Italy – capital increases: a new rule complicates the position of minority shareholders

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Summary: Article 44 of Decree Law No. 76 of July 16, 2020 (the so-called “Simplifications Decree“) provides that, until April 30, 2021, certain capital increases by joint stock companies (società per azioni) and limited partnerships by shares (società in accomandita per azioni) may be approved with the favorable vote of the majority of the share capital represented at the shareholders’ meeting, even if the bylaws establish higher majorities.


The rule has a significant impact on the position of minority shareholders (and investors) of unlisted Italian companies, the protection of which is frequently entrusted (also) to bylaws clauses establishing qualified majorities for the approval of capital increases.

After describing the new rule, some considerations will be made on the consequences and possible safeguards for minority shareholders, limited to unlisted companies.

Simplifications Decree: the reduction of majorities for the approval of capital increases in Italian joint stock companies and limited partnerships by shares

Article 44 of Decree Law no. 76 of 16.7.2020 (the so-called ‘Simplifications Decree‘), in force since 17.7.2020, temporarily reduced, until 30.4.2021, the majorities for the approval by the extraordinary shareholders’ meeting of certain resolutions to increase the share capital.

The rule applies to all joint stock companies and limited partnerships by shares, including listed companies. It applies to resolutions of the extraordinary shareholders’ meeting on the following subjects:

  • capital increases through contributions of assets in kind or receivables, pursuant to Articles 2440 and 2441 of the Italian Civil Code;
  • the introduction in the bylaws of the clause excluding shareholders’ pre-emption rights in the event of a capital increase, pursuant to Article 2441, fourth paragraph, second sentence (provision relating only to listed companies);
  • the attribution to the directors, pursuant to Article 2443 of the Italian Civil Code, of the power to increase the share capital both through new contributions and in cash.

With reference to listed companies, the rule applies to the resolutions of the extraordinary shareholders’ meeting in first and second call and in subsequent calls (art. 2368, second paragraph, second sentence, Civil Code; art. 2369, third and seventh paragraph, Civil Code). With reference to other companies, it concerns the resolutions of the extraordinary shareholders’ meeting in second call (art. 2369, third paragraph, Civil Code).

The ordinary rules provide for a two-thirds majority of the share capital represented at the shareholders’ meeting for the resolutions indicated above and, above all, allow for qualified majorities (i.e., higher than those required by law) in the bylaws.

The temporary provisions of Article 44 of the Simplifications Decree provide that resolutions are approved with the favourable vote of the majority of the share capital represented at the shareholders’ meeting, provided that at least half of the share capital is present. This majority also applies if the bylaws provide for higher majorities.

Simplifications Decree: the impact of the decrease in majorities for the approval of capital increases on minority shareholders of unlisted Italian companies

The rule has a significant impact on the position of minority shareholders (and investors) in unlisted Italian companies. It can be strongly criticised, particularly because it allows derogations from the higher majorities established in the bylaws, thus affecting ongoing relationships and the governance agreed between shareholders and reflected in the bylaws.

Qualified majorities, higher than the legal ones, for the approval of capital increases are a fundamental protection for minority shareholders (and investors). They are frequently introduced in the bylaws: when the company is set up with several partners, in the context of aggregation transactions, in investment transactions, private equity and venture capital transactions.

Qualified majorities prevent majority shareholders from carrying out transactions without the consent of minority shareholders (or some of them), which have a significant impact on the company and the position of minority shareholders. In fact, capital increases through contributions of assets reduce the minority shareholder’s shareholding percentage and can significantly change the company’s business (e.g. through the contribution of a business). Capital increases in cash force the minority shareholder to choose between further investing in the company or reducing its shareholding.

The reduction in the percentage of participation may imply the loss of important protections, linked to the possession of a participation above a certain threshold. These are not only certain rights provided for by law in favour of minority shareholders[1], but – with even more serious effects – the protections deriving from the qualified majorities provided for in the bylaws to approve certain decisions. The most striking case is that of the qualified majority for resolutions amending the bylaws, so that the amendments cannot be approved without the consent of the minority shareholders (or some of them). This is a fundamental clause, in order to ensure stability for certain provisions of the bylaws, agreed between the shareholders, that protect the minority shareholders, such as: pre-emption and tag-along rights, list voting for the appointment of the board of directors, qualified majorities for the taking of decisions by the shareholders’ meeting or the board of directors, limits on the powers that can be delegated by the board of directors. Through the capital increase, the majority can obtain a percentage of the shareholding that allows it to amend the bylaws, unilaterally departing from the governance structure agreed with the other shareholders.

The legislator has disregarded all this and has introduced a rule that does not simplify. Rather, it fuels conflicts between the shareholders and undermines legal certainty, thus discouraging investments rather than encouraging them.

Simplifications Decree: checks and safeguards for minority shareholders with respect to the decrease in majorities for the approval of capital increases

In order to assess the situation and the protection of the minority shareholder it is necessary to examine:

  • the bylaws;
  • the shareholders’ agreement (if any).

The examination of the bylaws will be aimed at verifying whether qualified majorities that require the consent of directors designated by the minority shareholders (or some of them) are required for the approval of the capital increase by the board of directors, in exercise of the power granted to it pursuant to Article 2443 of the Italian Civil Code. In this case, the minority shareholder will be protected against the approval of capital increases in cash. In fact, with respect to capital increases in cash, the temporary discipline introduced by Article 44 of the Simplifications Decree does not concern the approval of the increase by the shareholders’ meeting, but only the attribution to the directors of the power to approve the capital increase. The board of directors will exercise this power in accordance with the provisions of the law and the bylaws, with respect to which the Simplifications Decree has not introduced any exceptions.

It will then be necessary to examine any shareholders’ agreement in force between the shareholders (or some of them). The existence of a shareholders’ agreement will be almost certain in private equity or venture capital transactions or by other professional investors. But outside of these cases there are many companies, especially among small and medium-sized enterprises, where the relationships between the shareholders are governed exclusively by the bylaws.

In the shareholders’ agreement it will have to be verified whether there are clauses binding the shareholders, as parties to the agreement, to approve capital increases by qualified majority, i.e. higher than those required by law. Or whether the agreement make reference to a text of the bylaws (attached or by specific reference) that provides for such a majority, so that compliance with the qualified majority can be considered as an obligation of the parties to the shareholders’ agreement.

In this case, the shareholders’ agreement will protect the minority shareholder(s), as Article 44 of the Simplifications Decree does not introduce an exception to the clauses of the shareholders’ agreement.

The protection offered by the shareholders’ agreement is strong, but lower than that of the bylaws. The clause in the bylaws requiring a qualified majority binds all shareholders and the company, so the capital increase cannot be validly approved in violation of the bylaws. The shareholders’ agreement, on the other hand, is only binding between the parties to the agreement, so it does not prevent the company from approving the capital increase, even if the shareholder’s vote violates the obligations of the shareholders’ agreement. In this case, the other shareholders will be entitled to compensation for the damage suffered as a result of the breach of the agreement.

In the absence of a shareholders’ agreement that binds the shareholders to respect a qualified majority for the approval of the capital increase, the minority shareholder has only the possibility of challenging the resolution to increase the capital, due to abuse of the majority, if the resolution is not justified in the interest of the company and the majority shareholder’s vote pursues a personal interest that is antithetical to the company’s interest, or if it is the instrument of fraudulent activity by the majority shareholders aimed at infringing the rights of minority shareholders[2]. A narrow escape, and a protection certainly insufficient.

The Simplifications Decree must be converted into law within sixty days. It is hoped that the regulation will be amended by striking a balance between the need for simplification and the protection of the interests of minority shareholders in unlisted companies.

[1] For example: the percentage of 10% for the right of shareholders to obtain the call of the meeting (art. 2367, Civil Code); the percentage of 20% to prevent the waiver or settlement of the liability action against the directors (art. 2393, paragraph six, Civil Code); the percentage of 20% for the exercise by the shareholder of the liability action against the directors (art. 2393-bis, Civil Code).

[2] Cass. Civ., 12 December 2005, no. 27387; Trib. Roma, 31 March 2017, no. 6452.

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