Prohibition of financial assistance and nullity of related acts

The Italian Supreme Court, with Ordinance No. 28148 of October 6, 2023, ruled that Art. 2358 of the Italian Civil Code represents a "high degree" imperative rule. This implies that the failure to comply with such norm results in the nullity not only of the financing act that violates it, but of all acts related to it, provided that the functional connection is proven by the person who intends to assert the nullity of the transaction as a whole.

The facts of the case

Alfa company sought to be admitted to the bankruptcy liabilities (stato passivo) of Beta company in state of liquidation, alleging a claim against the latter company arising from Alfa's sale of 135,000 shares of Gamma company. 

The delegated judge rejected Alfa's application for the filing of the claim, denying the existence of the said claim, arguing that Alfa's transfer of 135,000 shares of Gamma's company originated from a preliminary sale and purchase contract that was null and void due to contravention of Article 2358 of the Italian Civil Code.

The preliminary contract, in fact, was suspensively conditional upon (i) Gamma obtaining a bank loan and (ii) Gamma, as the contracting party, and Beta, as the contractor party, entering into a tender contract. Indeed, according to the first-instance Tribunal, the sum paid by Gamma to Beta as a down payment under the terms of the tender contract, masked a loan aimed at endowing Beta with the liquidity needed to purchase Gamma's shares, without complying with the requirements of Article 2358 of the Italian Civil Code.

Consequently, in view of the functional connection between the preliminary sale and purchase contract from which the disputed claim originated and the tender and loan agreements, the delegated judge had found that the entire transaction was to be considered null and void for contravention of Article 2358 of the Italian Civil Code. 

Alfa objected to the bankruptcy liabilities (stato passivo), arguing, inter alia, that (i) the loan granted to Gamma was intended to provide it with the resources necessary to carry out the real estate development project, to be implemented in part through the execution of the construction works covered by the tender contract signed with Beta, and (ii) the money paid by Gamma to Beta represented only a down payment on the tender contract price. 

As a result of the loosing, Alfa appealed to the Supreme Court, contesting, inter alia, (i) the failure to examine decisive facts demonstrating the non-existence of financial assistance under Article 2358 of the Italian Civil Code, and (ii) the violation or misapplication of Article 2358 of the Italian Civil Code insofar as the concept of financial assistance had been extended to include the payment of down payment on a contract.
The decision

The Supreme Court pointed out that the current wording of Article 2358 of the Italian Civil Code originates from the Italian legislator's transposition of Directive 2006/68-CE, which granted Member States the power to allow financial assistance to companies for the purchase of their own shares, provided that it is subject to the issuance of "certain guarantees" in order to protect shareholders and third parties.

Under the currently applicable Article 2358 of the Italian Civil Code, therefore, the financial assistance transaction is not to be considered prohibited in an absolute sense, but rather subject to the respect of specific legitimizing conditions and a precise procedural path to safeguard general interests, such as those of third parties and creditors, to see the integrity of company's asset protected.

According to the Supreme Court, this leads to the conclusion that a financial assistance transaction for the purchase of a Company’s own shares that does not comply with Article 2358 of the Italian Civil Code is to be considered contrary to a high degree imperative norm, aimed at protecting systemic interests.

On the assumption that, pursuant to Article 1418 of the Italian Civil Code, acts contrary to mandatory rules are always affected by nullity, unless the law stipulates otherwise, the Supreme Court reiterated that has to be confirmed the traditional orientation according to which "non-compliance with the prohibition under Article 2358 of the Italian Civil Code, where the conditions established by law are lacking, produces nullity - under Article 1418 of the Italian Civil Code - of the financial assistance transaction as a whole." 

Concluding the premise in iure, the Supreme Court pointed out that, in the case at hand, the sanction of nullity of the financing and procurement contract can also be extended to the shares’ sale and purchase contract, as it is functionally connected to the two aforementioned contracts and falls within the scope of a financial assistance transaction; said functional connection, however, must be proven by the party seeking to assert the nullity of the transaction as a whole.

With this regard, the Supreme Court found that the evidentiary reasoning of the judge of first instance, who held that the shares’ sale and purchase agreement was null and void as a result of the violation of the prohibition on financial assistance, was incomplete, and therefore partially upheld Alfa's appeal and referred the case back to the Tribunal of Mantova.