Jurisprudence of merit already considered lawful the statutory or shareholders' 'anti-stall' clause used to resolve situations of corporate paralysis. Recently, the court of legitimacy has also ruled after verifying some specific profiles of the clause's regulatory compatibility and concluded that it is valid.
In its judgment No. 22375 of July 25, 2023, the Supreme Court ruled for the first time on the legitimacy of the so-called 'Russian roulette clause' (also known as 'cowboy clause or 'anti-deadlock clause), i.e., the atypical clause – the result of the development of Anglo-Saxon legal systems and then gradually spreading into the contractual practice of civil law systems – sometimes inserted in the company's bylaws or shareholders' agreements to resolve situations of deadlock or decision-making paralysis of the company (so-called 'dead-lock' clause), due to the fact that the company's shares or holdings are owned by two partners, each holding 50 percent.
The clause, in short, makes it possible to prevent and/or resolve the decision-making deadlock (of the administrative body or the shareholders' meeting) by means of a predetermined procedure under which each of the shareholders – in order to get out of an impasse that could lead to the impossibility of functioning and the initiation of the liquidation of the company – has the option to make an irrevocable and alternative offer to sell its shareholding to the other shareholder or to buy the other shareholder's shareholding, communicating its economic valuation of the entire share capital and thus in terms of percentage the price of the shareholding being offered or sold.
At that point, the shareholder receiving the offer can either accept the offer of others on the proposed terms or purchase the bidder's shareholding at the proposed price.
There are some specific variants of the anti-stall clause: for example, the 'asymmetrical' one (i.e., with only one of the partners being given the right to activate the procedure and determine the price) and the clause that provides for the so-called relaunch,' i.e., the possibility for the bidding partner to relaunch if the partner receiving the first bid decides to buy.
The judges of merit who have so far ruled on the validity of the clause have considered it lawful because it does not conflict with any mandatory norms of the legal system and indeed responds to interests worthy of protection, being aimed at resolving a decision-making paralysis resulting from the disagreement among the equal partners which, if protracted, would jeopardize the very survival of the company (Art. 2484 c.c. in fact identifies among the causes of dissolution of corporations "the impossibility of functioning" and "continued inactivity" of the shareholders' meeting").
The Councils of Notaries (e.g., of Milan and Florence) have also expressed themselves in favor of the legitimacy of the statutory Russian roulette clause, even independently of the provision of a mechanism for predetermining the price of the shareholding being transferred. It would not be essential, therefore, to also provide in the clause the criteria according to which the bidding shareholder must value the participation being offered, nor would it be necessary to provide that the price be or not be at least equal to the value that can be determined at the time of withdrawal: the fact that the same shareholder may find himself in the situation of having to buy or sell the participation at the same price ensures that the consideration is valued by the parties as fairly and congruously as possible.
Finally (and for the first time), the Court of Cassation ruled, which had been asked to assess the legality of the clause following two rulings (by the Court and the Court of Appeal of Rome) both favoring the validity of the clause (in the case at hand, the clause was contained in a shareholders' agreement and one of the shareholders participating in the shareholders' agreement, losing in the first instance had appealed to the court of legitimacy, in the belief that the anti-stall clause was not lawful).
The Supreme Court examined the validity of the clause under multiple profiles of potential regulatory incompatibility.
It first ruled out a conflict between the clause and the Civil Code rule (Art. 1355 Civil Code) that sanctions with nullity the contractual clause of alienation of a right or the assumption of an obligation subject to a merely potestative condition (i.e., that makes the effects of the clause depend on the merely arbitrary will of the contractor): in the case of an anti-stall clause, a merely potestative condition would not be configurable since the offeror does not set the price at his mere arbitrary will (having to take into account the risk of the recipient's final decision), and can activate the procedure only upon the occurrence of a corporate impasse, which the clause must predetermine and which, by definition, should not depend on his behavior alone (in this light, the clause must well qualify the concept of impasse and its prerequisites and determine the temporal scope and exact operation).
According to the Supreme Court, moreover, the anti-stall clause does not conflict with the principles on the determination of the object of a contract (Article 1349 of the Civil Code), since it is the recipient (not the bidder, who has determined. the value of the shareholding) who makes the choice between selling and buying.
Nor does the clause violate the prohibition of a lion agreement in Article 2265 of the Civil Code (according to which an agreement between shareholders having the function of totally excluding one of them from participation in profits or losses is null and void): in fact, the anti-stall clause does not have the immediate operability of a lion' agreement because it does not entail the absolute exclusion of a shareholder from participation in profits and/or from bearing losses. It depends on a deadlock that is only eventual and, moreover, may be to the detriment of the same party that started the procedure.
As to the possible conflict of the clause with the principle of equitable valuation of the shareholding and fair determination of the value of the share of the departing shareholder, the Supreme Court, in order to exclude incompatibility, differentiated the anti-stall clause from other clauses (e.g., the 'drag along' clause) for which the legislature has established the need to adopt criteria for determining the value of the shareholding prepared for the case of withdrawal or redemption: unlike the drag along clause (where it is necessary to indicate a minimum value of the shareholding), for example, in the Russian roulette clause, the shareholders have equal participation and there is no need to protect the minority shareholder.
On these articulated statements, the Supreme Court finally concluded for the validity of the Russian roulette clause contained in the bylaws or in a shareholders' agreement, specifying that the clause must be used without abuse, that is, according to the principle of fairness and good faith: there would be abuse, for example, if there was an obvious informational or financial imbalance between the shareholders or if the situation of paralysis was not effective or was the result of purely instrumental and obstructive behavior of one shareholder and the clause was used only to force the other shareholder to leave the company (all cases in which the wronged shareholder could seek compensation for the damages suffered as a result of the unfair ouster from the company or inhibit the application of the clause and have the deed of transfer of the shareholding declared ineffective).
Originally Published by 15 September 2023
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