Italy takes permanent and temporary steps to facilitate Rights Offerings and PIPE transactions

On July 16, 2020, the Italian Government enacted  Law Decree No. 76/2020 introducing permanent and temporary measures aimed at simplifying rights issues and accelerating the approval of certain equity transactions.

The permanent measures are aimed at:

(i)    shortening the timetable of rights issues by more than one week; and

(ii)    simplifying the oversubscription regime.

The temporary measures (applicable until April 30, 2021) are aimed at:

(i)    introducing simplified EGM majorities to approve capital increases or to delegate powers to the Board of Directors to approve capital increases; and

(ii)    accelerating timing to approve capital increases without preemptive rights up to 20% of preexisting capital.

The new measures entered into force on July 17 and will have to be converted into law within sixty days thereof or will cease to have effect.

Permanent measures

Accelerating timing to complete rights issues and amendments to the oversubscription regime.

The new rules reduce the rights offering subscription period from 15 to 14 calendar days and remove the requirement to hold (following the offering subscription period) a five trading day auction of the unsubscribed rights.

In addition, the new rules allow listed companies to require existing shareholders to exercise the right of first refusal (diritto di prelazione) on unsubscribed rights concurrently with the exercise of their option rights by indicating the maximum number of unsubscribed shares for which they would be willing to subscribe (i.e., the oversubscription).

This shortens by more than one week the overall timing of rights issues.

Temporary measures

Simple majority for EGMs to approve or delegate powers to resolve capital increases and rights issues, provided at least 50% of the outstanding capital attends the meeting.

Until April 30, 2021, EGMs of Italian issuers will be able to (a) approve capital increases without preemptive rights or (b) delegate the Board of Directors to approve rights issues or capital increases without preemptive rights with the favorable vote of a simple majority of the capital attending the shareholders’ meeting, provided that at least 50% of the outstanding capital attends the meeting.

This contrasts with the ordinary legal requirement (which will once again apply starting May 1, 2021) of the favorable vote of two thirds of the capital attending the meeting, provided that at least 20% of the share capital attends the meeting.

We note that, depending on the circumstances, listed companies might still find it more convenient to stick to the ordinary quorum requirement, coupling the two thirds with the minimum represented share capital of 20%.

Simplified capital increases without preemptive rights allowed up to 20% of the pre-existing capital and shortened a notice period for the relevant EGM.

Until April 30, 2021, Italian issuers will be able to approve simplified capital increases with exclusion of preemptive rights up to 20% of the pre-existing capital by convening an EGM with 15 calendar day notice. Issuers will be allowed to use these measures even if their bylaws do not explicitly reference them.

Starting May 1, 2021, the ordinary legal requirements will be back in place and, accordingly, Italian issuers that intend to approve simplified capital increases with exclusion of preemptive rights will be able to do so only up to 10% of the preexisting capital if their bylaws authorize such simplified procedure.

Please note that this special shortened notice period will apply only to simplified capital increases for listed companies (under article 2441, para 4, last sentence of the Italian Civil Code) up to 20% where the issuance price is set at market value (valore di mercato) and confirmed by the auditor.

We believe that it would have also been helpful to extend this shorter notice period to other types of capital increases (such as rights issues).

Conclusions

The permanent amendments to the Italian Civil Code will accelerate the timing of the rights issues, shorten the risk period for underwriting banks and facilitate the oversubscription of unsubscribed shares.

The temporary rules are primarily meant to encourage any form of capital increase (including non-preemptive capital increases up to 20%), and accelerate time to market in order to respond to the effects of COVID-19 pandemic.

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