The discipline of corporate bonds

We focus our attention on bonds issued by private companies, analyzing, in particular, the regulatory aspects envisaged by the civil code.

The basic legislation of the legal system on the discipline of bonds consists of the articles of the civil code from 2410 to 2420-ter, which regulate the issue of bonds by joint-stock companies. Spas, however, are not the only companies that can issue bonds: in addition to these are Sapa (limited partnerships for shares) and Srls (limited liability companies), the latter with greater limitations and constraints as they can only be placed between qualified investors.

Bank bonds deserve a separate discussion, the discipline of which is dictated by Article 12 of the Consolidated Banking Act (Legislative Decree 385/93), in partial derogation from the provisions of the Civil Code. In fact, among other provisions, it is envisaged that banks may issue bonds in any established form; the admissible company forms are the Spa and the Scarl (limited liability cooperative company).

A final caveat to watch out for is that we are talking about bonds in general and not just listed bonds.

The rigidity of the rules set by the legislator regarding this form of corporate financing is justified in ensuring that issuing companies maintain a certain degree of capital solidity and, consequently, in protecting lenders-investors.

The bonds must contain the following information:

  1. the name, object, and registered office of the company, with the indication of the business registration office at which the company is registered;
  2. the share capital and reserves existing at the time of issue;
  3. the date of the issue resolution and its entry in the register;
  4. the total amount of the issue, the nominal value of each security, the rights attributed with them, the yield or criteria for its determination and the method of payment and redemption, any subordination of the bondholders’ rights to those of other creditors of the company;
  5. any guarantees by which they are assisted;
  6. the date of repayment of the loan and the details of any prospectus.

Generally, the issue of bonds is approved by the directors and this resolution must be recorded in minutes drawn up by a notary and is filed and registered in the register of companies. As already stated on other occasions, bondholders are entitled to the repayment of the principal and interest; this right can be, in whole or in part, subordinated to the satisfaction of the rights of other creditors of the company; hence the possibility of issuing senior and junior bonds.

The timing and extent of the payment of interest may vary depending on objective parameters also relating to the economic performance of the company; this provision, therefore, allows the issuance of index-linked bonds.

The bonds can be registered or bearer and issued for a total sum not exceeding double the share capital, legal reserve, and available reserves resulting from the last approved financial statements of the issuing company. The statutory auditors certify compliance with the aforementioned limit, which, however, can be exceeded if the bonds issued in excess are intended for subscription by professional investors subject to prudential supervision. In the event of subsequent circulation of the bonds, whoever transfers them is liable for the solvency of the company vis-à-vis buyers who are not professional investors. Consider that what has just been described does not apply to the issue of bonds carried out by companies with shares listed on regulated markets,

The issue of bonds guaranteed by the first-degree mortgage on properties owned by the company, up to two-thirds of the value of the properties themselves, are not included in the calculation of the aforementioned limit, while the amounts relating to guarantees provided by the company for bonds issued by other companies, including foreign ones.

The legislator has also provided that when particular reasons affect the national economy or reasons that lead to the rescue of a certain company, the company can be authorized, using a government authority provision, to issue bonds for a sum greater than the amount normally envisaged, with observance of the limits, methods, and precautions established in the provision itself.