Claves del derecho de redes empresariales. AAVV
under ordinary company law, partitioned assets are destined to the collective interest activity and not merely to the individual interests of the originating company. Pursuant to company law, partitioned assets enjoy both affirmative and (if not specifically opted out of) defensive partitioning (art. 2447-quinques, Italian Civil Code).
As regards this third model it should be acknowledged that, once introduced in Italy in 2003, this type of asset partitioning has been perceived as costly to administer and subsequently rarely used in ordinary company law, especially by small and medium-sized enterprises. For analogous reasons the prospective use in networks (and in networks of small and medium enterprises, particularly) seems quite limited.
In general terms, it is somewhat questionable whether this legislation on “network contract” has paid sufficient attention to a network’s finance and “asset governance”230. More recent reforms have not only clarified the effects of defensive asset partitioning when a common fund is established but they have also introduced some accounting requirements making reference to the legislation on companies limited by shares. In practice such reference is not sufficient. Indeed, accounting rules need to be tailored on the specific nature of the network activity and economic interaction among its participants. Parties may, at least partially, compensate these weaknesses by the means of self-restraints. They could contractually provide for duties to provide information, accounting procedures, reserve funds, the verifiability of value assessment as regards non-pecuniary contributions, etc. In fact, current practice is only limitedly opting for these solutions, as shown below.
By contrast, both legislation and contractual practice show relatively greater attention to contractual design in terms of the governance of decision-making processes, internal monitoring schemes, penalty measures, etc. It should be considered whether these practices might have an impact on asset management and financial opportunities for networks’ participants, also in terms of credit assessment.
Having considered some of the limits of the Italian legislation, attention should now be paid to current practices.
4.2. A case in the construction sector
The construction sector has been seriously impacted by the current crisis231. In this sector some network contracts have been concluded in order to cope with the present challenges, as illustrated by the following example.
A network contract has been signed by twelve Italian enterprises (mainly construction enterprises, project and engineering service providers, social cooperatives operating as social service suppliers) in order to set up a real estate fund whose financial instruments are offered to qualified investors. The project is mainly focused on investments in the sector of Social Housing. More specifically, the contract is aimed to govern the collaboration among the parties for the accomplishment of the Social Housing project. Particular attention is paid to the real estate management once (and if) assigned to the networks’ participants by the Fund Management Company (FMC).
In the network contract the parties agree to transfer some listed real estate property or building permits into the Real Estate Fund and to provide monetary contribution into the network contract common fund.
The envisaged opportunity consists of creating sound conditions for a prospective job assignment and for the access to a market in which the (former individually) owned assets and constructions can be sold232.
Such conditions would include not only a collaboration plan coordinating complex activities and defining procedures for costs, risks and revenue allocation, but also a governance structure aimed at reinforcing peer and hierarchical monitoring within the network. This could result in greater reliability of the network’s participants as perceived by the market.
From this perspective, attention can be paid to the contractual design including: the allocation of tasks among network’s participants; specific forms of monitoring over performance; control over compliance and sanctioning powers as assigned to a so called network governing body233; the provision of exit penalties; a contractual liability regime which, on the one side, assigns to the sole party in breach the liability for non-performance vis-à-vis clients and third parties in general and, on the other hand, imposes to all the parties a cooperation duty in the interest of the network. This cooperation duty would explain why, in the case of substantial breach by one enterprise, the other participants are enabled to intervene and take adequate measures to mitigate damages at the expense of the party in breach. Parties also commit to provide special guaranties to the FMC if requested.
In terms of asset structure, the contract provides for the establishment of a common fund due to be conferred into a New co. in one year’s time. The participation of financing enterprises is also foreseen: to these participants, if existing, a seat in the governing body is reserved.
Compared with other network contracts, the individual contribution into the fund is quite substantial and the exit penalty amounts to a sum that is five times greater than this initial contribution. This rule is more rigid than any other contractual “asset lock” preventing the return of individual contributions from the common fund in case of exit.
It is important to highlight that such a fund is not conceived as a means to finance individual activity that participants commit to perform within the network program. Indeed, the contract stipulates that each participant will provide these means separately from his/her contribution into the common fund. Rather, these resources will enable the New co., once created, to bear the risk of unsold assets, as established by the contract also in view of the prospective relation with the FMC.
In the landscape of the network contracts that have been concluded over the past years, the one described here above cannot be considered as representing the main current practice. Rather, in its complexity, it is quite unique. However, while looking at other examples of network contracts, some of the above-mentioned relevant aspects could be confirmed, particularly:
— Parties do rely on the common fund as a contributory means to accomplish the network project; however, the common fund is rarely considered as a sufficient financial resource for network-related investments; in many cases it is very limited and this choice is not always made for reasons concerning the low financial needs generated by the network program234;
— The contractual design of the network is also conceived as a way to ensure the greater reliability of the network with regard to the successful accomplishment of the program235;
— Allocation of risk is often very important (particularly the risk of default in the relation with third parties and sometimes, like in the described case, the risk of unsold assets/merchandise or the like): duties of collective insurance purchase may be provided as an alternative or a complementary solution; the use of the common fund as collateral for credit relations with third parties is sometimes enabled by the contract;
— A direct participation of banks and other financial institutions in the network contract is an emerging trend and increasing in the latest experiences.
These practices show some of the possible applications of the network contract as a means for defining, on the basis of a mutual commitment among participants, asset allocation and management governance. Both internal and external financing find some support in contract design: so, for example, as regards contribution duties, accounting duties, asset locks, internal screening and monitoring mechanisms to reduce the risk of individual and collective default. Minor attention is paid to inefficiencies concerning asset allocation and management in particular cases. For example, when the network programme includes a multi-projects plan, managers and directors are often vested with a discretionary power whose limits are rarely defined as regards possible tunneling from one project to another. Neither are risks and liabilities always easy to define. These seem to represent some of the challenges for the future, both for practitioners and for policy makers.
Though limited, the observation of the former practices allows to draw some conclusions on the virtues and drawbacks of contractual networks’ financing, as presented below.
5. INTERNAL FINANCING IN CONTRACTUAL AND ORGANIZATIONAL NETWORKS: WHICH PERSPECTIVES?
Law & Economics