Last June, the Italian Supreme Court ruled on the management and coordination activity pursuant to Article 2497 of the Italian Civil Code, stating that the Business Judgement Rule (BJR) applies.
In the specific case before the Italian Supreme Court, a State Administration – as majority shareholder – had been sentenced to pay compensation for the damage caused to two minority shareholders for the loss of value of the shares of a well-known joint-stock company; in particular, the claimants stated that the aforementioned State Administration “had supported” the line of the management program of the directors, approving the financial statements “in the absence of feasibility of the business plan”. It was therefore necessary to establish whether the exercise of voting rights in the shareholders’ meeting of the subsidiary, and in this case the vote to approve the financial statements for the year, integrates “ex se” the prerequisite to give rise to the liability of the aforementioned State Administration towards the other minority shareholders – as an independent legal entity placed in a dominant position with respect to the investee company – and also whether through this deliberative vote the Administration had actually abusively carried out the activity of “management and coordination”. On this point, the Italian Supreme Court first of all found that, even if the approval of the financial statements by the majority shareholder is deemed to constitute an “act of management”, for the purposes of establishing liability under Article 2497 of the Italian Civil Code, must be present the element of non-compliance of the management and coordination decisions with those which, in the actual situation, could and should have been made in accordance with economic and business management criteria. In that regard, it remains to be clarified which criteria are to be used in order to assess that ‘non-compliance’.
The Supreme Court, in addressing the issue, specifies that it is not possible to reduce the legislative intervention on liability under Article 2497 of the Italian Civil Code to a mere regulatory transposition of the pre-existing unlawful case of “abuse of voting rights” by the majority shareholder.
In fact, Article 2497 of the Civil Code outlined the functional typology of the management and coordination activity with regard to a set of complex inter-subjective relations, relying on three elements
- the operational purpose of the superordinate entity, which pursues the care of the interest of the entire group (i.e. the creation of new economic and patrimonial value through the organization of a system of businesses, which could not have been achieved individually);
- a model of structural-organizational relations which, although indefinable a priori, is characterized by placing the “management and coordination activity” at a decision-making level that is necessarily superordinate with respect to the realization of the “corporate interest” proper to each hetero-directed company, and is therefore externalized in interventions aimed at avoiding possible conflicts or overlapping between the entrepreneurial activities and business choices of the individual companies, as well as indicating the synergies necessary to pursue more ambitious market objectives;
- lastly, the continuous nature of the interference in the choices and organizational methods of the individual investee companies must be taken into account, since it must be a constant and effective power of direction, which cannot be limited to the mere conditioning of a single act of management of the investee or indirectly controlled company, or in merely occasional forms of interference, nor can it be reduced to the mere administration of the majority shareholding through the expression of the vote in the shareholders’ meeting.
In this respect – observes the Supreme Court – considering that there is no regulatory definition of the “principles of proper corporate and entrepreneurial management” referred to in Article 2497, paragraph 1, of the Italian Civil Code, we can only consider as applicable the good business management techniques summarized in the criterion of the Business Judgement Rule (see ruling no. 15470/2017 of the Italian Supreme Court ), by means of which it is possible to identify the limits beyond which the “managerial choice” made by the director cannot be deemed to comply with the measure of diligence required, having regard to the known or knowable circumstances. Such limits are to be identified in the “unreasonableness” of the economic transaction (detrimental to the company), such as to be deemed “wholly illogical” or made “in the absence of the normal precautions” and “in the absence of the verification of the necessary information” normally required for a business choice of that kind, as well as, in general, in the “lack of diligence” shown by the director in appreciating in advance and in depth the “margins of risk” associated with the transaction to be undertaken.
On this point, if the above-mentioned case law refers specifically to the “acts of management” reserved to the competence of the director, as the executive body of the company, it does not appear however doubtful – the Court observes – that the aforesaid criteria should be applied, by analogy – by virtue of the “continuum” that is established between the exercise of the powers of ” management and coordination” of the directors of the parent company and the management powers of the directors of the individual subsidiaries – also to the verification of the degree of “correctness” of the management activity carried out pursuant to Article 2497 of the Italian Civil Code.
On the basis of all the above considerations, the Court, in the case at hand, declared the inadmissibility of the proposed appeal, since the plaintiffs did not provide any indication or element aimed at proving the failure of the majority shareholder to comply with the correct management criteria, interpreted in light of the Business Judgement Rule.