Sara Brogioni, Author at Aiternalex

About Sara Brogioni

Graduated in Law from the University of Pisa in the year 2012, I immediately started a collaboration in a law firm specializing in the area of civil and commercial law, with focus on contracts and debt collection for large companies. Go to profile

Entries by Sara Brogioni

ENFORCED SALES AND ANTI-MONEY LAUNDERING: A USEFUL REFORM?

29/11/2023/in Corporate/by Sara Brogioni

The so-called Cartabia Reform sought to innovate the civil process with the aim of simplifying, speeding up and rationalising it.

Months after the entry into force of the reform itself, however, it is possible to make an initial assessment of what is actually simplified and what is actually burdened with new burdens.

With regard to forced execution for those who are awarded a property in individual or bankruptcy execution, a new requirement has been introduced, based on the anti-money laundering rules set forth in Legislative Decree No. 231 of 21 November 2007, making the issuance of the transfer decree subject to the verification of compliance with these obligations.

Legislative Decree No. 149 of 10 October 2022 introduced an additional paragraph to article 585 of the Italian Code of Civil Procedure pursuant to which “within the term set for the payment of the price, the successful bidder, in a written statement made in awareness of the civil and criminal liability provided for false or mendacious statements, shall provide the enforcement judge or the delegated professional with the information prescribed by article 22 of Legislative Decree No. 231 of 21 November 2007. 231” and also amended article 586 of the Code of Civil Procedure by providing that the transfer decree can be pronounced on the twofold condition of the payment of the price and the verified “fulfilment of the obligation placed on the successful bidder by article 585, paragraph four”.

The legislation came into force on 1 March 2023 and is therefore applicable to transfer decrees pronounced at the outcome of real estate execution proceedings commenced with attachment completed as of the aforementioned date.

The legislator’s intention is to prevent forced sales from being instrumental in the reutilisation of illicit proceeds, thus filling the legislative gap that existed: before the reform, in fact, case law had been determined to exclude this requirement in executive proceedings, considering that the checks introduced by the anti-money laundering regulations under legislative decree no. 231/07 could not be carried out. Legislative Decree No. 231/07 could not be applied to the delegated professionals and the judge’s assistants since they could not be defined either as clients or executors of the same, nor finally as actual holders of the bank account opened as an account in the enforcement proceedings.

From a strictly operational point of view, however, the new requirement will translate into the adjudicator’s duty to fill in an interview form for due diligence, administered by the delegated professional in order to provide all the information required by Article 22 of Legislative Decree No. 231/2007, self-declaring that he is the beneficial owner of the acquired account and the provenance of the sums functional thereto.

Once this declaration has been acquired, no other fulfilment is placed upon the auxiliary, who will simply have to collect this declaration and file it with the minute of the transfer decree, no subsequent activity being envisaged, nor any obligation to report any anomalous declarations.

The verification of the exact fulfilment of the disclosure obligations is therefore left to the enforcement judge as a condition for the pronouncement of the transfer decree, but it cannot be excluded that he may proceed with a report to the competent authority if he sees any grounds for doing so.

In the absence of such a declaration, therefore, the transfer decree cannot be issued.

However, it is believed that the transfer of the property can only be “delayed” in the absence of the filing of the form, and that such compliance cannot invalidate the purchase in the same way as the non-payment of the balance of the price, which, as is well known, produces the effect of the loss of the deposit and its forfeiture as a fine.

Article 587 c.1 of the Code of Civil Procedure has in fact not been affected by the reform and no consequences have in fact been envisaged for non-compliance with the anti-money laundering verification.

If the successful bidder refuses in full to fulfil this obligation, then it is obvious that the delegated professional will necessarily have to notify the enforcement judge who may order by non-complaint decree the revocation of the adjudication, the return of the deposit and the continuation of the procedure with a new sale under the same conditions as those for which the adjudication was then revoked.

In order not to incur obstructive delays in the transfer of the property, it would be necessary for the defaulting successful bidder to be ordered to pay the difference between the price he offered and the lower price for which the sale took place.

The new requirement could therefore produce more paralysing effects on the procedure than the requirements of simplification, speed and rationalisation of the civil process, which the legislator dictated in Law No. 206 of 26 November 2021.

Company Crisis: The importance of data

26/04/2023/in Corporate/by Sara Brogioni

With the entry into force of the Code for Business Crisis and Insolvency, the concept of business crisis has been revolutionised, moving from a previous system hinged essentially on satisfying creditors to a new approach that aims to safeguard business activity and business continuity, to allow all companies that have the capacity and possibility to remain on the market.

The new rules place particular emphasis on the fact that any company should be able to anticipate a possible state of crisis and intervene promptly to reorganise it, leaving de facto judicial liquidation as a last resort.

In new regulatory obligations

Article 3 of Legislative Decree 14/2019 (Adequacy of measures and arrangements in function of the timely detection of business crisis) requires the individual entrepreneur to adopt “appropriate measures to promptly detect the state of crisis and to take without delay the necessary initiatives to cope with it” and the collective entrepreneur to “establish an adequate organisational, administrative and accounting structure in accordance with Article 2086 of the Italian Civil Code, for the purpose of the timely detection of the state of crisis and the taking of appropriate initiatives“.

Article 2086 of the Civil Code has been amended to provide that ‘an entrepreneur operating in a corporate or collective form has the duty to establish an organisational, administrative and accounting structure appropriate to the nature and size of the business, also with a view to the timely detection of the business crisis and the loss of business continuity, and to take action without delay for the adoption and implementation of one of the instruments provided by the law for overcoming the crisis and recovering business continuity‘.

The managing bodies of companies and the entrepreneur in general, must therefore take care of the adequacy of the structures, and in particular, the board of directors is responsible for assessing this adequacy, while the auditors are responsible for supervising it.

According to the Court of Cagliari in its judgment no. 188/2021 of 19 January 2022, in which it sets out important guidelines for the verification of such inadequacy, the absence of an adequate organisational structure constitutes a serious irregularity that must be immediately rectified and may lead to the revocation of the administrative body and the appointment of a judicial administrator.

The aforementioned judgement is important in that it focuses attention on the fact that, since such arrangements are functional to prevent the company from facing a crisis, the breach of this obligation is more serious for a company in a situation of financial equilibrium, since it is precisely in such a physiological state that it is necessary to intervene in order to effectively prepare organisational, accounting and administrative measures aimed at intercepting the signs of crisis in a timely manner, thus enabling the company to take the appropriate initiatives.

It will therefore be necessary for every company to put in place a serious planning, programming and management control activity, as a component of the broader administrative-accounting system to meet this requirement. This activity is represented by a set of tools, processes and roles, aimed at favouring behaviours that are in line with the achievement of corporate objectives, facilitating the production of information necessary to make management choices.

The mere purchase of software and management software, if not updated with data entry in a timely manner, has no effect, nor does it cure any breach.

It will therefore be necessary to proceed with a careful analysis of the company, its structure in concrete terms, and on the basis of the concrete reality of the same, to intervene on the introduction of adequate administrative accounting structures, through the introduction of analytical and managerial accounting with ad hoc budget forecasts, production of interim economic, financial and equity situations, obtained starting from the accounting balances suitably integrated with the adjustment entries, to allow the evaluation of the company’s state of health at a given instant, and to allow the evaluation of the company’s continuity.

The core of this activity obviously lies in the data: the collection and availability of up-to-date data, both accounting and non-accounting, and making them available to an ‘interpreter’ in a timely manner, who can perform useful evaluations, is the true strength of a healthy business.

It is clear, therefore, that the subject of corporate crisis is also part of the so-called integrated compliance necessary for the successful operation of any business.

Integrated compliance is, in fact, the set of rules, procedures and organisational structures aimed at ensuring sound business conduct that is fair and consistent with objectives.

The Business Crisis and Insolvency Code, the Organisational and Management Model pursuant to Legislative Decree 231/2001, the legislation on the processing of personal data (so-called privacy) and the legislation on anti-money laundering, for example, are all disciplines designed with a view to prevention that must not only ‘coexist’ but ‘speak the same language’.

The correct collection of data and its proper management is therefore essential for every company.

Downloading pre-printed templates from the web or purchasing management software that is not maintained by anyone within the company will not prove that the company has adequate organisational arrangements and could lead to convictions, even heavy ones, for personal liability of the entrepreneur and directors, and obviously will not prevent a crisis from emerging.

While for large companies such an activity is economically viable, for small companies or the individual entrepreneur such a challenge proves to be arduous, as such an adjustment could cost in economic terms such outlays as to nullify the effort (and paradoxically trigger a crisis).

For small businesses, it will therefore be necessary to educate the entrepreneur by creating ad hoc measures with the available resources.

Can the use of artificial intelligence make up for the financial shortages of small companies? Is it possible to imagine integrated compliance simplification through blockchain technology?

What is certain, for the time being, is that the legislator does not keep pace with technological development and that the reconciliation of the different disciplines is increasingly left to the interpreters and lawyers, who must accompany the entrepreneur every step of the way.

Consumer Law within the Web3 space

22/02/2023/in Innovation/by Sara Brogioni

Legislative interventions in consumer protection lag far behind the reality of events that increasingly see web3 shopping, especially given the expansion of NFT purchasing.

The information obligations under the Consumer Code and European law require professionals providing goods or services to consumers to provide information to consumers in clear and comprehensible language, prior to the conclusion of the contract.

Fulfilling this obligation can be complex due to the innovative nature of these goods, and understanding for the consumer what he or she is really buying, without adequate prior information, could lead to an increasing number of disputes.

The European legislator adopted specific rules applicable to contracts for the supply of digital content with Directive (EU) 2019/771, which was transposed into Italian law by Legislative Decree No. 170/21 amending the Consumer Code.

The new discipline expressly deals with ‘goods with digital elements‘, i.e., those goods with a digital component without which they cannot function. The digital component may be internal to the good, incorporated, or external, interconnected, but in both cases it must be essential for the good itself, meaning that without this characteristic it would not be able to perform its functions.

In the specific context of the sale of digital goods, the new subjective and objective conformity requirements dictate that the characteristics of the digital content must correspond, respectively, to what is stipulated in the contract and to what can reasonably and objectively be expected from the digital content itself.

The European Directive also states that the seller must ensure that the consumer is provided with the updates, including security updates, necessary to keep these goods in conformity for the period of time that the consumer can reasonably expect, taking into account the type and purpose of the goods and digital elements, and the circumstances and nature of the contract.

The seller must therefore fulfil a strict obligation to provide information about available updates so as to be exempt from liability for lack of conformity in the event that the consumer, despite receiving information, does not provide the necessary updates or installations.

In the specific case of the purchase of NFT, non-conformity of the goods can be recognised when the content is not available or is altered.

On the other hand, doubts as to the non-conformity of the goods arise when the NFT does not exhibit the promised rarity characteristics; the scarcity of the NFT is in fact fundamental for the quantification of its value, and a degree of rarity significantly lower than that expected by the consumer could render the goods unfit for use and therefore not conforming according to the subjective requirements.

The contractual terms and conditions of sale of the NFT should therefore set out precisely what degree of rarity is to be guaranteed in the future for the NFT sold, and comply with the requirement of good faith and contractual transparency with regard to multiple other, often underestimated issues, such as, but not limited to, the possible consequences in the event of failure of the blockchain and the action for damages.

Another issue that will be decisive for the application of the protections provided by consumer protection legislation is to resolve, in NFT purchases, the status of consumer.

Article 3 of the Consumer Code defines a consumer or user as ‘a natural person acting for purposes which are outside his or her trade, business, craft or profession’.

In practice, however, we see an increasing use of NFT for advertising or marketing purposes, and the category of buyers is divided into occasional and ‘speculative’ or ‘collector’ buyers, who might not be considered consumers but rather ‘professionals’.

This first distinction will be the basis for the interpreters of the law for the application of many other issues that currently do not find practical application because the European consumer protection rules were designed for the conclusion of “traditional” contracts, not through smart contracts: think of the issue of the so-called unfair clauses and the impossibility of double signature of clauses required by Art. 1341 of the Italian Civil Code; or the so-called consumer forum, today it is difficult to establish the domicile of the consumer.so-called unfair clauses and the impossibility of the double signing of clauses required by Art. 1341 of the Civil Code; or the so-called consumer forum, to date it is difficult to establish the domicile of the buyer/consumer in the crypto world, precisely because of the anonymity that characterises blockchain environments.

The EU’s new Markets in Crypto-Assets Regulation (MiCA) may partly provide a solution, as it prohibits the anonymity of crypto-asset holders for admission to trading platforms, but NFTs will be excluded from the scope unless they fall under existing crypto-asset categories.

The European Commission will be tasked with preparing a comprehensive assessment and, if deemed necessary, a specific, proportionate and horizontal legislative proposal to create an NFT regime and address the emerging risks of this new market.

Purchase of NFT and right of withdrawal

Another crucial issue for consumer protection and web3 shopping concerns the right of withdrawal.

According to Directive 2011/83/EU on consumer rights, the consumer must be informed about the possibility and how to exercise the right of withdrawal, i.e. the right to withdraw from a distance contract within fourteen days, without having to provide any justification.

The smart contract under which an NFT is usually sold does not allow for the exercise of the right of withdrawal, as it is not possible to stop the execution for non-performance or in case of a change of heart.

The smart contract in fact uses the formula “if this/then that”, by virtue of which, upon the occurrence of a given event (this), certain effects are produced (that), which are predetermined by the parties themselves, based on strict instructions.

In application practice we therefore see numerous transactions with general contractual terms and conditions that explicitly exclude the right of withdrawal.

This exclusion is justified by making the NFT purchase hypothesis fall within the exceptions provided for in Article 59, letters a), b) i), m) and o) of Legislative Decree No. 206/2005 (Consumer Code).

In this respect, it is recalled that the right of withdrawal is excluded (sub-para. a) in service contracts after the service has been fully performed if performance has begun with the consumer’s express agreement and acceptance of the loss of the right of withdrawal following the full performance of the contract by the trader and (sub-para. b) where the price is linked to fluctuations in the financial market which the trader is unable to control and which may occur during the withdrawal period.

Furthermore, the right of withdrawal is excluded (sub-para. i) with respect to the supply of sealed audio or video recordings or sealed computer software which have been opened after delivery, or (sub-para. m) with respect to contracts concluded at a public auction.

Another exception (sub-para. o) is for the supply of digital content (such as NFT) by means of a non-material medium (such as a private key for an NFT or other NFT redemption code) if performance has begun and, if the contract imposes an obligation on the consumer to pay, if three cumulative conditions are fulfilled:

the consumer has given his prior express consent to commence the performance during the right of withdrawal period;
the consumer recognised that he thus lost his right of withdrawal;
the trader has provided confirmation of the conclusion of the contract in accordance with the terms of Directive 2011/83/EU for distance contracts.

A possible solution to allow consumers to exercise their right of cooling-off could be found in the new NFT standard, which would guarantee their purchases against scams (better known as ‘rug-pulls’) as well as the possibility to ask for a refund in case of withdrawal before the deadline.

The term ‘rug-pull’ refers to a type of scam that generally occurs when the developers of a project, after creating the cryptographic token, increase its value in order to attract as many investors as possible, and then withdraw all funds and abandon the fraudulent project.

When speaking of a standard for NFT instead, one is reminded that it refers to the unique identification of a token with respect to others of the same smart contract, called ‘ERC-721’, introduced, as is well known, in 2017, by Ethereum, as the first protocol for the creation of NFTs and to date the most widely used, representing a unique and infungible asset.

The publication of a new anti rug-pull standard, ERC-721R, officially released on 11 April 2022 and aimed, among other things, at countering fraudulent NFT projects, could give the user a right to reconsider their purchase and, thus, be refunded the price paid for the minted NFT.

In particular, this mechanism takes place through a lien on the deposit of the sums placed as collateral by the smart contract. These funds can only be withdrawn, by the creators, after the lapse of a period of time (such as the 14 days for the right of withdrawal in off-premises purchases) that allows buyers to return their NFT and receive a refund from the signed smart contract.

This new standard represents a possibility both in terms of openness towards innovative solutions concerning the user’s right to rethink and the consequent exercise of the right of withdrawal, and in terms of a guarantee against certain fraudulent practices: although the purchase of NFT is irreversible, if during this period the creators decide to rug-pull, buyers will be able to request a refund of their funds by the end of the waiting period, losing only the gas fees incurred for transaction costs.

The use of such a new protocol for the generation of NFTs, besides being more advantageous for buyers, as it would limit possible losses to only the fees for processing and validating transactions on the blockchain, presents a real opportunity for commercial service providers to promote their businesses also in the cryptocurrency world, creating trust in the market and attracting more investors.