Italian LBOs ? the saga continues

Italy’s Parliament has approved a bill of law under which the government has been given authority to issue a new set of rules on corporations, including LBO legislation. The new rules come into full effect in the autumn of next year.

There is still some uncertainty in the Italian market regarding LBO legislation given the contradictory judgements on what constitutes financial assistance. It is hoped this reform of company law will help improve the current situation and clarify the scope of application of financial assistance restrictions.

In Italy case law and certain commentators argue that Section 2358 of the Italian Civil Code prohibits some forms of LBO, says Francesco Portolano of law firm Studio Prosperetti in Rome. Section 2358 literally prohibits a company from giving financing or guarantees for the purchase of its own shares.

Under article 7d of the new law, the Parliament has mandated the government to draft rules to provide that mergers of companies in which the buyer secures financing to purchase the target do not violate Section 2358.

Portolano says the new law will help facilitate LBO transactions in the sense that at least the issue has been acknowledged at a legislative level and deemed acceptable in principle. He adds that for the moment Parliament has only given guidelines to the amendment of this law, but this is certainly a step in the right direction. “This will not have an immediate effect on the LBO situation in Italy, but the effect will be seen when the government writes the final detailed set of provisions, which should happen in around a years’ time – next autumn,” he said.