Secured loans, why it is difficult for banks to recover credit

A matter of time. Bank financing covered by public guarantees may soon be the subject of considerable litigation. In fact, some banks - asked to finance the Italian entrepreneurial fabric during the pandemic - are facing difficulties when it comes to the admission of bankruptcy liabilities due to three different jurisprudential orientations that do not bode well for the future (most recently the Courts of Naples, Piacenza and Padua).

The SME Guarantee Fund, managed by Mediocredito Centrale (Mcc), was established in 1996 to facilitate access to bank credit through partial public guarantees on loans granted by financial intermediaries. The Fund has been in operation since 2000 and is now regulated by a complex set of regulations. Then, in 1998, Sace - originally established in 1977 as a special section of INA - was transformed into the Institute for Foreign Trade Insurance Services, with the task of issuing guarantees to domestic or foreign banks for loans granted to entities operating in Italy or to foreign counterparties.

With the Covid-19 emergency, the use of these guarantees was enhanced to facilitate SMEs' access to bank credit but, in recent years, following the subsequent judicial liquidation of some of these companies, the guarantor banks have been faced - when applying for admission to the bankruptcy estate - with three different jurisprudential approaches.

A first orientation sees some judges (Court of Naples, 5 February 2025) denying the admission to the liabilities of the bank credit, considering that the bank had granted the financing despite an erroneous or insufficient assessment of the company's creditworthiness. The argument is that the banks would have knowingly granted credit to unworthy parties, relying on public cover (Mcc or Sace). This conduct would integrate violation of criminal regulations (embezzlement or undue receipt of public funds) or, even, an external participation of the bank in the crime of simple bankruptcy or, in any case, violation of the rules on the sound and prudent management of a bank (Article 5 of the Tub). The consequence? Nullity of the contract for illegality of the cause and ineligibility for interest, expenses and commissions.

A second orientation sees other courts (Piacenza, 8 January 2025) adopt an even stricter line: the granting of credit to undeserving persons covered by a public guarantee would even violate public economic order and morality. According to Article 2035 of the Civil Code, this would entail not only the loss of interest and commissions, but also of the entire capital, with the bank prohibited from demanding its restitution.