21 May 2019
The Legislative Decree n. 14/2019, which introduces the new business crisis and insolvency code, significantly changes certain rules of the civil code within the corporate governance sphere which came into effect on 16 March 2019. Below are the major innovations.
I. The new duties and obligations of company’s directors
From March 16 2019 and pursuant to the new text of art. 2086 of the Civil Code, the directors of all types of business that act as corporations or in collective form, (i.e. sole proprietorships, joint-stock and limited liability companies) will have to take the necessary steps to adopt an organizational, administrative and accounting structure that is adequate for the nature and dimensions of the company. These structures must also allow for the prompt detection of a crisis and the loss of the on-going business continuity as well as to activate themselves without delay to adopt and implement those instruments provided by the regulations to overcome the state of crisis and restore the going concern (in particular the composition procedure assisted by the “Osservatorio Crisi e Risanamento delle Imprese” and the other insolvency instruments in second instance).
II. New liability of the Directors of a s.r.l.
The new fifth paragraph of the art. 2476 cc reproduces the entire art. 2394 of the Italian Civil Code, which already regulates the liability of the directors of a joint-stock corporation (s.p.a.), but now extends this liability to the directors of the limited liability company (s.r.l.) specifically " the directors are liable towards the company’s creditors for failure to comply with the obligations inherent to the preservation of the integrity of the company's assets. The cause of action can be proposed by the creditors when the corporation’s assets are insufficient to satisfy their claims. The waiver of the action by the company does not prevent the exercise of the cause of action by its creditors. The transaction can be challenged by the company’s creditors with a revocatory action when the required grounds are present”.
III. Shareholders’ complaint for violations of the directors' duties
The new last paragraph of art. 2477 of the Italian Civil Code extends to the s.r.l., even if lacking an auditor/control body, the possibility for the shareholders pursuant to art. 2409 of the Italian Civil Code (already provided for the s.p.a.) to report to the Court any serious management irregularities incurred by the directors in violation of their duties.
IV. Amount of damages deriving from responsibility of the directors of the corporations
Article. 2486 of the Italian Civil Code, has added a new second paragraph which governs the quantification of the damages derived from the responsibility of the directors of corporations. This article stipulates that when the directors are found to be responsible, the indemnifiable damages are presumed to be, unless proven otherwise, equal to the difference between shareholders’ net equity on the date the director ceases from his office (or at the date of the insolvency proceeding filing), , and the shareholder’s equity calculated on the date the cause for dissolution arises as per art. 2484 of the Italian Civil Code. The final damage amount will be calculated, after deducting the costs already sustained and to be sustained, according to a criterion of normality, after the occurrence of the cause of dissolution and until the completion of the liquidation (winding-up). If an insolvency procedure has been opened and the accounting records are unreliable or missing, the damage may be based on the difference (deficit) between the assets and liabilities of the insolvency estate.
V. The obligation to appoint statutory auditors or independent auditors for small and medium-sized companies
The new second paragraph of the art. 2477 cc, expanding the range of limited liability companies (s.r.l.) required to appoint boards of statutory auditors or independent auditors, provides for compulsory appointment of a control body if the company:
a) is required to prepare consolidated financial statements;
b) controls a company required to legally audit the accounting;
c) if they have exceeded at least one of the following limits for two consecutive financial years: 1) total balance sheet assets: 2 million EUR; 2) revenues from sales and services: 2 million EUR; 3) an average of 10 employees during the financial year.
In this way very small thresholds triggering the mandatory appointment are introduced in c with respect to the previous text but the obligation ceases when none of those limits have been exceeded for three consecutive accounting periods.
Moreover, art. 2477 of the Italian Civil Code, also stipulates that in the event that no board of statutory auditors or the independent auditors is appointed by the shareholders' meeting, the Courts will do so upon application by any interested party or upon request of the registrar of the Companies’ Register Office.
The already existing s.r.l.s that meet the above stated parameters as of the date of entry into force of the new rules, must appoint, within a nine month period from 16 March 2019, a board of statutory auditors and/or independent auditors, when required, and to amend accordingly their articles of association or by-laws, if necessary.
VI. The new duties of control of the statutory auditors and the independent auditors
The statutory auditors and the independent auditors, each within the scope of their functions, have the obligation to verify the directors’ continuous effort to asses, while taking the necessary steps and apposite initiatives, the suitability of the company’s organizational structure, the subsistence of a financial and economic stability and the foreseeable management performance.
The above individuals have the duty to immediately report to the directors the presence of any reasonable evidence of a state of crisis. This notice must be done in writing by means to ensure proof of receipt and shall establish a reasonable period, not exceeding 30 days, within which the directors must report on the proposed solutions and initiatives taken. In case of failure or inadequate response, or the failure to adopt, within the following 60 days, the measures deemed necessary to overcome the state of crisis, the statutory auditors and the independent auditors shall promptly report to an ad hoc crisis composition body (Osservatorio Crisi e Risanamento delle Imprese”), providing each and every useful element for the relative determinations, also in derogation from their obligation to secrecy pursuant to art. 2407 cc.
Timely reporting by the statutory auditors and the independent auditors to the directors constitutes grounds from exemption of their joint and several liability for the detrimental consequences from the director’ actions or omissions which are not a direct result of actions/decisions taken before the reporting. However, the aforementioned reporting does not constitute grounds for the dismissal for just cause of the statutory auditors and independent auditors from their appointment.
Finally, the new crisis code grants the statutory auditors the power, until now excluded, to request the judicial liquidation of either a s.r.l. or s.p.a.
For more information contact Francesca Bertinetti e: email@example.com or Arianna Leonardelli e: firstname.lastname@example.org at SCF Studio Legale