protezione del risparmio e delle banche allo sviluppo degli Npl (tr. Financial security. From the protection of savings and banks to the development of Npls), held on the Zoom platform on 03 June 2020 and visible on https://www.youtube.com/watch?v=FCz4_pUY5MI

[41] See, il “Monitoraggio dell’attuazione delle norme in materia di emergenza epidemiologica Covid-19” and the “Calendario delle misure adottate dal Consiglio dei Ministri – aggiornato al 15 luglio 2020”, available on the http://www.programmagoverno.gov.it/it/

[42] See the 2020 Report on the protection of national strategic assets in the banking and insurance sectors of the Italian Parliamentary Committee for the Security of the Republic (COPASIR), op. cit., 9 and 27; Masera R., Ecco perché il calendar provisioning è pericoloso e perché la bad bank europea ci vuole, article of 16 October 2020, available on https://bebeez.it/2020/10/16/masera-perche-calendar-provisioning-pericoloso-perche-la-bad-bank-europea-ci-vuole/

[43] Masera R., For a resilient, sustainable, and inclusive recovery in Europe: challenges and proposals in response to the pandemic crisis, in Law and Economics Yearly Review, 2020, 9,1,67

[44] See Rossano D., Reflections on the Italian emergency regulation in support of businesses, op. cit. 114

[45] See the Commission Communication of 20 March 2020 introducing a Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (2020/C 91 I/01)