The New Italian Law on Merger Leveraged Buy-Outs: A Law and Economics Perspective

Abstract

Leveraged buy-outs (‘LBOs’) are often perceived as an indirect and fraudulent instance of financial assistance and, as such, are not immune to the ban imposed by Article 23 of Directive 77/91/EEC. In several LBO cases, Italian courts have enforced this type of financial assistance prohibition under Article 2358 Cod. civ. This treatment still largely applies to those leveraged transactions that lie outside the scope of the recently enacted Article 2501 bis Cod. civ., which de facto legitimises merger leveraged buy-outs (‘MLBOs’) subject to the fulfilment of additional information disclosure requirements. In this respect, Italian LBO regulation is broadly similar to that of other European countries. In contrast, US law, which largely relies on fraudulent conveyance statutes, stands at the opposite end of the spectrum. American courts acknowledge the social utility of LBOs and are reluctant to take a negative prejudicial stance against this acquisition method. The US legal treatment draws an ex post distinction between ‘illegal’ and ‘legal’ LBOs on the basis of whether or not such transfers are intentionally fraudulent.