Italy: To What Extent Can The Majority Act As Majority?

Last Updated: 10 April 2018
Article by Marco Pistis

The case for the unlawful exercise of corporate rights

The question as to what extent lawful and legitimate acts can be performed even if it is solely aimed at damaging a third party has remained as an unresolved issue. For instance, civil law jurisdictions provide the answer to such question by supporting the view that a conduct solely aimed at damaging or disturbing a neighbour should be regarded as unlawful. This constitutes one of the few cases where personal motivation, which is normally left out of the picture when it comes to evaluating the lawfulness of a conduct or of an agreement, that may have a relevant influence in the application of civil law.

As far as the corporate law is concerned, the relevant question is whether the majority shareholder can lawfully exercise its corporate rights when the exercise of such rights causes prejudice to the minority shareholders. Case law and legal jurisprudence alike have established the realm of limitations to the exercise of majority powers when it is apparent that these powers are employed beyond the scope of corporate interest and with the sole purpose of negatively affecting the rights of the minority shareholders.

The Court of Rome has recently decided on this matter (decision of the Specialized Section for Company Law of 31st March 2017) whereby the case is concerning a proposal of the directors representing the majority shareholder in increasing the share capital of a limited liability company (S.r.l.). The minority shareholders had claimed that such increase was not necessary as the company was dormant and the contested liabilities by the majority were substantially inexistent. The majority shareholder had proposed an increase in the share capital for a sum that was much higher that the contested liabilities. After the said increase, which was not subscribed by the minority shareholders, the majority shareholder had reduced the shared capital to the point of merely compensating the liabilities.

The Court of Rome has operated a state-of-the-art reconstruction of the case law and legal jurisprudence relating to the abuse of majority powers and has confirmed its applicability to the case by adopting a contractual view of the corporate agreement and the rules of good faith in typical civil law jurisdiction. Nonetheless, the claim of the minority shareholders has been rejected on the grounds of the insufficient evidence that the company was dormant and that the liabilities were inexistent.

In the opinion of the author, the Court of Rome has operated an immaculate analysis of the issue, although without realising that the abuse of the majority was made evident by the facts outlined in their decision. Indeed, it is evident that the increase in the share capital for Euro 285,000 had been reduced as to merely compensate the actual liabilities, which has occurred immediately after the minority shareholders had left the company. From a practical standpoint, this means that the majority shareholder has determined an increase in the share capital, knowing that the minority shareholder would not be able to contribute to it, and has immediately reduced it thereafter.

It should be further noted that the same Court has confirmed that the evidence of the abuse of majority powers may be constructed from the successive conduct of the majority shareholder, for this "[...] is not necessarily limited to the "symptoms" arising before the adoption of the contested resolution, but can also rely on the successive conduct and hints that may reveal the ex-post subsistence [of the abuse] (Court of Cassation, decision of 12 December 2005, no. 27387)".

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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