Foreign Direct Investments in Non Listed Companies in Italy

Practical Guide

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How can a foreign creditor start a procedure for international debt collection in Italy?

As a general rule, foreign investments in Italian non-listed companies are not subject to restrictions by the Italian laws and institutions.

However, according to the Italian law[1] , certain investments are subject to a prior review procedure, whereby the Government has special powers to limit the investments in the share capital of Italian companies which are active in strategic business sectors.

Moreover, regulatory approvals are required to acquire or invest in companies running business in regulated sectors (e.g. financial services / insurance companies).

The approval procedure is aimed at evaluating whether the investor would ensure the sound and prudent management of the target over a medium- to long-term investment horizon.

[1] The Italian regulatory framework of foreign investments in non-listed companies is composed of: (i) Law Decree 21 March 2012, n. 12 (amended by Law Decree 21 September 2019, n. 105); (ii) Decree of the President of the Council of Ministers 6 June 2014, n. 108; (iii) Presidential Decree 19 February 2014, n. 35; (iv) Presidential Decree 25 March 2014, n. 85; and (v) Liquidity Decree.

Which foreign investments are subject to clearance in Italy?

Under the Law Decree 15 March 2012, n. 21, the Government is entitled to exercise special powers (the “Golden Powers”) to limit the foreign investments in Italian non-listed companies active in the following strategic business sectors: (i) defence and national security, (ii) energy, (iii) transport, (iv) communications, or (v) high-tech sectors.

Moreover, the Law Decree 21 September 2019, n. 105 entitles the Government to exercise Golden Powers to limit the investments in companies active in the business sector of broadband telecommunications networks based on 5G technology (collectively, the “Strategic Sectors”).

Basing on the Strategic Sectors, the Italian law requires to comply with the notification obligation to the Government. Such notification shall be filed within 10 days of the acquisition in case of:

  • relevant resolutions (relating to merger, de-merger, incorporation, asset deals), adopted by any Italian (listed and non-listed) company active in all the Strategic Sectors;
  • purchase of interests in any Italian non-listed company active in the defence and national security sector; and
  • purchase of interests by non-EU entities in any Italian (listed and non-listed) company, active in the (i) energy, (ii) transport, (iii) communications, (iv) high-tech, and (v) 5G technology sectors.

Giving the Covid-19 emergency, the Italian regulatory of foreign investments in non-listed companies was amended by the Law Decree 8 April 2020, n. 23 (so-called “Liquidity Decree”).

The Liquidity Decree entitles the Government to exercise Golden Powers also in the investments relating to the business sectors listed in Article 4 Paragraph 1 of EU Regulation 2019/452.

The business sectors listed in above-mentioned EU Regulation are divided into the following 5 categories: (i) critical infrastructure, including energy, transport, water, health, communications, media, and financial infrastructure (which includes, under the Liquidity Decree, the credit, banking and insurance sector; (ii) critical technologies and dual use products, including artificial intelligence, cyber-security, nanotechnology and biotechnology; (iii) security of supply of critical inputs, including energy and raw materials, and food security; (iv) access to, or the ability to control, sensitive information, including personal data; and (v) media freedom and pluralism. (the “Liquidity Decree Strategic Sectors” and collectively with the Strategic Sectors, the “Current Strategic Sectors”).

Basing on the Liquidity Decree Strategic Sectors, under Art. 15 of the Liquidity Decree, until 31 December 2020, the notification obligations to the Government shall be complied with in case of: 

  • relevant resolutions (relating to merger, de-merger, incorporation, asset deals), adopted by any Italian (listed and non-listed) company active in all the Liquidity Decree Strategic Sectors; and
  • purchase of interests (by both EU and non-EU entities) in any Italian (listed and non-listed) company that holds assets or has relations in all the Liquidity Decree Strategic Sectors.

Furthermore, until 31 December 2020, the notification obligations to the Government shall be complied with in case of:

  • purchase of interests by EU entities (in addition to non-EU entities) in any (listed and non-listed) Italian company active into the (i) energy, (ii) transport, (iii) communications, (iv) high-tech, and (v) 5G technology sectors – even if the purchase of interests is performed by a public administration of a EU Member State; and
  • purchase of interests by non-EU entities in any Italian (listed and non-listed) company active in all the Current Strategic Sectors exceeding the threshold of: (i) 10 % of share capital or voting rights, with an investment of an economic value exceeding EUR 1,000,000; or, in any case, (ii) 15 %, 20 %, 25 % and 50 % of the share capital in Italian companies.

As far as companies operating in regulated sectors are concerned, regulators apply strict procedures to assess the kind of investments and the reliability of investors. These procedures may take several months.

What is the foreign investment clearance process in Italy?

Upon receipt of the notification by the Government, the latter is entitled to carry out the review procedure.

In any case, according to the Liquidity Decree, the Government has the right to carry out the review procedure even in case the notification is not filed (facoltà di avviare il procedimento d’ufficio).

The review procedure is carried out by the Department of Administrative Coordination (Dipartimento per il coordinamento amministrativo), a specific Government office composed of representatives of the Ministries involved in the review.

The review procedure shall be completed within 45 days from receipt of the notification. When the Government fails to exercise its rights within the above-mentioned term, the relevant investment is considered lawful.

Upon the receipt of the notification, the Ministry in charge carries out the review on the relevant investment, resolution or agreement, and drafts a decision which is submitted to the Presidency of the Council of Ministers.

The Government’s decision shall be adopted by a Decree issued by the Prime Minister and shall include (i) conditions imposed on the relevant investment; (ii) criteria adopted for monitoring the compliance with law; (iii) penalties applied in case of breach of the conditions.

In case the implemented investment does not comply with the conditions set forth by the Prime Minister Decree, said investment is void and the company responsible for the breach shall pay a penalty (administrative fines) equal to twice the value of the transaction.

In any case, the Prime Minister Decree can be challenged by the Administrative Court of Rome.

Are there any conditions Italian authorities may impose on foreign investments?

The Government has the right to exercise its powers on foreign investments in Italian companies; however, such powers depend on the Current Strategic Sector.

Generally, the Government is entitled to:

  • impose specific conditions on the purchase of interests in Italian companies to ensure the protection of the essential interests of the State;
  • exercise a veto in relation to the purchase of an interest in the voting share capital of Italian companies by any person (directly or indirectly, individually or jointly), other than the Italian State or State-controlled entities; and
  • exercise a veto in relation to significant resolutions relating to certain extraordinary transactions.

What other main challenges do foreign investors face in Italy?

In case of foreign investments in Italian non-listed companies, the investor shall comply with the legislation related to:

  • reciprocity: the general principle of Italian law, whereby the foreign investor may exercise any right exclusively insofar the law of the relevant foreign country allows the Italian person to exercise the same right;
  • EU antitrust clearance: in case the transaction is deemed to have an EU dimension; and
  • UBO declarations: these are necessary for companies registered with the Italian Companies Registry, which must disclose and keep updated the identity of their ultimate beneficial owners (i.e. all individuals directly or indirectly holding 25% or more of an Italian company or exercising control over the company).

Moreover, the majority of Italian companies are family-owned businesses, whereas this structure impacts on the negotiation of the corporate governance scheme, which may not be in line with international best practices.

Both in the case of total and partial acquisition of a family-owned company, the sellers may require key positions for founder(s) and family members, to be held for a certain number of years after the closing.

The non-compete commitments for those of the family members who may leave the management of the target present tricky issues. If these are employees, certain mandatory limits are provided for as follows:

(i) the scope of the non-compete should be detailed enough;
(ii) 3 to 5 years of duration from the expiring of the contractual relationship are applicable to employees and managers respectively;
(iii) a specific and not excessively wide territory should be defined where the non-compete commitment is applicable;
(iv) an indemnity should be paid for each year during the non-compete obligation must be observed (i.e. in the range of 15%-30% of the last annual gross salary).

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