Kitabı oku: «Claves del derecho de redes empresariales», sayfa 8
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 studies show that the way enterprises define a firm’s boundaries influences, among other aspects, their financial structure and financial choices, e.g. debt leverage236. Considering the “new boundaries of the firm”, well beyond the model of the vertically integrated structure towards outsourcing, collaboration contracts and strategic alliances237, the same type of analysis could be extended from the reality of stand-alone firms to the one of inter-firm networks. Then the question can be raised as to whether the existence of a network and its legal structure enable or prevent determined financial strategies.
The previous analysis shows that the potential for self-financing in networks does exist, although its material importance should be more carefully observed in practice and confronted with the analysis concerning networks’ structure and governance.
At the very least, based on the previous analysis, participation in networks could allow some pooling of financial resources or some inter-firm financing as a cooperative strategy based on trust and, sometimes, reciprocity enabling forms of cross financing. Co-financing among a network’s participants can allow for the accomplishment of projects that would not otherwise be affordable by each enterprise separately without a significant amount of debt leverage.
The described case in the construction sector (see par. 4.2) also shows that self-financing inside networks may be improved through an adequate network design both at the governance and asset levels. This can be observed in different ways in both contractual and organizational networks, provided that an explicit agreement and commitment to cooperate for the accomplishment of the common project is achieved among participants. In order to be more effectively enforceable by anyone, such agreement should take the form of a multi-party contract (due to regulate a merely contractual network or to establish a collective entity as an organizational network) rather than the form of a mere link between bilateral exchange contracts. Indeed, the multi-party contract allows parties to share objectives and modes of action and to commit to abide to common rules, enabling single participants or appointed bodies to stand for the collective interest.
From this perspective not only the first assumption (against network financing) but also the second (against contractual network financing) should be revisited. The advantages of a contractual setting for self-financing in networks could be valued.
As seen above, the multi-party contract could also oblige participants to financially contribute to the common project through the formation of “special purpose funds”. “Peer to peer” forms of internal monitoring could help to enforce such a commitment. Enforcement of contribution duties could be ensured through a more formalized assignment of monitoring powers to internal bodies in charge of controlling payments and sanctioning any possible breach. Indeed, the use of internal governance and monitoring mechanisms is compatible with mere contractual schemes and is becoming more and more common in collaboration contracts238. The Italian experience of network contracts shows that a participant’s exclusion from the network for lack of financial contribution is a very common sanction as provided by the contracts239.
The role of the network contract as a means to improve the efficiency of asset allocation among different projects should also be emphasized, though the practice is still quite poor in this respect: internal auctions or other comparative procedures as well as pre-defined processes for possible renegotiation and reallocation of resources among the projects at stake could be provided by the contract design, so limiting discretion of network managers and directors under these respects.
In the specific perspective of contribution duties, mere contractual networks could even show higher flexibility than organizational networks, especially if the law of corporations is taken into account. Indeed, once the corporate capital legislation is considered, limitations might be provided by the law as to individual financial contributions to the company240.
Conversely, the law of organizations (and corporate law in particular) shows higher potential with regard to a different type of rule that has been mentioned above, concerning the asset lock over special purpose funds241. Once financial contributions are pooled together, the effective use of these resources for the accomplishment of the common interest project depends on the level of fund partitioning, as allowed by the applicable law. As seen above, although differences exist among domestic legal systems, organizational law normally ensures both affirmative and defensive asset partitioning to a larger extent than contract law: preventing participants from diverting the pooled resources from their destination; preventing their individual creditors from seizing these goods; assigning seizing powers only to the creditors whose rights are connected with the fund’s purpose242. The possibility of attaining similar effects when the network is merely contractual depends on domestic legislation but is generally limited.
In a different way other types of “lock” on the network assets could be established on a contractual basis. Depending on applicable law, these measures might be enforceable among parties only, without being opposable against third parties. For example, parties could limit for a certain time the dissolution of joint property or could limit the participant’s right to recover his/her contribution in case of a withdrawal or exclusion, as is the case in many network contracts in the recent Italian experience.
6. CONTRACTUAL NETWORKS AND ACCESS TO BANK FINANCING
The previous analysis demonstrates a critical view on bank financing of inter-firm network projects. In fact, moving from the European legislation on credit institutions, the interdependence among network participants’ assets and activities represents a source of concern and higher risk of credit more than an element enhancing the economic perspectives of the financed project. The banks’ persistent focus on the applicant’s assets and guaranties more than on the characteristics of the project due to be financed, seems to currently reduce, rather than increase, opportunities for networks’ financing, especially in case of mere contractual networks.
Some banks interested in network projects financing are currently exploring a different view. This interest is being significantly stimulated by the new legislation on network contracts in Italy, as presented above.
More particularly, these banks are considering the possibility of adopting specific standards for a network’s rating within the “Internal Ratings Based Approach”243. Such an approach would imply a higher focus on the qualitative aspects of the project due to be financed, though in addition to ordinary quantitative measures normally used to assess credit merit. In this perspective banks would start to consider that “high quality networks” may improve participants’ financial rating and, consequently, credit conditions.
What could a “high quality network” be, however? Could a mere contractual network ever qualify as “high standard”?
Pursuant to one of the schemes proposed by a European bank to evaluate the credit merit of networks’ participants, the following elements, as provided by the network contract, would positively influence this evaluation: (i) the medium-long term of the project, consistently with the business plan; (ii) the general definition of the objectives; (iii) the general determination of the operational program; (iv) the specific determination of rules concerning relations among participants, consistently with the operational program; (v) the governance rules, including internal and external control; (vi) the accounting rules; (vii) the asset/contributions pooling, common fund, if consistent with the operational program; (viii) the asset safeguard and protection measures244.
This evaluation scheme would subscribe to the hypothesis according to which contractual design and internal governance of a partnership can reinforce trust in the relation between partners and third parties, including financiers. The quality of collaboration can indeed influence the parties’ capabilities to effectively accomplish the envisioned project, eventually increasing the common assets’ value and/or raising sufficient revenues to return capital and pay interests. For example, another very significant aspect is represented by the rules concerning entry and exit in the network contract, themselves influencing the stability of the business collaboration together with the feasibility of the network programme245. An adequate contractual network design could then help to align the financier’s and borrowers’ incentives to “invest” in the network project. Which type of contractual design and which governance rules would better pursue this scope is an issue that deserves further analysis and investigation, also at a practical level.
Additionally, law and economic literature also suggests that affirmative and defensive asset partitioning is due to enhance a firm’s ability to access (bank) credit246. Under this perspective, although the conventional tool to attain such partitioning is still the incorporation of the (firm or) network into an entity that is distinct from the one of each person participating into the (firm or) network, legal systems are evolving towards more flexible schemes of asset partitioning that do not require any establishment as an entity. After the latest development the case of the Italian network contract has followed this path. To what extent this model may be replicated in other contexts and legal systems depends on legal traditions and applicable domestic law247.
7. CONCLUDING REMARKS
Within the current economic crisis, networks may not represent a panacea, nor a sheet-anchor for enterprises in distress. They may however provide opportunities for enterprises willing to collaborate for the accomplishment of strategic programs direct to improve their innovation capability and competitiveness.
Among other obstacles, the difficulties in financing collaboration programs risk to undermine such opportunities, inducing enterprises to persist in their monadic approach to market.
A shift from personal financing to project financing is envisioned, so that the plurality of actors involved in the accomplishment of a project becomes a source of value rather than a mere lever for transaction costs in financial contracts.
Of course, this change cannot take place at the financial and credit market’s expenses through a shift of risk towards financiers. Such a change would be unrealistic at the present conditions.
Not only could networks develop internal financing strategies taking advantages of economy of scale and sharing already available resources within the network, but also external financing could be promoted through an adequate contractual design able to reinforce potential financiers’ trust through the establishment of internal monitoring structures, auditing procedures, accountancy rules, cross-guaranty mechanisms, reserve funds and the like.
The mere contractual form of a network would not represent an obstacle as such under these approaches, provided that the legislation was clear in defining the general legal framework in which inter-firm collaboration contracts could be drafted and, particularly, as far as financing is concerned, liability regimes should be determined in terms of both contractual liability and asset liability (responsabilità patrimoniale) as specifically regards asset partitioning effects.
The recent Italian experience of legislation on network contracts shows some potential in terms of contractual design and, at least partially and at a former level, in terms of a bank’s availability to engage in a process of experimental evaluation of credit merit within a network. More can be done in terms of development of planning and accounting rules to be applied to network activities and economic interaction among participants.
The European echo of this debate is still hard to perceive. European industrial policies are paying increasing attention to inter-firm networks248. By contrast, the present debate on European Contract Law is not yet adequately considering the importance of longterm, collaboration and network contracts249. As a result, some scholars are envisioning a path towards the definition of general principles on inter-firm networks as well as the study of model contracts250. What role, rights and duties should be reserved to financiers within these models? Should general principles state requirements and conditions under which networks can enjoy some level of asset partitioning and limited liability? To what extent would European intervention with regard to inter-firm networks induce any change in the Basel Accords approach towards risk concentration? Is there any room for a pro-active (rather than defensive) approach to networks in the international debate on merit credit standards? These are among the questions to which networks’ financing theory would still need to provide answers.
