The Order of the Court of Cassation No. 27283 of October 2, 2024: A New Decision on a Perennially Sensitive Issue
The decision under review was issued by the First Civil Section of the Italian Court of Cassation in response to an appeal filed against a 2019 ruling by the Court of Appeal of Rome. With a clear and precise order, the Court revisited several fundamental legal principles relevant to the dispute, including shareholders’ agreements, so-called “put” options, and the (absolute) prohibition under Italian law of the so-called “patto leonino” (leonine agreement).
Drawing on prior case law aligned with the specifics of this case, the Court of Cassation ultimately concluded that the shareholders’ agreement in question did not violate the prohibition on patto leonino. Accordingly, the Court rejected the appellant’s claims.
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Shareholders’ Agreements, the So-Called “Put” Option, and the Prohibition of Patto Leonino: A Comparison of Three Legal Constructs
Shareholders’ Agreements
Shareholders’ agreements are contracts typically entered into by the shareholders of a company (though potentially also involving third parties) to regulate the behavior of the contracting parties throughout the company’s lifecycle. These agreements can cover a variety of issues, such as corporate governance, rules for transferring shares, and provisions governing exit strategies. Complementary to the statutory corporate framework, they establish binding legal obligations among the contracting parties and contribute to stabilizing relations among shareholders.
The “Put” Option
The “put” option constitutes a genuine option contract under Article 1331 of the Italian Civil Code. It grants one party the discretionary right (but not the obligation) to sell their shares in the company at a predetermined price. Through this mechanism, a shareholder retains the ability to divest their stake in the company. The “put” option typically stands in contrast to the “call” option, which gives a party the right to acquire another party’s shares.
The Patto Leonino
The patto leonino refers to an agreement whereby a shareholder is excluded from participating in the company’s profits or losses. Under Article 2265 of the Italian Civil Code, such agreements are deemed invalid, as they contravene the principle of equality among shareholders. Specifically, Article 2265 declares null and void any agreement “that excludes one or more shareholders from all participation in profits or losses.”
The Case and the Court’s Reasoning
In its ruling, the Court of Cassation began by providing a concise overview of shareholders’ agreements, emphasizing that their validity is now explicitly recognized under Article 2341-bis of the Civil Code. The Court then referred to a prior decision by its Third Civil Section (Judgment No. 763 of 2016), reaffirming the principle that a “put” option may qualify as part of a shareholders’ agreement if its ultimate purpose is to stabilize the participation of one party in the company’s capital. As such, the coexistence of these two legal constructs is entirely permissible and does not necessarily result in a violation of the prohibition on patto leonino.
The Court further clarified that a shareholders’ agreement containing a “put” option, designed to allow the exercising party to realize the value of their stake at a predetermined price, can be considered valid and deserving of legal protection.
The appellant’s argument that the contested shareholders’ agreement (which included a “put” option) should be deemed invalid due to a violation of the prohibition on patto leonino was found unsubstantiated by the Court. Referring to its prior ruling in Case No. 25594/2023, the Court reiterated that the defining characteristic of a patto leonino is the absolute and constant exclusion of a shareholder from participation in losses. In this instance, the absolute and constant nature of such exclusion was absent, leading the Court to conclude that the contested agreement did not violate the prohibition on patto leonino.
Final Considerations
This decision aligns with a body of case law previously established by both the Court of Cassation and lower courts. For instance, in a recent decision, the Court of Cassation stated:
“The legal mechanism of options is not limited to financial derivatives in the stock exchange context; shareholders’ agreements may also contain option clauses, limited to the shareholders of a company, one of whom acts as a financial investor protected by the agreement in question” (Cassation, Civil Section I, October 7, 2021, No. 27227).
Similarly, the Court of Rome has ruled:
“A ‘put’ option on corporate shares contained in a shareholders’ agreement does not contravene the prohibition on patto leonino, provided that the entire operation demonstrates reciprocal consideration. For the financial investor holding the option, the agreement guarantees the right to an exit through the (re)sale of the stake” (Rome Court, Specialized Business Section, October 16, 2022).
Order No. 27283 of October 2, 2024, thus provides further clarification on the delicate interplay between “put” options and the prohibition on patto leonino within the broader framework of shareholders’ agreements. It reinforces a consistent position already embraced by both the Supreme Court and lower courts.
