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by Federico Capella | May 17, 2023 | newsletter

Creditors dissatisfied with an extinct company: action against shareholders limited to their distributed share

According to well-established jurisprudence, if a creditor of a company remains dissatisfied in an action against the debtor company that has become extinct, they are authorized to continue the action against the shareholder, limited to the amount received following the liquidation. Furthermore, the action of the creditor against the liquidator is not excluded if the non-payment was due to the liquidator’s fault. In such a case, the claim must be filed within one year from the cancellation and must be notified at the last registered office of the company. The jurisprudence states that the extinction of the company results in a succession phenomenon that does not extinguish the obligation, and that the obligation is transferred to the shareholders, who are liable up to the amount received from the liquidation (or unlimited liability if it is a dissolved partnership), as assets and rights not included in the final liquidation balance sheet are transferred to the shareholders in a joint ownership or undivided co-ownership regime. For shareholders to be obliged to respond to the unsatisfied creditor, the creditor must prove the distribution of the assets to the shareholders based on the final liquidation balance sheet. Shareholders, in turn, can provide evidence of any extinguishing effects of the debt.

Perpetual bonds of joint-stock companies: no quantitative limits

According to a recent notarial approach, it is lawful for joint-stock companies to issue perpetual hybrid subordinated bonds. These are bond instruments intended to be repaid only when the company is dissolved and have a possible periodic remuneration. These bonds do not grant administrative rights (i.e., they do not entitle bondholders to participate in the company’s affairs, providing only voting rights at the bondholders’ meeting, so they do not need to be convened to a general meeting). They are also bonds that can only be repaid if the company, for any reason, must be dissolved or subjected to insolvency proceedings. They are subordinate bonds in terms of capital and interest repayment, as ordinary bondholders must be paid preferentially. According to the aforementioned approach, the issuance of perpetual bonds primarily strengthens the company’s capital structure without significantly affecting the debt-to-equity ratio. These bonds are not considered as liabilities on the company’s balance sheet but are classified as equity. Consequently, the company is not required to comply with the limits set out in Article 2412 of the Civil Code, also because the amount of the perpetual bond reserve (which must be constituted at the time of issuance) can be eroded in the event of losses suffered by the company.

Transfer of shareholdings and price adjustment clause

In the contract for the transfer of shareholdings, a clause that provides for the adjustment of the price based on subsequent liabilities of the target company, identified before the completion of the agreement, is valid. According to jurisprudence, the price adjustment clause for subsequent liabilities serves to neutralize the negative impact of acts or events occurring prior to the change in the corporate structure, thus protecting the buyer regarding potential liabilities unknown at the time of contract completion, whose constitutive facts have already occurred but whose consequences are not yet perceptible. Specifically, two types of clauses can be distinguished: a) price adjustment clauses, which operate when the contract temporarily determines the transfer price of the shareholdings, allowing for the final determination at a later date based on an updated financial, accounting, or income situation of the company as of the closing date; b) indemnity clauses, whereby the transferor undertakes to indemnify the transferee, after the transfer has taken place, for any decrease in the value of the transferred shareholdings, whose price was definitively determined in the contract. The two types of clauses have different effects: while in the first case they impact the price (both positively and negatively), in the second case, an obligation is triggered only for the seller, aiming to rebalance the corresponding performances under the share transfer contract.


Inadequate corporate structures: risk of reporting to the Court and removal from office for directors

Structuring a company with adequate organizational, accounting, and administrative arrangements by directors, which constitutes a specific duty under Article 2086(2) of the Civil Code, prevents this from being a serious managerial irregularity, which may be reported to the Court under Article 2409 of the Civil Code (an approach also confirmed by recent rulings that apply the aforementioned provision even in the case of a limited liability company). Following a report under this provision, the Court may order a judicial inspection to verify whether the organizational and accounting structure of the company allows for proper management in relation to its operations. In case of a negative assessment by the inspector, the removal of the director and the initiation of liability proceedings against them may be ordered, without preventing the obligation to prepare a new financial statement if the acquired elements raise a well-founded suspicion of “current” serious irregularities that could prejudice the company. In this latter case, the court has the power to convene the general meeting to take appropriate temporary measures. It should be noted that conscious, systematic, and repeated falsification of inventory records constitutes a violation of management duties in itself. In relation to this, the absence of an obligation to keep inventory records does not justify or legitimize the irregularity of those adopted optionally. The general principles of orderly accounting, as provided in Article 2219 of the Civil Code, must still be applied, requiring all records to be kept in accordance with these principles, providing a clear, complete, and truthful representation of the company’s financial position.

LDP remains at your disposal for any further information or in-depth analysis of the topics discussed above.


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