Court of Milan affirms joint and several liability of non-executive directors

by Marina De Cesare

Court of Milan, Section XV, Ruling of April 18th 2025

With its ruling of April 18th 2025, the Court of Milan – Section XV, specialized in business matters – ruled on a liability action brought by the Trustee of a bankrupt company against its management and supervisory bodies.

With specific reference to the liability of directors under Article 146 of the Bankruptcy Law (now Article 255 of the Italian Code of Business Crisis and Insolvency), the Court found a breach of the duty of prudent management. The directors had continued the company’s operations despite the occurrence of a cause for dissolution due to the loss of share capital, even though this was not apparent in the latest financial statements, approved in violation of the technical accounting rules governing their preparation (in this case, a significant receivable from a bankrupt company had not been written down), thereby effectively concealing the company’s true financial position.

The judgment is noteworthy as it affirms that directors are liable regardless of whether they are executive or non-executive. In particular, non-executive directors:

  • have a duty to be adequately informed and must exercise the right to request that the executive directors provide information to the board regarding management (Article 2381, final paragraph, Italian Civil Code); and
  • are liable when they fail to intervene to prevent detrimental acts committed by executive directors, of which they were or should have been aware, applying the diligence required by the nature of their office and their specific duties (see p. 8 of the judgment).

Conversely, the chief executive officer should have implemented adequate organizational structures, with specific reference to company policies concerning the management of collections.

In this case, the statutory auditors were also found liable, as they not only failed to supervise compliance with the law and the adequacy of the organizational structures, but also raised no objections regarding the 2018 financial statements, particularly with reference to the recognition of the receivable in question, which should have been written down (see pp. 17 and 18 of the judgment).

The directors and statutory auditors were held jointly and severally liable for the damages caused to the company’s assets, which in this case were liquidated on an equitable basis.

Furthermore, considering the settlements reached with some of the defendants during the proceedings, which “must be taken into account for the purpose of reducing the total amount of the debt, by quantifying the overall damage and subtracting what has been received or the corresponding percentage of liability of those who have settled, up to the amount already received by the creditor (the procedure in this case) by way of settlement if higher,” the judgment refers to the principles expressed by the Supreme Court in plenary session, according to which a settlement “can neither result in a collection exceeding the total amount of the original claim, nor aggravate the position of co-debtors who were not parties to it […]” (Italian Supreme Court, Joint Sections, December 30th 2011, no. 30174).