ILN: ESTABLISHING A BUSINESS ENTITY: AN INTERNATIONAL GUIDE

[ESTABLISHING A BUSINESS ENTITY IN ITALY] 274

and direction is presumed to be exercised towards those companies subject to consolidation in the balance sheet of another company or subject to the control of another company pursuant to the definition of “control” indicated by the Italian Civil Code. Accordingly, a similar presumption of law applies when the actual direction and coordination of companies is exercised by virtue of specific contractual provisions among companies (i.e., commercial contracts, shareholders agreements), as well as clauses that are in the respective articles of association. The approach of the legislator has been practical. Instead of construing a fixed definition of group of companies, it has taken into consideration the most typical effects connected to the coordination and direction of one company over another and has left to the case law and the scholars the task of interpreting and updating from time to time the actual definition of such activity. At the same time, the new provisions of law have had the merit to finally recognize the definition of groups and to finally confirm that the activity of coordination and direction is lawful so long as it is practiced properly. Prior to the Reform, the legality of such practice was highly debated among Italian scholars and case law. It should be noted that the new provisions of law have restricted and sanctioned only any possible abuse of such activity, providing a specific duty for the directors of the coordinated company to supervise and control the proper conduct of such practice. Specifically, the Italian Civil Code now provides, inter alia, for: (i) a specific liability of the coordinating company; (ii) the introduction of a specific “duty of transparency” for the coordinated companies; (iii) specific cases in which the

shareholders of the coordinated companies are entitled to withdraw from such companies; and (iv) new dispositions concerning the practice of shareholders’ financing. 3.2.1 Liability of the Co-Coordinating Company The coordinating company may be held liable vis-à-vis the (minority) shareholders or the creditors of the coordinated companies whenever: (i) the coordinating company, while exercising the activity of direction and coordination, acts in its own interests and in violation of any criteria of correct and proper management; and (ii) such acts cause damages to the value of the shareholding of the coordinated company or to its profitability, or otherwise cause damage to the integrity of the equity and of the overall assets of the coordinated company representing the main guarantee for such company's creditors. The aforementioned liability is excluded when: (i) said acts, and the prejudices caused to the single coordinated company, are outweighed by the overall practical advantages arising from such acts in favor of the entire group of companies; (ii) the damages to the shareholders or the creditors of the coordinated company are fully eliminated by the coordinating company, by means of instruments or measures adopted with this specific purpose (e.g. cash injections in the coordinated company for an amount equal to the - presumed - damage only in order to exclude the aforementioned liability). The importance of the above provisions may be better appreciated considering that, in the event that the coordinating company is found liable according to the above, such

ILN Corporate Group – Establishing a Business Entity Series

Made with FlippingBook Ebook Creator