Enforcement and misapplication of the “simul stabunt simul cadent” clause

by Debora Amati | Apr 6, 2021 | Blog

Do you know what the “simul stabunt simul cadent” clause is?

Simul stabunt simul cadent” is a statutory clause according to which the loss of a director, for whatsoever reason, causes the lapse of the entire board of directors. The introduction of this clause in the by-laws, although no longer very frequent, is fully valid and effective, as case laws and notaries have repeatedly reminded.

 

What is “simul stabunt simul cadent” clause’s purpose?

The clause is aimed at pursuing legitimate and deserving purposes, such as keeping the internal balance of the board of directors constant, favoring its cohesion, since each director knows that the resignation of even one of them resolves in the forfeiture of the whole board and that he/she could, in the same way, contribute to that forfeiture, when in disagreement with the others.

 

Beware of misuse

The simul stabunt simul cadent clause, however, may be misused if, in violation of the general principle of good faith pursuant to art. 1375 of the Italian Civil Code, the resignation of one or more directors has been dictated solely or prevalently by the aim of eliminating undesirable members, in the absence of just cause, avoiding to pay the compensation provided for in the event of revocation without just cause. In this case, the result obtained indirectly, of ousting one or more directors without costs, may entail the obligation to compensate the members revoked without just cause.

 

How should the company behave in the event of a dispute?

Recent rulings of the Court of Milan have specified that the proof of the abuse of the clause lies with the former director who takes legal action. The pretextual and abusive use of this clause requires, indeed, a strict demonstration of others directors’ misconduct.

In fact, the Court of Milan states that it is not sufficient to refer to the absence of reasons for the resignation, since it is a largely discretionary act. In fact, the Court points out that the acceptance of the office entails the implicit adherence to all the statutory clauses and, consequently, the acceptance of the possible forfeiture of the entire board of directors if one of its members is missing.

Therefore, in the event of a possible dispute, the burden of proof will be entirely on the former director while the company will defend itself by demonstrating that the clause was exercised in good faith and accordingly with the by-laws.

 

How to act preventively?

A possible solution could be to insert clauses in the by-laws regulating the revocation of directors.

    Move your business forward.
    Choose LPD as your trusted Advisor.