Monthly Archives: April 2019

The Liability of Company Directors and the Actions Available

 

 

 

With this short paper we intend to offer some ideas to the administrators and the partners of capital companies on the responsibilities in which the administrators incur in the exercise of their functions and on the actions that can be promoted.

First of all, it must be said that the administrators answer for their work towards:

  • of the company ;
  • of social creditors ;
  • of shareholders and third parties.

By accepting the assignment, the directors in fact establish with the company a contractual relationship (variously qualified by doctrine and jurisprudence as mandate, administration contract or organic identification report) on the basis of which they take on distinguishable obligations in two categories:

  1. obligations relating to the functioning of the company;
  2. management obligations.

Both categories of obligations are acts of exclusive competence of the administrators of which the same answer even if they have been validated with the assembly authorization eventually provided for by the law or by the Statute.

The responsibility of company directors and the actions available

Examining then the two categories:

  • the obligations relating to the functioning of the company pertain to all acts aimed at ensuring the operations of the corporate bodies, to which the directors are required by law or by the Articles of Association. In this context, the following can be included: the obligation to call the meeting ; the obligation to prepare and approve the draft budget and to convene the assembly for approval; the obligation to keep accounting records ; the obligation to advertise , register and fulfill the requirements of the Business Register ; the prohibition of acting in conflict of interest with the company or in competition with the latter;
  • the obligations relating to management consist of the performance of the acts aimed at achieving the corporate purpose. By way of example we mention the obligation to provide the company with an adequate organizational and accounting structure , in which the most recent jurisprudence has included the obligation to adopt the appropriate measures in the field of safety at work, environment, privacy, anti-money laundering and even preparation of the organizational model pursuant to Legislative Decree 231/2001 . Certainly, from this point of view, the most important obligation is to act with diligence , ie to identify and implement all the necessary measures to take care of the interests of the company .

This obligation is assessed on the basis of two criteria:

  1. nature of the assignment , for which both the characteristics of the company administered such as size, activity performed, organizational structure and the position held by the director within the administrative body must be considered;
  2. specific skills , based on the specific knowledge of the administrator, his technical and managerial skills and his concrete experiences.

The responsibility of company directors and the actions available

In what follows that, in case of judgment (without prejudice to the fact that it is precluded assessment of the merits of the choices gestional i), the judge will assess the administrator’s behavior based on the aforementioned criteria for which, obviously, can be different the level of diligence required of the long-experienced managing director of a multinational company compared to that of the director of a limited company with small turnover volumes.

An equally important consequence is that, even in the context of Boards of Directors , some components may not be held responsible and others may, in relation to the different degree of collectability of the service.

This is the case of delegating administrators and managing directors.

The Board of Directors in fact has the power to delegate or not functions , to determine the limits and the content of the proxy and to establish the methods of exercise.

All members of the Board of Directors will therefore be equally responsible:

  • for functions and duties not delegated;
  • for the functions and attributions beyond the content of the delegation;
  • for having accepted that the delegates have not respected the modalities of exercise of the delegation
  • for functions that cannot be delegated, such as the preparation of the draft budget; resolutions concerning the increase of the share capital and reduction due to losses; the preparation of merger and demerger projects and the right to issue convertible bonds delegated to the meeting.

In all other cases, however, the position of the managing directors is very different ( they are at the top of the corporate structure, they work there full-time, they know the facts and the problematic aspects of management and are consequently paid ) and the non-executive directors , with reduced powers, duties and remuneration, so that in the latter’s responsibility is configured to a more restricted extent in the burden of verifying and verifying the legitimacy of the acts performed by the managing directors.

Clearly, in order to be able to carry out such verification, the non-delegated directors will have the duty to act informed , asking for all the clarifications that the managing directors will have to provide in the Board.

A reciprocal and circular relationship is therefore envisaged between delegates and delegates concerning the organizational and accounting structure of the company, the performance of the management, the most significant operations and the development prospects.

Whatever their position, in the event of non-fulfillment or incorrect fulfillment of the obligations imposed on them, the directors are required to respond, indemnifying the damages, provided that the following conditions exist:

  • the director has, in the exercise of his functions, adopted a behavior in violation of the duties and obligations provided for by the law or by the Articles of Association;
  • such behavior has caused damage;
  • there is a causal link between the behavior of the administrator and the damage ( ie the damage is an “immediate and direct consequence” of the behavior ), a connection to be assessed, according to the Supreme Court of Cassation, using the criterion of statistical regularity.

The responsibility of company directors and the actions available

Actions to enforce the liability of directors can be promoted:

a) in the public limited company:

  • by social creditors;
  • by a qualified minority of shareholders ( 1/5 of the capital for closed companies and 1/20 for listed companies ) to get the company to get compensation for the damage that the conduct of the directors have caused to its assets;
  • by the company itself upon resolution of the shareholders’ meeting;
  • by individual shareholders and third parties if, following the behavior of the directors, they have suffered direct damage;

in case of bankruptcy of the company the social action and the action of the social creditors will be exercised by the curator.

b) in the limited liability company:

  • by the company itself (orientation now absolutely prevalent over the one that denied the company’s right to act), also in this case subject to resolution of the shareholders’ meeting;
  • by social creditors (according to the clearly majority orientation in doctrine and jurisprudence);
  • by individual shareholders and third parties if, following the behavior of the directors, they have suffered direct damage;

also in this case, if the company fails the shares will be exercised by the trustee.

The responsibility of company directors and the actions available

All the aforementioned actions are prescribed in five years from the termination of the office as regards the social action and from the manifestation of the insufficiency of the patrimony as regards the action of the social creditors.

The company or the qualified minority of shareholders acting in court will have to attach: i) the defaulting conduct contrary to the duty of diligence or to the specific duties imposed by law identifying with precision the behaviors kept by the directors; ii) the resulting damage and iii) the causal link between the conduct and the damage.

In the case of action brought by the company creditors or by the shareholders and by third parties who assume direct damage from the behavior of the directors, the profile of fraud or guilt of the harmful conduct must also be attached.