Lezioni, International Law

INCORPORATION EFFECT!

- a corporation is a particular set of rules for the organizational of economic entities .!

- corporate assets are separated from: shareholders and stockholders (have the power of voting

stock) and directors (elected by shareholders, they supervise and guide the business activity on

behalf of shareholders)!

- corporation(def): was an important legal form which was more than a mere contractual

aggregation but which could not truly be equated with a natural person (in fact, cass. 8nov1984

e 24ott1995, explain this point)!

- only after registration, the corporation come to existence in the legal system (art.2331spa,

2462srl)!

- each national LoBO of EU member state must comply with the Freedom of Establishment(FE),

because this is one of four fundamental economic freedoms with the EU Internal Market: art.

49,TFEU(restriction on the FE are forbidden; to exercise any economic/professional activites

first established in one member state(origin) in another member state; to transfer such economic

activity therein)!

- different between natural and legal entity: natural(freedom to access and exercise an economic

business activity in the second member state), legal(company should be treated like a natural

person national of any of the EU member state if: (it was formed accordingly to the LoBO of any

of the EU member and it has its formal “seat” or its headquarter or its center of activity in the

EU). The european court of justice specified that the alternative criteria of the “formal seat”, the

central administrative office and the central of business operation will respectively determine the

connecting link with the legal system of a member state.!

- in Italy we use the art. 25 of 218/1995!

- if and when a company decides to move into a another member state, according to the FE, are

deemed to have also transferred their nationality, because are the different connecting links and

different transfer of corporate seat requirements and procedures, so the nationality would

change. if the company moves its real seat into another member state, the state of origin might

not longer recognize the company as a national company, just because it transferred its real

seat abroad!

- the corporation is an entity acting as a center of interest separate from its owners and/or its

managers!

- alternative idea of firm: firm is nexus of contracts because within the corporation the legal entity

character concurs in creating a single and direct “counterpart” for different set of

relationships(employee,banks,costumers,…)!

- equity investment: two goal (administrative rights:voting)vs(economic rights: dividends); the

investment is represented in the value of the stock or share received in exchange for money or

proprietary consideration!

LIMITED LIABILITY!

- limited liability is a default rule provided by LoBOs around the world, whereby the single

shareholders’ risk on the incorporated business is limited to the equity interest invested in the

corporation!

- that means that the corporate creditors can only have recourse against the assets of the

company for company’s debt = creditors of the corporation have no recourse against the

managers/shareholders assets for company debts!

- the rule of the limitation of liability may be regarded as the reverse rule of the entity shielding

doctrine: entity shielding rule-legal personality-(protects the corporate assets from the

aggression by the personal creditors of the shareholders, so that the corporate assets may

serve as a general security against the contractual liabilities), owner shielding rule-limitied

liability-(protects owners against corporate creditors: an individual shareholders’ creditors will

also benefit form this rule)!

- more flexible allocation of risk between equity-holders(owner) and debt-holders(creditors)!

- could create the opportunity for sharing the risk of the business venture among shareholders

and creditors, where the creditors are in better position to identify and/or bear those

risk(reduction of agency cost)!

- By shifting the business risk from shareholders personal assets to the corporation assets,

creditors will became more interesting in monitoring their management level, because their

management may lead the corporation to default on their debt-claim, without recourse on the

shareholders!

- Sometimes creditors are in better position to contract the monitoring/ Control Rights, than the

minority shareholders, but these is true only with reference to “voluntary creditors”, “involuntary

creditors” are always exposed to risk of insolvency of the corporation!

- Therefore the creditor’s protection issue is more important in corporate law than in partnership

law, since the latter is generally providing for unlimited of the partners.!

- in Italy, law has a special provision dealing with the protection of creditors against directors’

opportunism(art.2394),and for shareholders opportunism(art.2497,2476,..)!

ISDA!

- offers the great advantage of reducing considerably the risk eventuality of disputes arising out of

derivatives transactions!

- is the most commonly used master service agreement for OTC derivative transaction

internationally. The ISDA is published by the InternationalSwapsandDerivativesAssosiation.!

- the master agreement is a document between two parties that sets out standard terms that

apply to all the transactions entered into between those parties. Each time that a transaction is

entered, the terms of the master agreement do not need to be re-negotiated and apply

automatically. Once a master agreement is signed, the documentation of the future transactions

between parties is reduced to a brief confirmation of the material terms of transaction.!

- before the 2002 Agreement the parties used the 1992 Agreement e before that 1987 Agreement.

Each agreement was published by ISDA. The upgrade of the Agreement was made after some

international financial crisis.!

- the preprinted master agreement is never altered except to insert the names of the parties, but is

customized through use of the schedule to the master agreement, a document containing

elections, additions and amendments to the master agreement!

- together with the schedule, the master agreement sets forth all of the general terms and

conditions necessary to properly allocate the risks of the transactions between the parties but

does not contain any commercial terms specific to a particular transaction. Once the master

agreement is executed, the parties can enter into numerous transactions by agreeing to the

material commercial terms over the telephone as evidence by a written confirmation without any

need to revisit the underlying terms cottoned in the master agreement.!

- there are two versions of the master agreement: the local version for transactions between

parties in same jurisdiction who are transacting in only one currency, and the multi currency

version for use when parties are located in different jurisdictions !

- Section 5 of the ISDA master agreement contains the “Event of Default”and the “Termination

Event”. These are events which can lead to termination of transaction before their intended

maturity. The Events of Default can describe in summary as events for which a party is at fault,

such as a failure to perform under a transaction, breach of a representation or undertaking, and

insolvency. The Termination Events are other events which although no-one is at fault, warrant

the early termination of the transactions, such as a change in tax law resulting in taxes being

imposed on transactions, illegality, and a merger of apart resulting in deterioration in its credit

quality.!

- Confirmation: the evidence of the terms of the transaction is contained in a confirmation, usually

a short lettere, fax or email. the form of the confirmation is set out in the master agreement and

a limited period of time is usually allowed for objections or amendments to the confirmation after

its receipt Confirmation is very short and contain little more than dates,amounts and rates.

Confirmations are exchanges to minims the possibility of a dispute as to the terms of a

transaction occurring.!

- Definitions: ISDA ha produced a wide array of supporting materials for the master agreement,

including definition and user’s guide. This documentation is designed to prevent disputes and to

facilitate the consistent use and interpretation of the master agreement. !

- Netting: the master agreement permits the netting of payments due under the same transaction

so that a single amount is exchange between the parties, rather than numerous payment

involving the same transactions.!

- Default: you not have definition of default but of event of default, if the company doesn’t pay one

of his debt it’s an “unfulfilled” but not a “failure”, to remedy you have one “local business day” or

“deliver day”.!

BANK GUARANTEE!

- a seller might find it difficult to assess the buyer’s willingness and ability to pay, while the buyer

might not be sure that the seller genuinely intends to perform its side of contract or has

necessary financial and technical resources to do so. Just as the buyer needs protection against

non-performance, so the seller will want to minimize or insure against the risk of non-payment.

Documentary credits are generally used in such case.!

- the therm “bank guarantee” has no precise definition, particularly in international law. !

- the main difference between a bank guarantee and a documentary credit is that the latter also

functions as s means of payment.!

- we distinguish between the following different forms of bank guarantee: accessorial

obligations(surety bonds) and non-accessorial obligations(guarantee, promise to pay, standby

letters of credit)!

- in 1992 the International Chamber of Commerce(ICC) in Paris used new regulations titled “ICC

Uniform Rules for Demand Guarantees” in attempt to harmonize these different wordings and

customs!

- URDG458: the guarantees specify uniform practices for secreting payment and performance in

worldwide commercial contracts. The new rules cover all types of guarantee and other payment

undertakings under the terms of which the guarantor is obliges to make payment on

presentation of a written demand and any other documents specified in the guarantee.!

- Surety bonds: are governed in law by art.492 SCO(Swiss code of Obligation), the bond

becomes void if the underlying debt is extinguished for any reason(payment). In the event of a

claim, the guarantor must use all of the defenses against the creditor that are available to the

primary debtor, provided they do not relate to the latter’s insolvency. In the case of “simple

suretyship” the guarantor is obliged to make payment only if the primary debtor becomes

insolvent. This type is rare: surety bonds are used almost exclusively for secreting the claims of

domestic creditors.!

- Guarantees: create a non-accessorial abstract