In the past, the legal consequences of the activity of direction and coordination exercised by a holding company vis-à-vis its subsidiaries have not been disciplined in the Italian civil code ("CC"). Rather, such legal consequences have been the subject matter of special laws, as well as elaborations of case law and commentators.
This hole in the CC has been recently filled by the Legislative Decree no. 6 of January 17, 2003 (the "Decree"), which will come into force on January 1, 2004, heavily reforming the Italian corporate law system. In fact the Decree, by adding new Articles 2497 et seq. to the CC, introduces a general legal discipline of the concept of "direction and coordination of companies." Article 2497-sexies CC provides for a legal presumption (unless proved otherwise) that the direction and coordination of companies is exercised by those companies which are under the obligation to consolidate their financial statements1 or which control other companies pursuant to Article 2359 CC (see below). Also, a company may direct and coordinate other companies on the basis of contracts or clauses of their by-laws.
Direction And Coordination Of Companies
1.1 New Article 2497 CC provides that the company (the "Directing Company") that, when directing and coordinating other companies (the "Directed Companies"), acts in its or others' interest in violation of the principles of fair corporate and business management of the Directed Companies, shall be directly responsible to (i) the shareholders of the Directed Companies for the prejudice caused to the remunerability and value of their shareholding and (ii) the creditors of the Directed Companies for the prejudice caused to the integrity of their assets. However, such direct liability shall not exist when the damage to the Directed Companies (x) does not exist in light of the entire result of the activity of direction and coordination performed by the Directing Company or (y) is entirely eliminated also further to actions having specifically such purpose.
No specific definition of "(un)fair corporate and business management" is provided by the law. It is, therefore, difficult to predict, at this stage, how courts may interpret it and to which extent they will adopt and apply the global approach described above.
Furthermore, pursuant to new Article 2497 CC, not only the Directing Company can be held liable for the above described misconduct, but also, and jointly with it, any person or entity having participated in the unfair conduct of the Directing Company or having had any advantage or profit in relation thereto, in this latter case within the limits of such advantage or profit.
The shareholder and the creditor of a Directed Company may act against the Directing Company to the extent that they have not been compensated by the Directed Company. In case the Directed Company is subject to an insolvency proceeding, the rights of its creditors are vested with the trustee.
1.2 A specific publicity regime has been set forth by the Decree in order to let third parties be aware of the existence of Directing Companies and Directed Companies.
Article 2497-bis CC provides that the Directed Company has to indicate its subjection to the direction and coordination activity of the Directing Company in its records and correspondence. Both the Directing Companies and the Directed Companies shall register themselves with specific registers kept by the Registers of Enterprises. Directors who do not comply with these rules are liable for the damages that the failure of knowledge of such facts may have caused to shareholders or third parties.
Furthermore, the Directed Company must include in a specific section of its financial statements a summary of the essential data of the lastly approved financial statements of the Directing Company.
Finally, the directors of the Directed Company must indicate in their annual report the relationships with the Directing Company and with the other Directed Companies, as well as the consequences that such relationships produced on the exercise of the activity of the Directed Company and on its economic results.
1.3 In addition to the above, pursuant to Article 2497-ter CC, the decisions of the Directed Companies, when influenced by the Directing Company, must be analytically motivated and must contain precise indication of the reasons and interests whose evaluation had an impact on the decision. The above must be adequately described in the annual report of the directors.
1.4 Article 2497-quater CC provides that the shareholder of a Directed Company may withdraw from it when the Directing Company has resolved upon the modification of its corporate purpose, consenting the carrying out of activities which may alter directly and significantly the economic situation and the condition of assets of the Directed Company.
Furthermore, the shareholder of a Directed Company may withdraw from it when an executive judgment has been issued in its favor ascertaining the liability of the Directing Company for unfair corporate and business management of the Directed Company (see paragraph 1.1 above). In this case, the withdrawal right may be exercised only with respect to the entire shareholding held by the shareholder.
Finally, a shareholder of a Directed Company may withdraw from it (provided that it is not a listed Directed Company) at the beginning and at the end of the activity of direction and coordination, when such beginning or end triggers an alteration of the risk conditions of the investment and no public tender offer has been launched.
1.5 Article 2497-quinquies CC provides that the reimbursement by a Directed Company of the Directing Company' loans shall be subordinated to the other creditors' satisfaction and, if occurred during the year preceding the declaration of bankruptcy of the Directed Company, shall be returned to it. For purposes of this provision, by "loans" it is meant those loans granted by the Directing Company to the Directed Company when, also taking into account the type of activity of the Directed Company, (i) it turns out an excessive imbalance between the debts of the Directed Company and its net worth or (ii) the Directed Company is in a financial situation where a capital contribution (and not a loan) would have been reasonable.
2.1 As already mentioned, there is a legal presumption (unless proved otherwise) that the direction and coordination of companies is exercised, inter alia, by those companies which control them pursuant to Article 2359 CC. It is therefore important to briefly describe the contents of this and its related provisions.
2.2 Article 2359 CC contains a definition of controlled companies, which are: (i) those companies where another company has the majority of the votes exercisable in the ordinary shareholders' meeting; (ii) those companies where another company has votes sufficient to exercise a dominant influence in the ordinary shareholders' meeting; (iii) those companies which are under a dominant influence of another company due to particular contractual links with the same. For purposes of items (i) and (ii) above, the votes exercisable by controlled companies, fiduciary companies and intermediaries are also computed, while votes exercised on behalf of third parties are not.
2.3 The controlled company cannot subscribe shares of the controlling company. The shares subscribed in violation of such provision shall be meant as subscribed by the directors, and shall be paid-in by them, unless they prove not to have acted negligently.
Companies are prohibited from creating or increasing their capital through reciprocal subscription of shares, also through fiduciary company or intermediary.
2.4 The controlled company can purchase shares of the controlling company only (a) if the shares are entirely paid-in and (b) within the limits of the distributable profits and of the available reserves, as they result from the lastly approved financial statements. The purchase must be approved by the shareholder's meeting. In no case may the nominal value of the purchased shares exceed ten percent of the capital of the controlling company, taking into account for such purpose the shares owned by the same controlling company and its controlled companies.
The controlled company shall not exercise its voting rights in the shareholders' meetings of the controlling company.
The provisions of law described in this paragraph 2.4 apply also to purchases of shares of the controlling company made by the controlled company through fiduciary companies or intermediaries. On the other hand, they shall not apply when the purchase of the shares occurs on a gratuitous basis (to the extent the shares are fully paid-in), or as an effect of merger or demerger, or in occasion of an execution proceeding to satisfy a credit of the controlled company (to the extent the shares are fully paid-in).
2.5 Shares of the controlling company purchased by its controlled company in violation of the provisions of law described in the preceding paragraph 2.4 shall be sold pursuant to modalities to be determined by the shareholders' meeting of the latter company within one year from the purchase. Should the shareholders' meeting of the controlled company fail to do so, the controlling company shall with no delay annul the shares and proceed with the correspondent reduction of its corporate capital.
It is finally interesting to mention the new regime set forth by the Decree with respect to the liability of the sole shareholder of a limited liability company (società per azioni or società a responsabilità limitata). New Articles 2325 and 2462 CC provide that in case of insolvency of a company, the sole shareholder is personally liable when (i) the contributions to the company have not been effected in compliance with the law and (ii) the publicity requirements set out by the law have not been complied with. However, the sole shareholder's personal liability is limited only to the period in which the company was actually owned exclusively by it (and, therefore, it does not extend to obligations arisen before or after that period of time).
As to publicity requirements, the directors of a company which is controlled by a sole shareholder have to file with the Register of Enterprises a statement for the registration containing the indication of the first and last name (or the corporate name), the date and place of birth (or incorporation), the domicile (or registered offices) and nationality of the sole shareholder. Whenever the company ceases to be controlled by a sole shareholder, a relevant statement has also to be filed with the Register of Enterprises. The sole shareholder as well may take care of the mentioned publicity requirements.1 With respect to the obligation to prepare consolidated financial statements, Articles 25 and 26 of the Legislative Decree no. 127 of April 9, 1991 provide that consolidated financial statements are due when (i) a company owns the majority of the voting rights exercisable in the ordinary shareholders' meetings of another company; (ii) the company owns voting rights sufficient to exercise a dominant influence in the ordinary shareholders' meetings of another company; (iii) the company is entitled to exercise a dominant influence on another company, due to a contract or a clause of their by-laws or (iv) the company controls the majority of the voting rights of another company due to agreements with other shareholders.
Published January 1, 2004.